0000889812-95-000396.txt : 19950811
0000889812-95-000396.hdr.sgml : 19950811
ACCESSION NUMBER: 0000889812-95-000396
CONFORMED SUBMISSION TYPE: POS AM
PUBLIC DOCUMENT COUNT: 4
FILED AS OF DATE: 19950810
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ACCLAIM ENTERTAINMENT INC
CENTRAL INDEX KEY: 0000804888
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372]
IRS NUMBER: 382698904
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0831
FILING VALUES:
FORM TYPE: POS AM
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-58883
FILM NUMBER: 95560335
BUSINESS ADDRESS:
STREET 1: 71 AUDREY AVE
CITY: OYSTER BAY
STATE: NY
ZIP: 11771
BUSINESS PHONE: 5169222400
MAIL ADDRESS:
STREET 1: 71 AUDREY AVE
CITY: OYSTER BAY
STATE: NY
ZIP: 11771
FORMER COMPANY:
FORMER CONFORMED NAME: GAMMA CAPITAL CORP
DATE OF NAME CHANGE: 19880608
POS AM
1
POST-EFFECTIVE AMENDMENT NO. 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1995
REGISTRATION NO. 33-58883
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCLAIM ENTERTAINMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 7372 38-2698904
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION
NO.)
ONE ACCLAIM PLAZA
GLEN COVE, NEW YORK 11542-2708
(516) 656-5000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Copy to:
GREGORY E. FISCHBACH ERIC M. LERNER, ESQ.
CHIEF EXECUTIVE OFFICER ROSENMAN & COLIN
ACCLAIM ENTERTAINMENT, INC. 575 MADISON AVENUE
ONE ACCLAIM PLAZA NEW YORK, NEW YORK 10022
GLEN COVE, NEW YORK 11542-2708
(516) 656-5000
(NAME, ADDRESS AND TELEPHONE NUMBER OF
AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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SUPPLEMENT DATED AUGUST 10, 1995 TO
PROSPECTUS/PROXY STATEMENT
------------------
PROSPECTUS
ACCLAIM ENTERTAINMENT, INC.
UP TO 2,697,003 SHARES OF COMMON STOCK
------------------
PROXY STATEMENT
LAZER-TRON CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
ORIGINALLY SCHEDULED FOR JULY 21, 1995 AND ADJOURNED TO AUGUST 30, 1995
------------------
This Supplement dated August 10, 1995 (this 'Supplement') is being
furnished to shareholders of record of Common Stock of Lazer-Tron Corporation, a
California corporation ('Lazer-Tron') as of the close of business on May 24,
1995 (the 'Record Date'), as a supplement to the Prospectus/Proxy Statement
dated June 21, 1995 (the 'Prospectus/Proxy Statement') previously sent to such
shareholders in connection with the special meeting of Lazer-Tron shareholders
(the 'Special Meeting') to be held to consider and vote upon a proposal to
approve and adopt (i) the Agreement and Plan of Merger, as amended (the 'Merger
Agreement'), among Lazer-Tron, Acclaim Entertainment, Inc., a Delaware
corporation ('Acclaim'), and Acclaim Arcade Holdings, Inc., a Delaware
corporation and a wholly-owned subsidiary of Acclaim (the 'Subsidiary') and (ii)
the merger (the 'Merger') of the Subsidiary with and into Lazer-Tron pursuant to
the terms of the Merger Agreement, whereby, among other things, Lazer-Tron will
become a wholly-owned subsidiary of Acclaim. The Special Meeting was first
convened on July 21, 1995, at which time it was adjourned until July 24, 1995.
At the July 24, 1995 adjournment, it was announced that the Special Meeting was
being adjourned again until August 15, 1995 or at such other time as
Lazer-Tron's shareholders may be notified prior to August 15, 1995. This
Supplement also constitutes notice that the Special Meeting will not be
adjourned to August 15, 1995, but instead will be adjourned to August 30, 1995,
at 9:00 a.m., local time, at Lazer-Tron's offices at 4430 Willow Road,
Pleasanton, California.
RECENT DEVELOPMENTS
On July 24, 1995, Lazer-Tron, Acclaim and the Subsidiary entered into an
amendment (the 'Amendment') to the Merger Agreement (a copy of the Amendment is
included as Exhibit A to this Supplement), which, among other things, fixes at
the floor of the previously agreed upon range (as disclosed in the June 21, 1995
Prospectus/Proxy Statement) the formula for determining the fraction of a share
of Acclaim Common Stock into which each issued and outstanding share of
Lazer-Tron Common Stock is to be exchanged in the Merger (see 'Terms of the
Amendment'). This Supplement describes the Amendment and its effect on the terms
of the Merger and sets forth certain updated financial information relating to
Acclaim. See 'Update to Information Concerning Acclaim--Financial Information
for the Period Ended May 31, 1995' and '--Management's Discussion and Analysis
of Financial Condition and Results of Operations.' THIS SUPPLEMENT IS INTENDED
TO BE A PART OF AND READ TOGETHER WITH THE PROSPECTUS/PROXY STATEMENT, AND,
EXCEPT AS UPDATED AND AMENDED BY THIS SUPPLEMENT, THE PROSPECTUS/PROXY STATEMENT
CONTINUES TO BE IN FULL FORCE AND EFFECT. Capitalized terms used in this
Supplement without definition have the meanings assigned thereto in the
Prospectus/Proxy Statement.
Pursuant to the Amendment, each share of Lazer-Tron Common Stock will be
exchanged for a fraction of a share of Acclaim Common Stock equal to $8.00
divided by the average closing price of the Acclaim Common Stock on the Nasdaq
National Market (as reported in the Wall Street Journal) for the 20 business
days ending on the second business day prior to the date of the Special Meeting
or the latest adjournment thereof (the 'Acclaim Average Common Stock Price').
This formula reflects the previously agreed upon and disclosed floor of the
range for calculating such fraction of a share of Acclaim Common Stock.
Lazer-Tron Shareholders may contact Georgeson & Company, Inc. toll free at
1-800-223-2064 for information regarding the approximate fraction of a share of
Acclaim Common Stock to be received upon exchange for each share of Lazer-Tron
Common Stock in connection with the Merger.
A press release will be issued at the close of business on such second
business day, and on the subsequent business day prior to the date of the
Special Meeting or the latest adjournment thereof, announcing the applicable
Acclaim Average Common Stock Price and the fraction of a share of Acclaim Common
Stock to be received upon exchange for each share of Lazer-Tron Common Stock in
connection with the Merger.
VOTING OF PROXIES
The Prospectus/Proxy Statement that was sent to the holders of record of
Lazer-Tron Common Stock at the close of business on the Record Date (the
'Lazer-Tron Shareholders') included a form of proxy that the Lazer-Tron
Shareholders were requested to complete, date, sign and return to Lazer-Tron.
THAT FORM OF PROXY IS NO LONGER AVAILABLE FOR USE IN CONNECTION WITH THE
ADJOURNED SPECIAL MEETING AND ANY SUCH PROXY PREVIOUSLY VOTED WILL NOT BE
COUNTED AT THE SPECIAL MEETING. A NEW FORM OF PROXY IS INCLUDED WITH THIS
SUPPLEMENT WHICH MUST BE USED TO VOTE AT THE SPECIAL MEETING UNLESS THE
TELEPHONIC PROCEDURES OUTLINED BELOW ARE USED OR VOTES ARE CAST AT THE SPECIAL
MEETING IN PERSON. All proxies that are properly executed and returned, and that
are not revoked or changed in a subsequently dated proxy or vote, will be voted
at the Special Meeting in accordance with the instructions indicated on the
proxies or, if no direction is indicated, to approve the Merger Agreement, as
amended by the Amendment, and the Merger.
SET FORTH BELOW ARE INSTRUCTIONS CONCERNING THE COMPLETION AND USE OF
PROXIES, WHICH INSTRUCTIONS APPLY TO THE NEW FORM OF PROXY ONLY:
A Lazer-Tron Shareholder who has given a proxy may revoke it at any time
before it is exercised at the Special Meeting by (i) delivering to the Secretary
of Lazer-Tron (by any means, including facsimile) a written notice, bearing a
date later than the proxy, stating that the proxy is revoked, (ii) signing and
so delivering prior to the vote at the Special Meeting a proxy (whether in the
original form or the new form) relating to the same shares and bearing a later
date or (iii) attending the Special Meeting and voting in person (although
attendance at the Special Meeting will not, by itself, revoke a proxy).
IN ADDITION, A LAZER-TRON SHAREHOLDER MAY CAST VOTES OR REVOKE AND CHANGE
PRIOR VOTES PRIOR TO THE COMMENCEMENT OF THE SPECIAL MEETING BY DIALING TOLL
FREE AT 1-800-521-8454 BETWEEN 8:00 A.M. AND MIDNIGHT EASTERN STANDARD TIME AND
FOLLOWING THE PROCEDURES OUTLINED BELOW.
o The Lazer-Tron Shareholder should dial the toll free number listed above
and tell the operator that such holder wishes to send a collect proxygram
to Lazer-Tron, identification number 4381.
o The operator will need the Lazer-Tron Shareholder's six digit
identification number appearing in red ink in the upper left hand corner
on the reverse of the proxy card. Each Lazer-Tron Shareholder is advised
to keep such holder's identification number confidential and not to
provide such number to any other parties.
o The operator will have the text of the proxy. The Lazer-Tron Shareholder
should then inform the operator how such holder wishes to vote on the
items listed on the proxy.
o Lazer-Tron Shareholders should give the operator their name, address and
number of shares exactly as they appear on their proxy card.
Lazer-Tron Shareholders may revoke a previously submitted proxy by
following the telephonic procedure set forth above. If a Lazer-Tron Shareholder
needs assistance, such holder may call Georgeson & Company, Inc., which is
acting as information agent for Lazer-Tron, toll free at 1-800-223-2064 at any
time prior to the Special Meeting. Banks and brokers may call collect at (212)
440-9800.
If a Lazer-Tron Shareholder's shares are registered in the name of a
broker, bank, nominee or other institution, then only such broker, bank, nominee
or other institution can vote such shares. These Lazer-Tron Shareholders should
not use the telephone procedures set forth above to vote any shares registered
in the name of such broker, bank, nominee or other institution on their behalf.
Such Lazer-Tron Shareholders desiring to take advantage of the telephonic voting
procedure should contact their account representative and ask him or her to vote
such shares.
THE FOREGOING PROCEDURES DO NOT LIMIT A LAZER-TRON SHAREHOLDER'S RIGHT TO
CAST A FINAL VOTE AT THE SPECIAL MEETING BY ATTENDING THE SPECIAL MEETING AND
REVOKING ANY VOTE PREVIOUSLY CAST.
2
THE AMENDMENT
Principal Terms of the Amendment
The principal effect of the Amendment is to fix the formula for determining
the fraction of a share of Acclaim Common Stock into which each issued and
outstanding share of Lazer-Tron Common Stock is to be exchanged in the Merger at
the floor of the range previously agreed upon (the range is described in the
Prospectus/Proxy Statement). Under the Amendment, the exchange formula will be a
fraction (rounded up to the nearest thousandth) equal to $8.00 (rather than a
range from $8.00 to $10.00, as originally agreed upon) divided by the Acclaim
Average Common Stock Price.
The effect of the Amendment will be to decrease the aggregate number of
shares of Acclaim Common Stock issuable to the Lazer-Tron Shareholders in the
Merger in the event that the Acclaim Average Common Stock Price exceeds $16.00,
since the exchange formula will, in all cases, be equal to $8.00 divided by the
Acclaim Average Common Stock Price (i.e., the floor of the original agreed upon
range). By way of example, the chart below sets forth the fraction of a share of
Acclaim Common Stock that a Lazer-Tron Shareholder (a) would receive for each
share of Lazer-Tron Common Stock under the terms of the Merger Agreement as
amended by the Amendment and (b) would have received for each share of
Lazer-Tron Common Stock under the terms of the Merger Agreement if the Amendment
had not been adopted, in each case assuming various sample Acclaim Average
Common Stock Prices.
FRACTION OF A SHARE OF ACCLAIM COMMON STOCK ISSUABLE IN
EXCHANGE FOR EACH SHARE OF LAZER-TRON COMMON STOCK
ACCLAIM AVERAGE ------------------------------------------------------------
COMMON UNDER THE AMENDMENT WITHOUT THE AMENDMENT
STOCK PRICE (CURRENT TERMS) (SUPERCEDED TERMS)
--------------- ----------------------------- -----------------------------
$12.50 .640 .640
14.00 .572 .572
16.00 .500 .500
18.00 .445 .500
20.00 .400 .500
22.00 .364 .455
24.00 .334 .417
26.00 .308 .385
28.00 .286 .358
On August 9, 1995, the closing sale prices for the Acclaim Common Stock and
the Lazer-Tron Common Stock were $27.00 per share and $7.625 per share,
respectively. Assuming the Special Meeting is reconvened on August 30, 1995,
the Acclaim Average Common Stock Price based upon the closing price of Acclaim
Common Stock through the business day preceding the date hereof (the 7th day of
the 20 day calculation period) is $25.54, resulting in the applicable fraction
of a share of Acclaim Common Stock to be issued to Lazer-Tron Shareholders being
.314. Lazer-Tron Shareholders may contact Georgeson & Company, Inc.,
Lazer-Tron's information agent, toll free at 1-800-223-2064 at any time prior to
the Special Meeting for information regarding the estimated Acclaim Average
Common Stock Price and the approximate fraction of a share of Acclaim Common
Stock to be received upon exchange for each share of Lazer-Tron Common Stock in
connection with the Merger.
A press release will be issued at the close of business on such second
business day and on the subsequent business day prior to the date of the Special
Meeting or the latest adjournment thereof, announcing the applicable Acclaim
Average Common Stock Price and the fraction of a share of Acclaim Common Stock
to be received upon exchange for each share of Lazer-Tron Common Stock in
connection with the Merger.
Except as described in this Supplement, the Amendment does not change the
other provisions described in the Prospectus/Proxy Statement for determining the
exchange formula. For example, the actual fraction of a share of Acclaim Common
Stock to be exchanged for each share of Lazer-Tron Common Stock in connection
with the Merger will be determined at the close of business on the second
business day prior to the later of the Special Meeting or the latest adjournment
thereof. Assuming approval of the Merger Agreement and the Merger at the Special
Meeting, the closing of the Merger is expected to take place no later than one
business day following the date of the Special Meeting or the latest adjournment
thereof.
If (i) the Acclaim Average Common Stock Price, or (ii) the average of the
closing sale price of a share of Acclaim Common Stock on The Nasdaq National
Market (as reported in the Wall Street Journal) for the 20 business days ending
on the second business day prior to the Closing Date (the 'Acclaim Average
Closing Common Stock Price'), in either case is less than $12.50, each of
Acclaim and Lazer-Tron, at its sole option, will have the right to give notice
of its election to terminate the Merger Agreement. See 'The Merger--
3
Termination of the Merger Agreement' on page 37 of the Prospectus/Proxy
Statement. In the event that the Acclaim Average Common Stock Price or the
Acclaim Average Closing Common Stock Price is less than $12.50 but Acclaim and
Lazer-Tron nevertheless determine to proceed with the Merger, Lazer-Tron will
undertake to submit to Lazer-Tron Shareholders the terms on which the parties
shall have determined to proceed, including any change in the fraction of a
share of Acclaim Common Stock that would be received for each share of Lazer-
Tron Common Stock, if applicable.
Background and Reasons for the Amendment
In the Merger Agreement as in effect prior to the Amendment, the
obligations of Acclaim to consummate the Merger were subject to Lazer-Tron
meeting certain financial performance tests and satisfying other conditions to
closing. Specifically, the Merger Agreement provided that, if the closing of the
Merger were to occur in July 1995, Lazer-Tron's Net Worth and Working Capital
(each as defined in the Merger Agreement) at June 30, 1995 were to be at least
$12,900,000 and $12,500,000, respectively, and its Net Sales (as defined in the
Merger Agreement) for the twelve months ended June 30, 1995 was to be at least
$13,900,000. These financial criteria compared to Net Worth and Working Capital
for Lazer-Tron at March 31, 1995 of $12,828,760 and $12,360,278, respectively,
and Net Sales of $9,900,062 for the nine months ended March 31, 1995. Under the
Merger Agreement, Lazer-Tron was required to deliver to Acclaim by no later than
July 10, 1995, a Closing Balance Sheet (as defined in the Merger Agreement)
demonstrating achievement of such financial performance tests at June 30, 1995.
See Section 3.21 of the Merger Agreement.
On July 10, 1995, Lazer-Tron delivered the required unaudited Closing
Balance Sheet to Acclaim. A dispute arose between the parties as to the
calculations on the Closing Balance Sheet and as to whether Lazer-Tron had met
the financial criteria and certain other conditions to closing. Acclaim asserted
that Lazer-Tron's Net Worth and Working Capital at June 30, 1995 and Net Sales
for the twelve months then ended were below the thresholds required in the
Merger Agreement and that Lazer-Tron had failed to satisfy the conditions to
Acclaim's obligation to complete the Merger. In addition, Acclaim asserted that
its due diligence condition had not been satisfied as a result of its analysis
of Lazer-Tron's prospects. Lazer-Tron asserted that it had complied with the
financial criteria and the other conditions to the Merger and disputed Acclaim's
analysis of the Closing Balance Sheet. Acclaim issued a press release on July
19, 1995 stating that Acclaim intended to terminate the Merger Agreement. In
response, Lazer-Tron issued a press release on July 20, 1995 stating that it
disputed Acclaim's right to terminate and that it believed it had complied with
the conditions to the Merger Agreement. Acclaim also indicated to Lazer-Tron
that, although it did not intend to complete the Merger under the terms of the
Merger Agreement as it then existed, Acclaim was prepared to proceed with the
Merger if the exchange ratio formula were modified to fix the formula at the low
end of the previously agreed upon range, as described in 'Principal Terms of the
Amendment,' above.
Although Lazer-Tron believed that it had complied with the Net Worth,
Working Capital and Net Sales criteria and the other conditions to the Merger,
the Board of Directors of Lazer-Tron determined that it was in the best interest
of Lazer-Tron and its shareholders to proceed with the Merger under the
negotiated modified terms reflected in the Amendment rather than (i) forego the
benefits of the Merger and (ii) incur the expense and uncertainty of possible
prolonged litigation. In making this determination, the Board of Directors of
Lazer-Tron considered a number of factors, including the following. The
Lazer-Tron Board reviewed considerations associated with the dispute with
Acclaim, including the basis for the calculations underlying the Lazer-Tron
Closing Balance Sheet, the assertions made by Acclaim as to these calculations
and the basis for possible litigation by and/or against Acclaim. The Board
concluded that Lazer-Tron had complied with the financial criteria in the Merger
Agreement. The Board also considered Lazer-Tron's current financial condition
and prospects going forward as a stand-alone entity in light of the current
trends in the coin-operated games industry, particularly the continued general
softness in demand for new game sales to arcade/family entertainment centers.
The audited financial statements of Lazer-Tron for the fiscal year ended June
30, 1995 were not available to the Board when it made its decision to proceed
with the Amendment and the Merger (and are not yet available for inclusion in
this Supplement). The Board noted, however, that the $13,900,000 Net Sales
criterion in the Merger Agreement for the fiscal year ended June 30, 1995 was
lower than fiscal 1994 net sales of approximately $15,377,000. Lazer-Tron's
management indicated to the Board that the Net Sales criterion was established
at that level to protect against any continuing declining net sales due to the
general softness in demand for new game sales to arcade/family entertainment
centers, a softness that persists despite the fact that, historically, Lazer-
Tron's fourth quarter (ending June 30) has been its stongest fiscal quarter in
that the majority of deliveries in the redemption game industry take place
during this quarter in anticipation of summer time demand. The general
4
softness in the market has also resulted in longer customer payment cycles for
fiscal 1995 as compared to fiscal 1994, which increased Lazer-Tron's accounts
receivable average days outstanding from period to period. See 'Update to
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview' in this Supplement. See also 'Risk Factors--Recent Market
Developments' at page 16 of the Prospectus/Proxy Statement and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Lazer-Tron--Overview' at page 45 and '--Net Sales' at page 46 of the
Prospectus/Proxy Statement.
The Lazer-Tron Board also reexamined and reconsidered the matters described
in 'Lazer-Tron's Reasons for the Merger' at pages 24 and 25 of the
Prospectus/Proxy Statement.
In addition, the Lazer-Tron Board considered the reaction of the market to
the possibility that Lazer-Tron might not obtain the benefits of the Merger, as
evidenced by the decline in the market price of Lazer-Tron Common Stock as
reported by Nasdaq from a closing sale price of $9 7/16 per share on July 19,
1995, before Acclaim issued its press release indicating that it intended to
terminate the Merger, to a closing sale price of $6 on July 20, 1995, after
Acclaim issued the press release. The Board of Directors also analyzed the
various adjustments that would be made in the Merger Consideration, as modified
under the terms of the Amendment, at various assumed prices of Acclaim Common
Stock and the effect of applying such Merger Consideration at the assumed
prices. The Board also considered a financial presentation by Van Kasper & Co.
('Van Kasper'), its financial advisor, including the preliminary opinion of Van
Kasper that the modified Merger Consideration was fair from a financial point of
view to the shareholders of Lazer-Tron. The Board's approval of the Amendment
was subject to receipt of Van Kasper's written opinion, which the Board received
on July 28, 1995, a copy of which is included as Exhibit B to this Supplement.
See 'Opinion of Financial Advisor' below and Exhibit B.
The parties entered into the Amendment on July 24, 1995, and Lazer-Tron
adjourned the Special Meeting to August 30, 1995 so that Lazer-Tron Shareholders
would have the opportunity to consider the terms of the Merger Agreement as
modified by the Amendment.
THE BOARD OF DIRECTORS OF LAZER-TRON HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF LAZER-TRON AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY
RECOMMENDED A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, AS AMENDED
BY THE AMENDMENT, AND THE MERGER.
Certain Conditions to Closing Under the Amendment, and Related Provisions
The Amendment removes a number of conditions to Acclaim's obligations to
consummate the Merger that had been contained in the Merger Agreement, including
the following: (i) receipt by Acclaim from Lazer-Tron of a closing balance sheet
(certain related representations of Lazer-Tron were deleted as well), and (ii)
satisfactory completion by Acclaim of its due diligence investigation of
Lazer-Tron's operations and financial condition. In addition, the condition that
there not be a failure of any representations or (with certain exceptions)
covenants by Lazer-Tron excludes those failures that, individually or in the
aggregate, do not cause, or cannot be reasonably expected to cause, a Material
Adverse Effect. As defined in the Amendment, the term 'Material Adverse Effect'
will not include any event or events, individually or in the aggregate, the
adverse effect or reasonably expected adverse effect of which is less than $1.0
million. The condition to Acclaim's obligation to close that material litigation
not be brought against Lazer-Tron was expanded by the Amendment to include
additional types of litigation and, in certain cases, overtly threatened
litigation. All other conditions to the consummation of the Merger remain in
full force and effect.
In the Amendment, the parties entered into a mutual release of claims to
the dispute that had precipitated the Amendment. In addition, Acclaim waived any
claims that the matters asserted by it in the dispute constituted a breach of
warranty or covenant by Lazer-Tron or a failure of any condition to Acclaim's
obligations under the Merger Agreement, subject in each instance to Acclaim's
reservation of certain rights in the event litigation is brought or overtly
threatened with respect to the subject matter of such dispute or to prevent or
restrain consummation of the Merger.
5
The Merger Agreement had provided that it could be terminated by either
party without cause if the Merger is not consummated on or before July 31, 1995,
with certain exceptions. The Amendment extends such termination date to
September 4, 1995. Except as described in this Supplement, all other provisions
in the Merger Agreement relating to termination thereof remain in full force and
effect.
Opinion of Financial Advisor
As described in the Prospectus/Proxy Statement at pages 29 and 30 under the
heading 'Opinion of Financial Advisor', Lazer-Tron retained Van Kasper to act as
its financial advisor in connection with the Merger, and Van Kasper rendered an
opinion dated March 14, 1995 that, as of such date, the Merger was fair from a
financial point of view to the shareholders of Lazer-Tron.
On July 23, 1995, in connection with the Lazer-Tron Board of Directors'
consideration of the Amendment, Van Kasper made a financial presentation to the
Board as to Van Kasper's preliminary opinion that the Merger, under the terms of
the Merger Agreement as modified by the Amendment, was fair from a financial
point of view to the shareholders of Lazer-Tron. The Board's approval of the
Amendment was subject to receipt of Van Kasper's completion of its factual
review and delivery of a written opinion as to such fairness. Subsequently, Van
Kasper rendered its written opinion dated July 28, 1995 that, as of such date,
the Merger was fair from a financial point of view to the shareholders of
Lazer-Tron (the 'July Opinion'). Van Kasper did not determine or make any
recommendation with respect to the amount of consideration to be paid in
connection with the Merger.
The full text of the July Opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken, is attached as
Exhibit B to this Supplement. Lazer-Tron Shareholders are urged to read the July
Opinion carefully and in its entirety. The July Opinion is directed only to the
fairness of the Merger from a financial point of view to Lazer-Tron Shareholders
and does not constitute a recommendation to any Lazer-Tron Shareholder as to how
such shareholder should vote at the Special Meeting. The July Opinion is subject
to certain conditions and limitations set forth therein, and this summary is
qualifed in its entirety by reference to the full text of the July Opinion.
In connection with the July Opinion, Van Kasper reviewed the Merger
Agreement and the Amendment. In Van Kasper's review it assumed, with
Lazer-Tron's permission, that the documents to be prepared, used and signed by
the parties to formally effect the Merger, including the agreements effecting
the Merger between the Subsidiary and Lazer-Tron and the proxy or other
disclosure material to be delivered to the shareholders of Lazer-Tron to elicit
any necessary consents to the Merger, would effect the Merger on the terms set
forth in the Merger Agreement, as modified by the Amendment, without material
alteration.
Van Kasper reviewed such relevant financial and other information that was
publicly available or furnished to it by Lazer-Tron and Acclaim, including
information provided during discussions with each company. Van Kasper also took
into account the views of the management and certain shareholders of Lazer-Tron
as to the prospects of Lazer-Tron if the Merger is not effected. Furthermore,
Van Kasper did not negotiate the Merger, provide any legal advice or advise
Lazer-Tron with respect to alternatives to the Merger. Although Van Kasper
performed a valuation of Lazer-Tron and Acclaim using a number of commonly
accepted methodologies, Van Kasper did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Lazer-Tron
or Acclaim.
In rendering its July Opinion, Van Kasper relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available or furnished or otherwise communicated
to Van Kasper by Lazer-Tron or Acclaim, including the information described in
'Opinion of Financial Advisor' in the Prospectus/Proxy Statement. In connection
with the July Opinion, Lazer-Tron provided to Van Kasper certain financial
projections of Lazer-Tron and Van Kasper reviewed those projections in light of
discussions it had conducted with industry sources, and made certain adjustments
where it determined it was appropriate to do so. Independent of the foregoing,
Van Kasper assumed that the projections were reasonably prepared, based upon
assumptions reflecting the best currently available estimates and good faith
judgments of management as to the future performance of Lazer-Tron and that the
management of Lazer-Tron did not have any information or beliefs that would make
the projections misleading. Van Kasper did not have the benefit of
6
reviewing Acclaim's financial projections since it is the policy of Acclaim not
to disseminate such information to third parties.
In addition, Van Kasper (i) reviewed documents filed by Lazer-Tron with the
Securities and Exchange Commission for the years ended June 30, 1993 and 1994
and the nine months ended March 31, 1995, (ii) reviewed certain internally
generated unaudited financial data of Lazer-Tron for the year ended June 30,
1995, which data Lazer-Tron represented to Van Kasper was consistent with the
Closing Balance Sheet data provided by Lazer-Tron to Acclaim pursuant to the
terms of the Merger Agreement and which data was disputed by Acclaim as
indicated in '--Background and Reasons for the Amendment,' (iii) reviewed
documents filed by Acclaim with the Securities and Exchange Commission for the
years ended August 31, 1993 and 1994 and the nine month periods ended May 31,
1994 and 1995, (iv) reviewed certain marketing materials provided to it by
Lazer-Tron and Acclaim, (v) compared publicly available recent information for
companies it determined to be comparable, (vi) reviewed recent historical stock
prices for Lazer-Tron and other companies it determined to be comparable and
(vii) reviewed the financial terms of a certain other recently proposed business
combination. No limitations were imposed by Lazer-Tron on the scope of Van
Kasper's investigation.
In particular, in conducting its analysis and arriving at its opinion as to
fairness from a financial point of view, Van Kasper performed and considered the
following financial comparative analyses:
(i) Discounted Cash Flow Analysis. Van Kasper performed a discounted cash
flow analysis of Lazer-Tron using projections of Lazer-Tron provided
to it by Lazer-Tron. For its analysis, Van Kasper adjusted the
projections downward, using lower revenue growth rates than those
assumed in the projections. Van Kasper adjusted the growth rates to be
in line with historical rates and current trends in Lazer-Tron's
business--referred to above in '--Background and Reasons for the
Amendment.' Using these projections as so adjusted, Van Kasper
calculated the estimated free cash flows of Lazer-Tron through 1998,
and the present value thereof, and the estimated terminal value of
Lazer-Tron at the end of 1998, and the present value thereof. In
calculating the estimated terminal value, Van Kasper utilized earnings
estimates provided by research analysts of five comparable publicly
traded companies and calculated price to earnings ratios based upon
these estimates, discounting the high and low ratios. The comparable
companies were Bally Gaming International, Inc., Gtech Holdings Corp.,
International Gaming Technologies, Video Lottery Technologies, Inc.
and WMS Industries, Inc. Van Kasper analyzed applicable databases and
identified these five companies as being the companies which in its
judgment were most comparable in the arcade and other entertainment
gaming industries to Lazer-Tron and for which public information that
could be utilized in Van Kasper's analyses was available. The average
price to earnings ratio for historical earnings was 21.5x and for
forward looking earnings based upon research analyst reports was
14.2x; based on these estimates, Van Kasper's calculations in valuing
Lazer-Tron's estimated terminal value utilized price to earnings
ratios of 13x, 14x and 15x. In calculating the present values of
estimated free cash flows and estimated terminal values of Lazer-Tron,
Van Kasper used discount rates of 25%, 30% and 35%. These calculations
implied a present value of Lazer-Tron of between $13.6 million and
$19.6 million, with the mid-point being $16.3 million. Including
excess cash of $6 million on Lazer-Tron's balance sheet, the
discounted cash flow analysis yielded total present values between
$19.6 million and $25.6 million, with the mid-point being $22.3
million. This would imply a per share valuation of between $5.44 and
$7.11, with a mid-point of $6.19.
Van Kasper also performed a discounted cash flow analysis of Acclaim.
Based upon Van Kasper's own estimation of projections for Acclaim, Van
Kasper calculated the estimated free cash flows of Acclaim through
1998, and the present value thereof, and the estimated terminal value
of Acclaim at the end of 1998, and the present value thereof. In
calculating the estimated terminal value, Van Kasper utilized market
multiples provided in the I/B/E/S 1995 Technology Group earnings
projections, which also closely corresponded with the forward looking
price to earnings ratios derived from reserarch analysts' estimates of
Acclaim's forward looking earnings. Based thereon, Van Kasper's
calculations in valuing Acclaim's estimated terminal value utilized
price to earnings ratios of 19.2x, 21.2x and 23.2x, the mid-point of
which was 21.2x. In calculating the present values of estimated free
cash flows and estimated terminal values of Acclaim, Van Kasper used
discount rates of 20%, 25% and 30%. These discount
7
rates used for Acclaim were lower than those used for Lazer-Tron
because of Acclaim's lower risk due to its greater size. These
calculations implied a present value of Acclaim of between $955
million and $1,430 million, with the mid-point being $1,170 million.
Finally, by adding together these present values of Lazer-Tron and
Acclaim, these calculations implied a present value of Lazer-Tron and
Acclaim as a combined entity of between $973 million and $1,456
million, with the mid-point being $1,192 million. On a per share
basis, the percentage of the value of the combined company which
Lazer-Tron's shareholders will own once the Merger is completed and
based upon a twenty day average price of Acclaim's Common Stock which
was assumed by Van Kasper (based on recently reported market prices of
Acclaim's Common Stock) to be $23.50, the value accruing to
Lazer-Tron's shareholders was calculated to be between $7.22 and
$10.72 per share, with the mid-point being $8.80 per share, of
Lazer-Tron Common Stock.
(ii) Comparable Public Company Analysis. Van Kasper reviewed stock market
prices of the five comparable companies in the arcade and other
entertainment gaming industries listed above. Van Kasper reviewed the
multiples of the stock prices of these five companies to sales,
earnings before interest and taxes, earnings and book value for the
last 12 months, as well as estimates of 1996 earnings based on a
compilation of earnings projections by securities research analysts.
Van Kasper disregarded the high and low multiples, applied the
average of the other multiples to Lazer-Tron's historical and
projected financial results and added to certain of these figures
derived from these multiples an amount equal to $6 million
representing excess cash on Lazer-Tron's balance sheet. These
calculations implied a value of between $17.9 million and $33.3
million for Lazer-Tron. This represents a range of per share value of
Lazer-Tron Common Stock of $4.97 and $9.25.
(iii) Selected Comparable Transaction Analysis. Van Kasper also reviewed
publicly available financial information for selected acquisition
transactions of companies in the arcade and other entertainment
gaming industries. Van Kasper identified one transaction as
potentially comparable, the proposed acquisition of Bally Gaming
International, Inc. by WMS Industries, Inc. The size of that proposed
transaction was approximately $120 million. After a review of
applicable databases, Van Kasper selected that recent proposed
transaction based on its involving the acquisition of a company in
the comparabloe arcade and other entertainment gaming business and
public information thereon being available. Van Kasper calculated the
ratio of the purchase price to sales, earnings before interest and
taxes, earnings and book value, to the extent information was
available. Applying these ratios to the historical results of
Lazer-Tron at and for the year ended June 30, 1994 and the nine month
period ended March 31, 1995, and adding to the figures an amount
equal to $6 million representing excess cash on Lazer-Tron's balance
sheet, Van Kasper determined a range of values for Lazer-Tron between
$12.8 million and $27.5 million or $3.56 to $7.65 per share of
Lazer-Tron Common Stock. Because none of the companies utilized in
the above analysis for comparative purposes is, of course, identical
to Lazer-Tron, and because of the limited data available, Van Kasper
gave less weight to this comparable transaction analysis than to the
other methodologies discussed above.
Van Kasper makes a market in Lazer-Tron Common Stock. Van Kasper and its
affiliates have provided financial advisory and financing services to Lazer-Tron
since March 1994, including services rendered in connection with Lazer-Tron's
initial public offering of common stock in May 1994, and has received customary
fees in connection with these services, including, in consideration of its
services in connection with the initial public offering, warrants to purchase
55,000 shares of Lazer-Tron Common Stock at an exercise price of $9.60, which
warrants expire in 1999.
Lazer-Tron has paid Van Kasper a fee of $85,000 for acting as Lazer-Tron's
financial advisor in connection with the Merger and renderings its original
opinion as to the fairness of the merger from a financial point of view. In July
1995, Lazer-Tron agreed to pay Van Kasper an additional $80,000 for its
continued services as Lazer-Tron's financial advisor and for rendering the July
Opinion. Lazer-Tron renewed its agreement to reimburse Van Kasper for its
out-of-pocket expenses and to indemnify Van Kasper and its directors, officers,
agents, employees and controlling persons against certain liabilities and
expenses related to Van Kasper's engagement.
8
Amendments to Employment Agreements and Option Agreements
As described in the Prospectus/Proxy Statement at pages 39 and 40 under the
heading 'Employment Agreements', it is a condition to the consummation of the
Merger that Employment Agreements between the Surviving Corporation and each of
Norman B. Petermeier, Matthew F. Kelly and Bryan M. Kelly (the 'Employees') be
entered into at the Effective Time. Pursuant to the Amendment, the Employment
Agreements are to be modified so that the annual base salaries of Norman
Petermeier, Matthew Kelly and Bryan Kelly will be $145,000, $98,000 and $98,000,
respectively (representing a reduction from the original amounts of $150,000,
$125,000 and $125,000, respectively), unless the Surviving Corporation achieves
certain performance milestones for the fiscal year ended June 30, 1996 (in which
event the Employees' base salaries will be restored to the amounts originally
contemplated).
In addition, the Option Agreements between Acclaim and each Employee
described at page 40 of the Prospectus/Proxy Statement under the heading
'Employee Option Agreements' will be amended pursuant to the Amendment so that
none of the Employee Options granted thereunder will vest unless the Surviving
Corporation achieves certain performance milestones for the fiscal year ended
June 30, 1996. The number of shares subject to the Employee Options to be
granted to each of Norman Petermeier, Matthew Kelly and Bryan Kelly, as
described in the Prospectus/Proxy Statement, are 40,000, 30,000 and 30,000,
respectively.
UPDATE TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF LAZER-TRON--OVERVIEW
The following should be read in conjunction with the discussion under
'Management's Discussion and Analysis of Financial Condition and Results of
Operations of Lazer-Tron' appearing on pages 45 through 49 of the
Prospectus/Proxy Statement.
During recent periods, the coin-operated game market has experienced a
general softness in demand due in part to a slowing of expansion in the number
of new arcade/family entertainment center locations, consolidation of business
at the Operator and distributor levels, as well as increased competition from
existing game manufacturers and new entrants. Additionally, according to
industry trade magazines, Operators are experiencing a decline in revenue, due
in part to the absence of a recent 'hit' video game which helps draw customers
to the arcade. Lazer-Tron is attempting to mitigate these shifts in the
marketplace by expanding sales into foreign markets and diversifying into
non-ticket redemption games (such as the one-player Pogger, initially shipped in
February 1995), as well as other coin-operated games such as sports, table and
video games currently in development. Lazer-Tron believes that the general
softness in its industry is continuing. Although the audited financial
statements of Lazer-Tron for the fiscal year ended June 30, 1995 are not
available for inclusion in this Supplement, Lazer-Tron believes that a trend of
declining net sales will be reflected in its fiscal 1995 results with related
adverse effects on operating margins and net income and could, in the future,
negatively impact cash flow. The Net Sales criterion in the Merger Agreement,
which was established at a level to protect against any continuing declining net
sales, contemplated that Lazer-Tron's Net Sales for the fiscal year ended June
30, 1995 would decline to approximately $13,900,000 compared to net sales of
approximately $15,377,000 for fiscal 1994 and that net sales for the quarter
ended June 30, 1995 would decline substantially as compared to net sales during
the comparable quarter of fiscal 1994. Lazer-Tron believes that this trend is
continuing as of the date of this Supplement and that there can be no assurance
that the trend will not continue indefinitely. The general softness in the
market has also resulted in longer customer payment cycles for fiscal 1995 as
compared to fiscal 1994, which has increased Lazer-Tron's accounts receivable
average days outstanding from period to period, a trend which Lazer-Tron
believes may continue and, therefore, could in the future negatively impact cash
flow. See 'Risk Factors--Recent Market Developments' at page 16, 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Lazer-Tron--Overview' at page 45 and '--Net Sales' at page 46 of the
Prospectus/Proxy Statement.
9
SELECTED COMPARATIVE DATA
The following table sets forth certain historical comparative data of
Acclaim and Lazer-Tron for the periods indicated (amounts shown in thousands):
NINE NINE
MONTHS MONTHS
FISCAL YEAR ENDED ENDED ENDED
------------------------ -------- ----------
8/31/94 6/30/94 5/31/95 3/31/95
-------- ---------- -------- ----------
ACCLAIM LAZER-TRON ACCLAIM LAZER-TRON
-------- ---------- -------- ----------
Sales.................. $480,756 $ 15,377 $423,332 $ 9,900
Gross Profit........... $260,012 $ 5,169 $224,799 $ 3,269
Total Assets........... $335,878 $ 13,291 $399,023 $ 13,844
Stockholders Equity.... $175,243 $ 11,033 $302,950 $ 12,580
Net Income............. $ 45,055 $ 1,693 $ 38,269 $ 401
COMPARATIVE PER SHARE DATA
The following table sets forth for the periods indicated book value and
earnings per share on a historical basis for the Acclaim Common Stock and the
Lazer-Tron Common Stock. Neither Acclaim nor Lazer-Tron has paid any cash
dividends since inception.
FISCAL YEAR ENDED
NINE MONTHS AUGUST 31,
ENDED -----------------------
ACCLAIM MAY 31, 1995 1994 1993 1992
------------------------------------- -------------- ----- ----- -----
Before Merger:
Net income per share............... $ .79 $1.00 $ .63 $ .37
Book value per share............... 6.22 3.89 2.16 1.71
FISCAL YEAR ENDED
NINE MONTHS JUNE 30,
ENDED -----------------------
LAZER-TRON MARCH 31, 1995 1994 1993 1992
------------------------------------- -------------- ----- ----- -----
Before Merger:
Net income per share............... $ .10 $ .59 $ .25 $ .05
Book value per share............... 3.12 3.82 .94 .08
FISCAL YEAR ENDED
NINE MONTHS AUGUST 31,
ENDED -----------------------
MAY 31, 1995 1994 1993 1992
-------------- ----- ----- -----
Pro Forma Combined(1)
After Merger:
Equivalent net income per share.... $ .76 $ .99 $ .62 $ .35
Equivalent book value per share.... 6.17 3.97 2.13 1.64
------------------
(1) Pro forma amounts are calculated based on the assumption that the Merger
Consideration will be paid in shares of Acclaim Common Stock for all
outstanding shares of Lazer-Tron Common Stock and reflect the dilutive
effect of outstanding Lazer-Tron Options and Lazer-Tron Warrants, which
would result in the issuance of an aggregate of approximately 2,583,000
equivalent shares of Acclaim Common Stock.
10
ACCLAIM SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The following tables should be read in conjunction with the financial
statements of Acclaim and the notes thereto appearing in Acclaim's Form 10-K for
the fiscal year ended August 31, 1994 and the related 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' appearing therein
and the financial statements of Acclaim appearing in Acclaim's Form 10-Q for the
fiscal quarter ended May 31, 1995 and the related 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' appearing therein.
The selected financial data has been derived from the financial statements of
Acclaim, which (other than as of and for the nine months ended May 31, 1994 and
1995) have been audited by Grant Thornton LLP for the fiscal years ended August
31, 1991 through 1994 and by other auditors for the fiscal year ended August 31,
1990. The results of operations for the nine months ended May 31, 1995 are not
necessarily indicative of the results of operations for the full fiscal year.
NINE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, MAY 31,
------------------------------------------------ ------------------
1990(1) 1991 1992(2) 1993 1994(3) 1994 1995(4)
-------- -------- -------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenues................................. $141,470 $122,136 $214,628 $327,091 $480,756 $331,888 $423,332
Cost of revenues............................. 75,377 76,423 114,114 170,748 220,744 145,138 198,533
Gross profit................................. 66,093 45,713 100,514 156,343 260,012 186,750 224,799
Selling, advertising, general and
administrative expenses.................... 40,493 46,989 68,642 104,986 176,725 129,734 151,303
Operating interest........................... 2,550 3,628 1,583 1,183 1,979 1,609 2,967
Depreciation and amortization................ 763 2,394 3,197 3,227 3,838 2,625 6,335
Earnings (loss) from operations.............. 22,287 (7,298) 27,092 46,947 77,470 52,782 64,194
Other income (expense), net.................. 830 (444) (3,255) 1,138 (475) (215) 1,047
Earnings (loss) before income taxes.......... 23,117 (7,742) 23,837 48,085 76,995 52,567 65,241
Net earnings (loss).......................... 14,232 (5,839) 13,846 28,185 45,055 30,923 38,269
Net earnings (loss) per common share and
common equivalent share.................... $ 0.51 $ (0.21) $ 0.37 $ 0.63 $ 1.00 $ 0.69 $ 0.79
------------------
(1) Includes results of operations of LJN Toys Ltd. from April 20, 1990.
(2) Includes results of operations of Arena Entertainment Inc. from January 4,
1992.
(3) Includes results of operations of Acclaim Comics, Inc. from July 29, 1994.
(4) Includes results of operations of Iguana Entertainment, Inc. from January 5,
1995.
AT AUGUST 31, MAY 31,
---------------------------------------------- ------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital.............................. $30,211 $16,654 $ 51,402 $ 80,564 $131,820 $116,921 $203,606
Total assets................................. 76,063 75,608 129,179 206,771 335,878 191,400 399,023
Current portion of long-term debt............ 87 4,087 87 87 1,538 1,364 4,696
Long-term liabilities........................ 5,850 3,030 3,380 2,538 41,754 1,365 22,070
Stockholders' equity......................... 39,299 32,667 64,706 96,867 175,243 138,219 302,950
11
UPDATE TO INFORMATION CONCERNING ACCLAIM
The following sets forth the financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Acclaim for the period ended May 31, 1995, which updates the information
contained on pages 59 through 63 of the Prospectus/Proxy Statement.
Financial Information for the Period Ended May 31, 1995
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN 000s, EXCEPT PER SHARE DATA)
MAY 31, AUGUST 31,
1995 1994
-------- ----------
ASSETS
Current assets:
Cash................................................. $ 22,750 $ 34,676
Marketable securities................................ 61,757 1,926
Accounts receivable--net............................. 120,017 164,794
Inventories.......................................... 17,823 15,295
Prepaid expenses..................................... 39,328 23,214
Other current assets................................. 14,212 10,796
-------- ----------
Total current assets................................... 275,887 250,701
-------- ----------
Other Assets:
Fixed assets--net.................................... 29,536 15,638
Excess of cost over net assets acquired--net of
accumulated amortization of $8,387 and $5,951,
respectively...................................... 61,948 59,400
Other assets......................................... 31,652 10,139
-------- ----------
Total assets........................................... $399,023 $ 335,878
-------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................... $ 22,694 $ 69,376
Short-term borrowings................................ 4,897 1,757
Accrued expenses..................................... 36,075 43,914
Income taxes payable................................. 3,598 2,031
Current portion of long-term debt.................... 4,696 1,538
Obligation under capital leases--current............. 321 265
-------- ----------
Total current liabilities.............................. 72,281 118,881
-------- ----------
Long-term liabilities:
Long-term debt....................................... 20,500 40,196
Obligation under capital leases--noncurrent.......... 487 719
Other long-term liabilities.......................... 1,083 839
-------- ----------
Total liabilities...................................... 94,351 160,635
-------- ----------
Minority interest...................................... 1,722 --
Commitments and Contingencies.......................... -- --
Stockholders' Equity:
Preferred stock, $0.01 par value; 1,000 shares
authorized; None issued........................... -- --
Common stock, $0.02 par value; 100,000 (in 1995) and
50,000 (in 1994) shares authorized; 44,834 and
39,348 shares issued and outstanding,
respectively...................................... 897 787
Additional paid in capital............................. 155,117 69,246
Retained earnings...................................... 144,840 106,571
Treasury stock......................................... (807) (807)
Foreign currency translation adjustment................ 2,708 (554)
Unrealized gain on marketable securities............... 195 --
-------- ----------
Total stockholders' equity............................. 302,950 175,243
-------- ----------
Total liabilities and stockholders' equity............. $399,023 $ 335,878
-------- ----------
-------- ----------
See note to consolidated financial statements.
12
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EARNINGS
(IN 000s, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------- --------------------
1995 1994 1995 1994
-------- ------- -------- --------
Net revenues............................ $104,955 $88,997 $423,332 $331,888
Cost of revenues........................ 51,941 37,853 198,533 145,138
-------- ------- -------- --------
Gross profit............................ 53,014 51,144 224,799 186,750
-------- ------- -------- --------
OPERATING EXPENSES
Selling, advertising, general and
administrative expenses............... 34,638 36,104 151,303 129,734
Operating interest...................... 1,055 537 2,967 1,609
Depreciation and amortization........... 2,763 944 6,335 2,625
-------- ------- -------- --------
Total operating expenses................ 38,456 37,585 160,605 133,968
-------- ------- -------- --------
Earnings from operations................ 14,558 13,559 64,194 52,782
-------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest income......................... 542 262 1,374 769
Interest expense........................ (954) (83) (2,703) (299)
Other (expense) income.................. 1,170 (360) 2,376 (685)
-------- ------- -------- --------
Earnings before income taxes............ 15,316 13,378 65,241 52,567
Provision for income taxes.............. 6,300 5,429 27,000 21,644
-------- ------- -------- --------
Earnings before minority interest....... 9,016 7,949 38,241 30,923
Minority interest....................... (28) -- (28) --
-------- ------- -------- --------
Net earnings............................ $ 9,044 $ 7,949 $ 38,269 $ 30,923
-------- ------- -------- --------
Net earnings per common and common
equivalent share...................... $ 0.18 $ 0.18 $ 0.79 $ 0.69
-------- ------- -------- --------
Weighted average number of common and
common equivalent shares
outstanding........................... 51,490 44,950 48,555 44,950
-------- ------- -------- --------
See note to consolidated financial statements.
13
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN 000s, EXCEPT PER SHARE DATA)
PREFERRED STOCK
(1) COMMON STOCK
--------------- ---------------
COMMON
ISSUED ISSUED ADDITIONAL STOCK DUE
--------------- --------------- PAID-IN RETAINED TREASURY FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK MCA
------ ------ ------ ------ ---------- -------- -------- ---------
Balance August 31, 1992........................... -- -- 23,303 $466 $ 30,533 $ 33,579 -- $(807)
------ ------ ------ ------ ---------- -------- -------- ---------
Net Earnings.................................... -- -- -- -- -- 28,185 -- --
Exercise of Stock Options....................... -- -- 1,536 31 6,716 -- -- --
50% Stock Dividend.............................. -- -- 12,420 248 -- (248) -- --
Tax Benefit from Exercise of Stock Options...... -- -- -- -- 1,128 -- -- --
Shares Received from MCA........................ -- -- -- -- -- -- $ (807) 807
Foreign Currency Translation Loss............... -- -- -- -- -- -- -- --
------ ------ ------ ------ ---------- -------- -------- ---------
Balance August 31, 1993........................... -- -- 37,259 745 38,377 61,516 (807) 0
------ ------ ------ ------ ---------- -------- -------- ---------
Net Earnings.................................... -- -- -- -- -- 45,055 -- --
Issuances....................................... -- -- 971 19 14,981 -- -- --
Exercise of Stock Options....................... -- -- 1,118 23 7,435 -- -- --
Tax Benefit from Exercise of Stock Options...... -- -- -- -- 8,453 -- -- --
Foreign Currency Translation Gain............... -- -- -- -- -- -- -- --
------ ------ ------ ------ ---------- -------- -------- ---------
Balance August 31, 1994........................... -- -- 39,348 787 69,246 106,571 (807) 0
------ ------ ------ ------ ---------- -------- -------- ---------
Net Earnings.................................... -- -- -- -- -- 38,269 -- --
Issuances....................................... -- -- 5,182 104 83,659 -- -- --
Exercise of Stock Options....................... -- -- 304 6 1,287 -- -- --
Tax Benefit from Exercise of Stock Options...... -- -- -- -- 925 -- -- --
Foreign Currency Translation Gain............... -- -- -- -- -- -- -- --
Unrealized Gain on Marketable Securities........ -- -- -- -- -- -- -- --
------ ------ ------ ------ ---------- -------- -------- ---------
Balance May 31, 1995.............................. -- -- 44,834 $897 $ 155,117 $144,840 $ (807) $ 0
------ ------ ------ ------ ---------- -------- -------- ---------
FOREIGN UNREALIZED
CURRENCY GAIN/LOSS ON
TRANSLATION MARKETABLE
ADJUSTMENTS SECURITIES TOTAL
----------- ------------ --------
Balance August 31, 1992........................... $ 935 -- $ 64,706
----------- ------ --------
Net Earnings.................................... -- -- 28,185
Exercise of Stock Options....................... -- -- 6,747
50% Stock Dividend.............................. -- -- --
Tax Benefit from Exercise of Stock Options...... -- -- 1,128
Shares Received from MCA........................ -- -- --
Foreign Currency Translation Loss............... (3,899) -- (3,899)
----------- ------ --------
Balance August 31, 1993........................... (2,964) -- 96,867
----------- ------ --------
Net Earnings.................................... -- -- 45,055
Issuances....................................... -- -- 15,000
Exercise of Stock Options....................... -- -- 7,458
Tax Benefit from Exercise of Stock Options...... -- -- 8,453
Foreign Currency Translation Gain............... 2,410 -- 2,410
----------- ------ --------
Balance August 31, 1994........................... (554) -- 175,243
----------- ------ --------
Net Earnings.................................... -- -- 38,269
Issuances....................................... -- -- 83,763
Exercise of Stock Options....................... -- -- 1,293
Tax Benefit from Exercise of Stock Options...... -- -- 925
Foreign Currency Translation Gain............... 3,262 -- 3,262
Unrealized Gain on Marketable Securities........ -- $195 195
----------- ------ --------
Balance May 31, 1995.............................. $ 2,708 $195 $302,950
----------- ------ --------
------------------
(1) The Company is authorized to issue 1,000 shares of preferred stock at a par
value of $0.01 per share, none of which shares is presently issued and
outstanding.
See note to consolidated financial statements.
14
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN 000s, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
MAY 31,
--------------------
1995 1994
-------- --------
Cash flows provided by (used in) operating
activities:
Cash received from customers.................... $473,877 $383,052
Cash paid to suppliers and employees............ (434,360) (351,639)
Interest received............................... 1,374 769
Interest paid................................... (5,670) (1,908)
Income taxes (paid)............................. (20,060) (11,663)
-------- --------
Net cash provided by operating activities......... 15,161 18,611
Cash flows (used in) provided by investing
activities:
Acquisition of marketable securities............ -- (2,224)
Sale of marketable securities................... 13,141 --
Acquisition of Iguana Entertainment, Inc........ (5,513) --
Acquisition of fixed assets, excluding capital
leases....................................... (23,401) (5,992)
Disposal of fixed assets........................ 3 7
Acquisition of other assets..................... 2,658 (253)
-------- --------
Net cash (used in) investing activities........... (13,112) (8,462)
-------- --------
Cash flows provided by (used in) financing
activities:
Proceeds from short-term borrowings............. 9,337 13,542
Repayment of short-term borrowings.............. (22,002) (18,012)
Payment of mortgage............................. (1,342) (65)
Exercise of stock options....................... 1,293 1,266
Payment of obligation under capital leases...... (223) (222)
-------- --------
Net cash (used in) financing activities........... (12,937) (3,491)
-------- --------
Effect of exchange rate changes on cash........... (1,038) 1,426
-------- --------
Net (decrease) increase in cash................... (11,926) 8,084
Cash at beginning of period....................... 34,676 25,745
-------- --------
Cash at end of period............................. $ 22,750 $ 33,829
-------- --------
-------- --------
See note to consolidated financial statements.
15
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES--(CONTINUED)
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN 000s, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
MAY 31,
--------------------
1995 1994
-------- --------
Reconciliation of net earnings to net cash
provided by (used in) operating activities:
Net earnings.................................... $ 38,269 $ 30,923
-------- --------
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities:
Depreciation and amortization.............. 6,335 2,625
Loss on disposal of equipment.............. 18 16
Gain on sale of marketable securities...... (1,135) --
(Decrease) increase in allowance for
returns and discounts..................... (12,247) 3,405
Deferred income taxes...................... 3,817 (2,853)
Minority interest in net loss of
consolidated joint venture................ (28) --
Change in assets and liabilities:
Decrease in accounts receivable............ 53,496 11,623
(Increase) decrease in inventories......... (2,209) 6,304
(Increase) decrease in prepaid expenses.... (15,851) 3,075
Decrease in other current assets........... 286 179
(Increase) in advance payments to
suppliers................................. (1,150) --
(Decrease) in trade accounts payable....... (47,824) (34,544)
(Decrease) in accrued expenses............. (9,114) (8,994)
Increase in income taxes payable........... 2,498 6,852
-------- --------
Total adjustments.......................... (23,108) (12,312)
-------- --------
Net cash provided by operating activities......... $ 15,161 $ 18,611
-------- --------
-------- --------
Supplemental schedule of noncash investing and financing activities:
In fiscal 1995, the Company purchased all of the capital stock of Iguana
Entertainment, Inc. for $5,513, net of cash received. In connection with the
acquisition, liabilities assumed were as follows:
Fair value of assets acquired....... $ 7,352
Cash paid for the capital stock..... (5,515)
-------
Liabilities assumed................. $ 1,837
-------
In fiscal 1994, the Company purchased all of the capital stock of Acclaim
Comics for $62,805, net of cash received. In connection with the acquisition,
liabilities assumed were as follows:
Fair value of assets acquired................ $ 67,478
Cash paid for the capital stock.............. (50,588)
Fair market value of common stock issued..... (15,000)
--------
Liabilities assumed.......................... $ 1,890
--------
See note to consolidated financial statements.
16
ACCLAIM ENTERTAINMENT, INC.
AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
INTERIM PERIOD REPORTING
The data contained in these financial statements are unaudited and are
subject to year-end adjustments; however, in the opinion of management, all
known adjustments (which consist only of normal recurring accruals) have been
made to present fairly the consolidated operating results for the unaudited
periods.
17
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OVERVIEW
Acclaim Entertainment, Inc. ('Acclaim'), together with its subsidiaries
(Acclaim and its subsidiaries are collectively hereinafter referred to as the
'Company'), is an entertainment publisher which engages in or plans to engage in
(i) the publication of interactive entertainment software ('Software') for use
with interactive entertainment hardware platforms; (ii) the development and
publication of comic books, which commenced in July 1994 through the acquisition
of Acclaim Comics, Inc. ('Acclaim Comics'), formerly Voyager Communications
Inc.; (iii) the marketing of its motion capture technology and studio services,
which commenced in the first quarter of fiscal 1995; (iv) the distribution of
coin-operated arcade games, which is anticipated to commence in fiscal 1996
(and, with respect to redemption games, would commence upon the consummation of
the proposed acquisition by the Company of Lazer-Tron Corporation which,
pursuant to the terms of the agreement, is scheduled to occur in late July
1995); (v) the distribution of Software for affiliated labels, which commenced
in the first quarter of fiscal 1995; and (vi) the electronic distribution of
interactive entertainment through the partnership (the 'Joint Venture')
established in October 1994 between a subsidiary of Acclaim and a subsidiary of
Tele-Communications, Inc. ('TCI'). To date, the Company's principal business has
been as a leading publisher of Software for dedicated interactive entertainment
hardware platforms ('Entertainment Platforms').
The interactive entertainment industry is characterized by rapid
technological change, resulting in hardware platform and related Software
product cycles. No single hardware platform or system has achieved long-term
dominance. The Company's revenues have traditionally been derived from sales of
Software for the then dominant platforms. Accordingly, the Company's revenues
are subject to fluctuation during transition periods when new hardware platforms
have been introduced but none has achieved mass market acceptance or become
dominant.
From inception through fiscal 1991, substantially all of the Company's
revenues were derived from sales of Software for the 8-bit Nintendo
Entertainment System ('NES'). Although the Company commenced the publication of
Software for Game Boy, the portable system marketed by Nintendo Co., Ltd.
(Japan) (Nintendo along with its subsidiary, Nintendo of America, Inc., are
collectively hereinafter referred to as 'Nintendo'), in fiscal 1990, for the
Super Nintendo Entertainment System ('SNES') in fiscal 1991 and for Genesis and
Game Gear, the 16-bit dedicated and portable hardware systems, respectively,
marketed by Sega Enterprises Ltd. ('Sega') in fiscal 1992, the Company did not
derive significant revenues from the sale of portable or 16-bit Software until
fiscal 1992. The 16-bit systems are more sophisticated than the 8-bit systems,
producing faster and more complex images with more lifelike animation and better
sound effects and, by 1993, had replaced the 8-bit Entertainment Platform as the
dominant Entertainment Platform. In fiscal 1994, most of the Company's revenues
were derived from sales of Software for the 16-bit SNES and Genesis systems. The
Company anticipates that most of its revenues in fiscal 1995 will be derived
from sales of Software for the 16-bit Entertainment Platforms.
The interactive entertainment industry is currently undergoing, and
management anticipates that in both the short- and long-term future it will
continue to undergo, significant changes due, in large part, to the introduction
of the next generation of Entertainment Platforms incorporating 32- and 64-bit
processors, as well as the success of personal computer/compact disk/multimedia
hardware systems ('PC CD Systems'), the development of remote and electronic
delivery systems and the entry and participation of new companies in the
industry. The new hardware platforms may use read-only memory ('ROM')
cartridges, compact disk ('CD'), flash memory and/or other technologies as the
dominant software storage device. Additional CD platforms, including personal
computer systems for which Software products are published, are currently
marketed by Philips, Sega, Commodore, Apple, IBM, IBM-compatible manufacturers
and The 3DO Company. Atari launched Jaguar, its 64-bit cartridge-based system,
in November 1993 and Sega launched 32X, its 32-bit cartridge-based attachment
for its 16-bit Genesis system, in November 1994. Sega and Sony launched their
32-bit CD-based systems in Japan in November 1994 and Sega has shipped limited
quantities of its system in the U.S. commencing in May 1995. Sony Corporation
has announced plans to release its new 32-bit CD-based system in the U.S. in
September 1995 and Nintendo has announced plans to release a new 64-bit ROM
cartridge based system in the U.S. in 1996.
18
The Company believes that sales of new 16-bit hardware systems peaked in
calendar 1993. Based on historical industry cycles, management believes that
16-bit Software sales peaked in calendar 1994 (the year following the peak year
for hardware sales). The Company as well as industry analysts anticipate, based
on Software sales information for calendar year 1994 and the continuing decline
in 16-bit hardware sales, that the market for 16-bit Software will decline in
calendar 1995 and thereafter.
Although the Company believes that hardware incorporating 32- and 64-bit
processors will become the dominant Entertainment Platforms in the interactive
entertainment industry over the next few years, the Company is unable to predict
which, if any, of the newly introduced or announced platforms will achieve
commercial success or the timing thereof or their impact on the industry. The
Company's strategy is to develop and/or publish Software for the hardware
platforms that currently dominate the market and to develop Software for the
hardware platforms that the Company perceives as having the potential to achieve
mass market acceptance, rather than to be the first Software publisher for an
emerging hardware platform; in order to promote its strategic relationships,
however, the Company may from time to time publish Software for a hardware
platform before it attains mass market appeal. No assurance can be given that
the Company will correctly identify the systems with such potential or be
successful in publishing Software for such platforms and systems. The
uncertainty associated with the transition from 16-bit cartridge-based
Entertainment Platforms to the next generation Entertainment Platforms decreases
the Company's ability to predict with any certainty its results of operations
and profitability during this transition phase.
Historically, management believed that the floppy and personal computer
market was characterized by (i) numerous hardware and software
incompatibilities; (ii) high price points for multimedia PC hardware; (iii) a
large number of software titles; and (iv) technological limitations of the
hardware systems for gaming as compared to the Entertainment Platforms.
Accordingly, the Company participated in this category through distribution
agreements which, in the opinion of management, provided the greatest return on
the investment of time and effort needed to service a fragmented market.
However, based on management's belief that this category now has sufficient mass
market penetration to warrant publishing Software directly, and due to
technological advancements incorporated in the newer PC CD Systems and the
higher gross margins realized by publishers of Software for this category, in
the second quarter of fiscal 1995, the Company commenced marketing Software for
PC CD Systems.
The Company commenced the development and sale of Software for the Sega CD
system in fiscal 1994 and for Sega's 32X in the second quarter of fiscal 1995.
The Company has announced that it is developing Software for Sega's Saturn
system, Nintendo's Ultra 64 system and Sony's CD-based Play Station. However,
management believes that the installed base of the new generation of
Entertainment Platforms will not rival the current installed base of 16-bit
Entertainment Platforms in the near-term. As a result, the sales growth of
Software for these new Entertainment Platforms and PC CD Systems may not offset
the decline in sales of Software for the 16-bit Entertainment Platforms in this
calendar year and, as a result, overall industry growth rates may decline in the
near-term.
Based on the decline of the 16-bit hardware market and the related slowdown
in retail sell-through of 16-bit Software on an industry-wide basis, management
believes that retailers, in order to reduce inventory levels, may reduce
purchases of the Company's 16-bit Software in the next several fiscal quarters
as compared to prior fiscal quarters. Any such reduction in retail purchasing,
to the extent not offset by growth in Software sales for the new Entertainment
Platforms and PC CD Systems, would decrease the Company's rate of growth as
discussed below. As retail sell-through of 16-bit Software continues to slow
down, this may result in a build up of retail inventory which, in turn, may
force the Company to liquidate excess inventory levels at retail by offering
price protection and other concessions to its customers in future periods. As
the transition to the next generation of Entertainment Platforms continues and
as new Entertainment Platforms achieve market acceptance, the risk of returns of
the Company's 16-bit Software titles has increased and will continue to
increase. Although management believes that it has adequate reserves for such
concessions and returns, no assurance can be given that future price protection,
returns and other similar concessions will not exceed such reserves. In
addition, the Company has incurred and expects to continue to incur higher
marketing expenses in connection with the sale of 16-bit Software, which higher
expenses may adversely affect the Company's profitability.
19
Due to the decline of the market for Software for 16-bit Entertainment
Platforms in 1995 and the related transition to the next generation of
Entertainment Platforms, the Company believes that it will experience a lower
rate of growth in fiscal 1995 and fiscal 1996 as compared to fiscal 1994, and a
materially lower rate of growth, if any, in the fourth quarter of fiscal 1995 as
compared to the first three quarters of fiscal 1995.
The release of individual 'hit' Software products or families of products
can significantly affect revenues. Historically, 'hit' products or families of
products have accounted for significant portions of the Company's gross revenues
during particular periods. In prior periods, the Simpsons family of products and
the WWF family of products have accounted for significant portions of the
Company's gross revenues. Continuing this historic pattern, in the quarter ended
May 31, 1994, the NBA Jam family of products accounted for a significant portion
of the Company's gross revenues and in the nine months ended May 31, 1994, each
of the NBA Jam and Mortal Kombat family of products accounted for a significant
portion of the Company's gross revenues. In the nine months ended May 31, 1995,
each of the Mortal Kombat II and NBA Jam Tournament Edition family of products
accounted for a significant portion of the Company's gross revenues. In the
quarter ended May 31, 1995, although sales of the Judge Dredd and Justice League
families of products were material, no single family of products accounted for a
significant portion of the Company's gross revenues. However, management
believes that it will continue to derive significant revenues from 'hit'
products or families of products in future periods.
The timing of the release of Software products can cause quarterly revenue
and earnings fluctuations. A significant portion of the Company's revenues in
any quarter are generally derived from Software products or families of products
first shipped in that quarter. Product development schedules are difficult to
predict due, in large part, to the difficulty of scheduling accurately the
creative process and, with respect to Software for new hardware platforms, the
use of new development tools and the learning process associated with
development for new technologies, including the Company's own motion capture and
related technologies. As the industry trend toward more sophisticated
Entertainment Platforms continues, the related Software products frequently
include more original, creative content and are more complex to develop and,
accordingly, cause additional development and scheduling risk. As a result, the
Company's quarterly results of operations are difficult to predict and the
failure to meet product development schedules or even minor delays in product
deliveries could cause a shortfall in shipments in any given quarter, which
could cause the results of operations and net income for such quarter to fall
significantly below anticipated levels.
The Company's ability to sustain its current results of operations and
profitability and to generate sales growth in the future will be dependent in
large part on (i) the Company's ability to identify, develop and publish 'hit'
Software titles for the hardware platforms that are established in the mass
market, (ii) the growth of the interactive entertainment Software market and
(iii) the Company's ability to develop and generate revenues from its other
entertainment operations. In addition, the Company has incurred and expects to
continue to incur increased research and development as well as general and
administrative expenses in connection with the start-up of its new business
operations (e.g., coin-operated games). If the Company is not successful in
generating revenues from these new businesses, its profitability will be
adversely affected.
20
RESULTS OF OPERATIONS
The following table sets forth certain statements of consolidated earnings
data as a percentage of net revenues for the periods indicated:
THREE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, MAY 31,
-------------- --------------
1995 1994 1995 1994
----- ----- ----- -----
Domestic revenues....................... 78.3% 75.1% 76.5% 75.1%
Foreign revenues........................ 21.7 24.9 23.5 24.9
----- ----- ----- -----
Net revenues.......................... 100.0 100.0 100.0 100.0
Cost of revenues........................ 49.5 42.5 46.9 43.7
----- ----- ----- -----
Gross profit.......................... 50.5 57.5 53.1 56.3
Selling, advertising, general and
administrative expenses............... 33.0 40.6 35.7 39.1
Operating interest...................... 1.0 0.6 0.7 0.5
Depreciation and amortization........... 2.6 1.1 1.5 0.8
----- ----- ----- -----
Total operating expenses.............. 36.6 42.3 37.9 40.4
Earnings from operations................ 13.9 15.2 15.2 15.9
Earnings before income taxes............ 14.6 15.0 15.4 15.8
Net earnings............................ 8.6 8.9 9.0 9.3
----- ----- ----- -----
----- ----- ----- -----
Net Revenues
The increase in the Company's net revenues from $89.0 million for the
quarter ended May 31, 1994 to $105.0 million for the quarter ended May 31, 1995
and from $331.9 million for the nine months ended May 31, 1994 to $423.3 million
for the nine months ended May 31, 1995 was predominantly due to increased unit
sales of 16-bit Software and, to a lesser extent, sales of CD Software. The
dollar increase in the Company's foreign revenues in the three and nine months
ended May 31, 1995 as compared to the three and nine months ended May 31, 1994
was due to increased unit sales of 16-bit Software in the European market. The
Company believes that its foreign revenues will be greater in fiscal 1995 as
compared to fiscal 1994, both in dollars and as a percentage of the Company's
revenues. However, the Company does not anticipate that its foreign revenues in
fiscal 1995 will reach the percentage levels achieved in fiscal 1992 or 1993. To
date, the Company has not generated material revenues from any of its operations
other than Software publishing and no assurance can be given that the Company
will be able to generate such revenues in the future.
The Company is substantially dependent on Nintendo as the sole manufacturer
of Super NES and Game Boy hardware and Software for those platforms and as the
sole licensor of the proprietary information and the technology needed to
develop Software for those platforms; and on Sega as the sole manufacturer of
Genesis, Master System, Game Gear, 32X, Sega CD and Saturn hardware and a
portion of Software for those platforms and as the sole licensor of the
proprietary information and the technology needed to develop Software for those
platforms. For the quarters ended May 31, 1994 and 1995, the Company derived 44%
and 54% of its gross revenues, respectively, from sales of Nintendo-compatible
products and 56% and 37% of its gross revenues, respectively, from sales of
Sega-compatible products. The Company anticipates that the proportion of its
revenues derived from Nintendo-compatible products as compared to
Sega-compatible products will remain relatively constant during fiscal 1995
despite quarter to quarter fluctuations.
The majority of the Company's gross revenues were derived from the
following product categories:
THREE MONTHS NINE MONTHS
ENDED ENDED
MAY 31, MAY 31,
-------------- --------------
1995 1994 1995 1994
----- ----- ----- -----
Portable Software........ 11.3% 10.7% 10.3% 13.7%
16-Bit Software.......... 70.6 83.5 78.3 81.3
CD Software.............. 8.5 4.8 6.4 1.9
21
Gross Profit
Gross profit fluctuates as a result of four factors: (i) the level of
domestic manufacturing of Genesis and Sega CD Software; (ii) the percentage of
foreign sales; (iii) the percentage of foreign sales to third party
distributors; and (iv) the percentage of CD Software sales.
The Company arranges for the manufacture of its worldwide Genesis and Sega
CD Software under a license granted by Sega. The Company believes that it has
improved cash flows and better control over the flow of its inventory as a
result of the decreased lead time resulting from its ability to manufacture
Software. The cost of Software manufactured by the Company, together with the
royalties payable to Sega for such manufacturing, is lower than the cost of the
Company's Software products when manufactured by Sega. The royalty payable to
Sega for Software manufactured by the Company is included as an operating
expense, rather than as part of cost of revenues, and increased levels of
manufacturing by the Company result in higher gross profit as a percentage of
net revenues.
The Company's margins on foreign sales are typically lower than those on
domestic sales due to higher prices charged by hardware licensors for Software
distributed by the Company outside North America. The Company's margins on
foreign sales to third party distributors are approximately one-third lower than
those on sales that the Company makes directly to foreign retailers.
The Company's margins on sales of CD Software are higher than those on
cartridge Software as a result of significantly lower product costs. As the
percentage of sales of the Company's CD Software increases, the Company expects
that its gross margin will also increase.
Management anticipates that the Company's future gross profit will be
affected by (i) the percentage of Software sales for PC CD Systems and sales
related to the Company's new businesses and (ii) the percentage of returns,
price protection and other similar concessions in respect of the Company's
16-bit Software sales. The Company's gross margins on coin-operated arcade games
are anticipated to be lower than on its cartridge Software. Although gross
margins on sales of Software for PC CD Systems are and are anticipated to
continue to be higher than those on sales of cartridge Software, management
believes that it will be required to effect stock-balancing programs for such
products to allow for the historically higher rate of return of PC CD Software.
As the percentage of sales of PC CD Software increases, management anticipates
that its reserves for such returns will increase, thereby offsetting a portion
of the higher gross margins generated from PC CD Software sales. Additionally,
if returns and other similar concessions to retailers in respect of 16-bit
Software sales increase materially during the transition phase to the next
generation of Entertainment Platforms, the Company's gross margins would be
adversely affected.
Gross profit increased from $51.1 million (58% of net revenues) for the
quarter ended May 31, 1994 to $53.0 million (51% of net revenues) for the
quarter ended May 31, 1995 and from $186.8 million (56% of net revenues) for the
nine months ended May 31, 1994 to $224.8 million (53% of net revenues) for the
nine months ended May 31, 1995, predominantly due to increased sales volume. The
percentage decrease is predominantly due to a higher level of SNES Software (not
manufactured by the Company) as compared to Genesis Software (manufactured by
the Company) sold in the quarter and nine months ended May 31, 1995. The
Company's gross profit is higher on sales of Genesis Software compared to SNES
Software, particularly Genesis Software manufactured by the Company.
The Company purchases substantially all of its products at prices payable
in United States dollars. Appreciation of the yen could result in increased
prices charged by either Nintendo or Sega to the Company (although, to date,
neither Nintendo nor Sega has effected such a price increase), which the Company
may not be able to pass on to its customers and which could adversely affect its
results of operations.
Operating Expenses
Selling, advertising, general and administrative expenses decreased from
$36.1 million (41% of net revenues) for the quarter ended May 31, 1994 to $34.6
million (33% of net revenues) for the quarter ended May 31, 1995 and increased
from $129.7 million (39% of net revenues) for the nine months ended May 31, 1994
to $151.3 million (36% of net revenues) for the nine months ended May 31, 1995.
The decrease in the quarter ended May 31, 1995 is predominantly attributable to
decreased royalties payable to Sega as a result of a lower
22
proportion of sales of Genesis Software manufactured by the Company in the
quarter ended May 31, 1995. The dollar increase in the nine months ended May 31,
1995 is predominantly attributable to increased sales volume, increased
advertising expense and increased general and administrative expenses.
Operating interest expense was $0.5 million (0.6% of net revenues) for the
quarter ended May 31, 1994 and $1.0 million (1.0% of net revenues) for the
quarter ended May 31, 1995 and $1.6 million (0.5% of net revenues) for the nine
months ended May 31, 1994 and $3.0 million (0.7% of net revenues) for the nine
months ended May 31, 1995. The increase is primarily attributable to the
increase in the prime rate and increased levels of advances against receivables.
Depreciation and amortization increased from $0.9 million (1.1% of net
revenues) for the quarter ended May 31, 1994 to $2.8 million (2.6% of net
revenues) for the quarter ended May 31, 1995 and from $2.6 million (0.8% of net
revenues) for the nine months ended May 31, 1994 to $6.3 million (1.5% of net
revenues) for the nine months ended May 31, 1995. The increase is primarily
attributable to increased amortization of the excess of costs over net assets
acquired arising from the acquisition of Acclaim Comics and increased
depreciation relating to the acquisition of the Company's new corporate
headquarters.
Seasonality
The Company's business is seasonal, with higher revenues and operating
income typically occurring during its first, second and fourth fiscal quarters
(which correspond to the Christmas and post-Christmas selling season). With the
maturation of the market for 16-bit Software and the related shift in the buying
patterns of certain of the Company's consumers (i.e. the bulk of purchases being
made before the Christmas season), management believes the Company's 16-bit
Software business has become increasingly seasonal. The timing of the delivery
of Software titles and the releases of new products cause significant
fluctuations in the Company's quarterly revenues and earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity during the quarter and nine
months ended May 31, 1994 and 1995 was cash flows from operations and, to a
lesser extent, from the sale during the quarter and nine months ended May 31,
1995 of a portion of the shares of TCI's Class A common stock received in
exchange for shares of the Company's common stock.
The Company generally purchases inventory, other than inventory
manufactured domestically, by opening letters of credit when placing the
purchase order. At May 31, 1994 and 1995, amounts outstanding under letters of
credit were approximately $4 million and $4 million, respectively.
The Company has a revolving credit and security agreement with its
principal domestic bank in the amount of $70 million, which agreement expires on
January 31, 1996. The Company draws down working capital advances and opens
letters of credit against the facility in amounts determined on a formula based
on factored receivables and inventory, which advances are secured by the
Company's assets. This bank also acts as the Company's factor for the majority
of its North American receivables, which are assigned on a nonrecourse, pre-
approved basis. The factoring charge is 0.25% of the receivables assigned and
the interest on advances is at the bank's prime rate minus one half percent. At
May 31, 1995, the Company had approximately $32 million available under such
facility.
The Company currently has a $25 million trade finance facility with another
bank. The Company's Asian and European subsidiaries currently have independent
facilities totalling approximately $20 million and $25 million, respectively,
with various banks.
In connection with its acquisition by the Company, Acclaim Comics entered
into a credit agreement with Midland Bank plc ('Midland') for a loan (the
'Loan') of $40 million, which is guaranteed by Acclaim and certain of its
subsidiaries. In connection with the establishment of the Joint Venture and the
related stock swap with TCI, the Company reached an agreement with Midland
pursuant to which it repaid $15 million of the Loan and the remaining $25
million principal amount of the Loan will be amortized over a four and one-half
year period.
23
The Company completed the purchase of a 70,000 square foot building and an
adjoining parcel of land in April 1994. The Company incurred capital
expenditures of approximately $2 million for improvements to the property for
the quarter ended May 31, 1995 and $9.3 million for the nine months ended May
31, 1995, which were financed with cash flows from operations.
Management believes that cash flow from operations and the Company's
borrowing facilities will be adequate to provide for the Company's liquidity and
capital needs for the foreseeable future.
The Company is party to various litigations arising in the course of its
business. The Company believes that the resolution of these litigations will not
have a material adverse effect on the Company's liquidity or financial
condition. The Company is also party to a class action litigation relating to
the nonrenewal of the Company's license agreement with WMS Industries, Inc.
Discovery in the class action litigation is in the early stages. The Company
believes that the action is without merit and lacks any basis in fact and
intends to defend the action vigorously.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THE
PROSPECTUS/PROXY STATEMENT, AS AMENDED BY THIS SUPPLEMENT, IN CONNECTION WITH
THE SOLICITATIONS MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ACCLAIM OR
LAZER-TRON. THIS SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, OR A
SOLICITATION OF A PROXY, TO ANY PERSON OR BY ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
SUPPLEMENT NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS SUPPLEMENT
RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF EITHER ACCLAIM OR LAZER-TRON SINCE THE DATE OF THIS
SUPPLEMENT.
------------------------
The Date of this Supplement is August 10, 1995.
24
EXHIBIT A
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 2 to that certain Agreement and Plan of Merger dated as
of March 22, 1995, as amended as of June 15, 1995 (the 'Agreement'), is made and
entered into as of July 24, 1995, by and among Lazer-Tron Corporation ('Lazer'),
a California corporation, Acclaim Entertainment, Inc. ('Acclaim'), a Delaware
corporation, and Acclaim Arcade Holdings, Inc. ('Holdings'), a Delaware
corporation and a wholly owned subsidiary of Acclaim, organized solely for the
purpose of consummating the transactions contemplated by the Agreement.
WHEREAS, Acclaim and Lazer have disputed whether certain conditions to
Acclaim's obligation to close the Agreement had been met.
WHEREAS, the Board of Directors of each of Lazer, Acclaim and Holdings have
determined that it is in the best interests of their respective companies and
stockholders to resolve their dispute and modify and amend the Agreement as set
forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. The fifth line of Section 1.01(a) is modified and amended to add the
words ', which in any event shall occur no later than September 4, 1995'
following the word 'thereafter'.
2. Section 1.03(a) is modified and amended to read in its entirety as
follows:
'At the Effective Time, each share of common stock, no par value, of Lazer
(the 'Lazer Common Stock') issued and outstanding immediately prior to the
Effective Time shall, by reason of the Merger and without any action by the
holder thereof, be converted into the right to receive the following (the
'Merger Consideration'): a fraction of a share of common stock, par value
$0.02 per share, of Acclaim (the 'Acclaim Common Stock') equal to the
product (rounded up to the nearest thousandth) of (i) one and (ii) a
fraction, the numerator of which is $8.00 and the denominator of which is
the average of the closing sale price of a share of Acclaim Common Stock on
the Nasdaq Stock Market's National Market System (as reported in the Wall
Street Journal) for the twenty (20) business days ending on the second
business day prior to the later of the Lazer Stockholders Meeting or the
latest adjournment thereof (the 'Acclaim Common Stock Price').'
3. Section 1.03(e) is modified and amended to read in its entirety as
follows:
'Notwithstanding the foregoing provisions of this Section 1.03, if either
the Acclaim Common Stock Price or the average of the closing sale price of a
share of Acclaim Common Stock on The Nasdaq National Market (as reported in
the Wall Street Journal) for the 20 business days ending on the second
business day prior to the Closing Date (the 'Acclaim Closing Common Stock
Price') is less than $12.50, each of Acclaim and Lazer, at its sole option,
shall have the right to give notice pursuant to Section 8.01 hereof of its
election to terminate this Agreement.'
4. Section 3.01 of the Agreement is hereby amended to add after the word
'market' in the fourteenth line thereof the words 'and in any event shall not
include any event or events the adverse effect or reasonably expected adverse
effect of which is less than One Million Dollars ($1,000,000) individually or in
the aggregate'.
5. Section 3.21 of the Agreement is hereby deleted.
6. Section 5.13 of the Agreement is hereby deleted.
7. Section 5.22 of the Agreement is hereby deleted.
8. Section 6.01 of the Agreement is hereby amended by adding the following
at the end, immediately following 'earlier date': 'and except for any failure,
or all failures in the aggregate, of any such representations or warranties to
be true or correct which either (a) has been waived or released by Acclaim or
(b) except with respect to Sections 3.02, 3.03, 3.14, 3.15, 3.27, 3.28 and 3.29
of the Agreement, do not cause and/or cannot be
reasonably expected to cause Lazer to suffer a Material Adverse Effect as
compared to Lazer's conditions as asserted in the Stated Acclaim Claims.
Notwithstanding the foregoing, the failure of any representations or warranties
which, individually or in the aggregate, do not have a Material Adverse Effect,
will not act as a waiver or otherwise limit the fulfillment of the other
conditions of this Article VI.'
9. Section 6.02 of the Agreement is hereby amended by adding the following
at the end, immediately following 'Closing Date': 'except for any failure, or
all failures in the aggregate, to perform and comply with such agreements and
conditions which either (a) has been waived or released by Acclaim or (b) except
with respect to Sections 5.03, 5.10, 5.11, 5.14, 5.15, 5.16, 5.17, 5.18, 5.19,
5.20, 5.21 and 5.24 of the Agreement, and except for subparts (a),(b),(c),(d)
(other than the acquisition, sale, lease, encumbrance, transfer or disposal of
any inventory in the ordinary course of business and other than the last
sentence of subpart (d)), (e) (other than suffering any material Lien), (f)
(other than obligations relating to expenses incurred in connection with the
Merger), (g) (other than, in the case of accounting practices, as permitted by
GAAP or as permitted by the applicable rules and regulations of the SEC), (h),
(i), (j), or (k) of Section 5.01 (other than, with respect to Section 5.01, as
disclosed in the Schedules to the Agreement or in the letter to Acclaim from
Lazer dated July 24, 1995), do not cause and/or cannot be reasonably expected to
cause Lazer to suffer a Material Adverse Effect as compared to Lazer's condition
as asserted in the Stated Acclaim Claims. Notwithstanding the foregoing, the
failure of any such agreements or conditions which, individually or in the
aggregate, do not have a Material Adverse Effect, will not act as a waiver or
otherwise limit the fulfillment of the other conditions of this Article VI.'
10. Section 6.09 of the Agreement is hereby amended in its entirety to read
as follows:
'From the date hereof through and including the Closing Date, Lazer shall
not have suffered a Material Adverse Effect as compared to Lazer's condition as
asserted in the Stated Acclaim Claims.'
11. Section 6.13 of the Agreement is hereby deleted.
12. (a) The fourth line under Section 6.14 is modified and amended to
delete the words 'and except for Lazer-Tron's existing 401(k) plan'.
(b) Section 6.17 of the Agreement is modified and amended to (i) add
the words 'by any governmental agency, or' after the word 'instituted' in the
first line thereof, and (ii) add the words 'and/or any suit or proceeding, or
any overt threat thereof, predicated on or arising from the subject matter
and/or facts and circumstances referenced in paragraph 15 of Amendment No. 2 to
the Agreement and/or in respect of Section 3.12 hereof,' after the word
'contemplated' in each of the third and fourth line thereof.
13. The second line under Section 8.01(b) is modified and amended to delete
the words 'July 31, 1995' and insert the words 'September 4, 1995' in its place,
and Section 8.01(b) is further amended to delete the proviso thereto beginning
in the fifth line thereof with the words 'provided however,' through and
including in the tenth line thereof the words 'August 31, 1995'.
14. Exhibit D to the Agreement as in effect prior to the date hereof,
including Exhibits D-1, D-2 and D-3, are hereby deleted in their entirety and
Exhibit D attached hereto is hereby inserted in its place.
15. (a) Notwithstanding anything to the contrary set forth in the
Agreement, Acclaim hereby (i) waives and releases and agrees not to seek
indemnification under Article IX of the Agreement for any Losses (as defined in
the Agreement) suffered from or with respect to the claims regarding the Closing
Balance Sheet and otherwise, as asserted by Acclaim and its counsel to Lazer or
Lazer's counsel in which Acclaim claimed that Lazer breached the Agreement or
failed to meet certain closing conditions (the 'Stated Acclaim Claims'), (ii)
waives any other claims or objections that Acclaim might have with respect to
the Stated Acclaim Claims or the data and information related thereto, including
without limitation, any claim or breach of the Agreement and/or the failure to
satisfy a closing condition of Acclaim under the Agreement, and (iii) agrees
that it is foreclosed from, and hereby waives the possibility of its asserting,
a breach of Lazer's representations and warranties set forth in Article III of
the Agreement and Lazer's covenants set forth in Article V of the Agreement
and/or the failure to satisfy Acclaim's closing conditions under Article VI of
the Agreement and/or any rights or remedies under Article VIII and/or Article IX
of the Agreement in each case arising from the subject matter and facts and
circumstances referred to in the Stated Acclaim Claims and/or arising from
information provided to Acclaim by
2
Lazer through the date hereof, including the letter to Acclaim from Lazer dated
July 24, 1995, updating the Schedules to the Agreement, other than in each case
contemplated by subclauses (i), (ii) and/or (iii) above with respect to or
arising from (a) the Claim Relating to the Merger set forth in the S-4 under the
heading 'The Merger--Legal Proceedings Relating to the Merger' or similar suit
or proceeding contemplated by Section 7.14 of the Agreement and/or (b) any other
lawsuit or proceeding overtly threatened or brought by a third party or
governmental agency arising from the subject matter or facts and circumstances
covered by former Section 3.21 of the Agreement, the Closing Balance Sheet
and/or referred to in subclauses (i), (ii) and/or (iii) of this sentence.
(b) Lazer hereby waives and releases and agrees not to seek
indemnification under Article IX of the Agreement for any Losses (as defined in
the Agreement) suffered from or with respect to Acclaim's assertion of the
Stated Acclaim Claims and/or the matters referred to in paragraph 15(a) hereof,
the matters alleged or asserted in response to the Stated Acclaim Claims by
Lazer and/or its counsel, and/or Acclaim's issuance of a press release with
respect to the Merger dated July 19, 1995, including without limitation, any
claim of breach of the Agreement and/or the failure to satisfy a closing
condition of Lazer under the Agreement.
16. Lazer's, Acclaim's and Holdings' obligations to consummate the Merger
are specifically conditioned on the Board of Directors of Lazer receiving a
favorable investment bank fairness opinion of Van Kasper & Co. (or such other
investment bank as the Board of Directors of Lazer shall retain for such
purpose) with respect to the revised terms of the Merger set forth in this
Amendment No. 2 as promptly as possible and in any event, prior to the
distribution to Lazer's shareholders of the supplemental proxy information
referred to in paragraph 19 of this Amendment No. 2. Lazer and Acclaim will
promptly provide information to and otherwise cooperate with such investment
bank to facilitate the delivery of such opinion.
17. The execution and delivery of this Amendment No. 2 to the Merger
Agreement has been duly and validly authorized and approved by the Board of
Directors of Acclaim, Holdings and, subject only to the condition set forth in
paragraph 16 above, Lazer, and no other corporate proceedings on the part of the
parties are necessary to authorize this Amendment No. 2 to the Agreement. This
Amendment No. 2 has been duly and validly executed and delivered by Lazer,
Acclaim and Holdings and constitutes a valid and binding agreement of Lazer,
enforceable against Lazer, in accordance with its terms.
18. Lazer will use best efforts to cause the side letters with respect to
the confirmation of the continued validity of the Lazer Affiliate Agreements
attached hereto as Exhibit E to be executed and delivered to Acclaim by all
persons listed on Schedule 1 and Schedule 3.27(a) to the Agreement.
19. Lazer and Acclaim hereby undertake to prepare and file with the SEC, as
promptly as practicable upon execution of this Amendment No. 2 to the Agreement,
any and all amendments and/or supplements to the S-4 and the Proxy Statement and
form of proxy for use at the Lazer Stockholders Meeting relating to the vote of
Lazer's stockholders with respect to the Merger and the transactions
contemplated by the Agreement, as amended by this Amendment No. 2, in accordance
with the covenants and agreements contained in Sections 5.05, 5.06, 5.07 and
5.08 of the Agreement, which sections are not limited in any respect by Section
6.02 of the Agreement, as amended by this Amendment No. 2, and to use their best
efforts to cause amended and/or supplemental materials to be mailed to Lazer's
shareholders as soon as practicable, and Lazer shall reconvene such Lazer
Stockholders Meeting as soon as practicable. The parties shall use their best
efforts to negotiate and finalize the various closing documents and deliver all
required consents called for under the Agreement pursuant to Articles VI and VII
thereof, as well as the confirmation letter regarding the Lazer Affiliates
Agreements attached as Exhibit E hereto, prior to such resolicitation.
Upon the execution hereof, each reference in the Agreement to 'this
Agreement', 'hereby', 'hereunder', 'herein', 'hereof' or words of like import
referring to the Agreement shall mean and refer to the Agreement as amended by
this Amendment No. 2 to the Agreement. All other provisions of the Agreement
shall remain in full force and effect except and to the extent explicitly
amended hereby. This Amendment No. 2 to the Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable principles of conflicts of law.
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
ACCLAIM ENTERTAINMENT, INC. LAZER-TRON CORPORATION
By: /s/ ANTHONY R. WILLIAMS BY: /s/ NORMAN B. PETERMEIER
Name: Anthony R. Williams Name: Norman B. Petermeier
Title: Executive Vice President Title: Chairman, CEO & President
ACCLAIM ARCADE HOLDINGS, INC.
By: /s/ ANTHONY R. WILLIAMS
Name: Anthony R. Williams
Title: Executive Vice President
4
EXHIBIT B
[LETTERHEAD OF VAN KASPER & COMPANY]
As of July 28, 1995
Lazer-Tron Corporation
4430 Willow Road
Pleasanton, California 94588
Gentlemen:
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of Lazer-Tron Corporation, a
California corporation ('Lazer-Tron'), of a proposed reorganization and merger
(the 'Transaction') among Lazer-Tron, Acclaim Entertainment, Inc., a Delaware
corporation ('Acclaim'), and Acclaim Arcade Holdings, Inc., a newly formed
Delaware corporation ('NEWCO') which is a wholly-owned subsidiary of Acclaim.
A summary of the structure of the Transaction is as follows:
1. NEWCO will merge with and into Lazer-Tron, leaving Lazer-Tron
as the surviving entity in the merger. At the effective time of the
merger, each share of Common Stock, without par value, of Lazer-Tron
which is held by a shareholder of Lazer-Tron (other than those who
validly hold 'Dissenters Shares' as defined in the Agreement referred
to below) will by reason of the merger and without any action by the
holder thereof, be converted into the right to receive a fraction of a
share of Common Stock, par value $0.02 per share, of Acclaim (the
'Acclaim Common Stock') equal to the product (rounded up to the
nearest thousandth) of (i) one and (ii) a fraction, the numerator of
which is $8.00 and the denominator of which is the average of the
closing sale price of the Acclaim Common Stock on the NASDAQ Stock
Market's National Market System (as reported in the Wall Street
Journal) for the twenty business days ending on the second business
day prior to the later of the Shareholders meeting of Lazer-Tron to
approve the merger, or the latest adjournment thereof.
2. Options and warrants to purchase Lazer-Tron Common Stock which
are outstanding at the effective time of the merger will be assumed by
Acclaim and will represent the right to purchase the number of shares
of Acclaim Common Stock that the holder thereof would have been
entitled to receive in the Transaction, had such option or warrant
been exercised prior to the effective date of the Transaction.
3. Following the merger of NEWCO into Lazer-Tron, Lazer-Tron, as
the surviving entity to the merger, will be a wholly-owned subsidiary
of Acclaim. The Transaction is intended by the parties to be accounted
for as a 'pooling' under generally accepted accounting principles.
In connection with our opinion, we have held extensive discussions with the
management of Lazer-Tron and certain members of the management of Acclaim, and
have reviewed an executed copy of the Agreement and Plan of Merger, dated March
22, 1995 (the 'Agreement') among Lazer-Tron, Acclaim and NEWCO, and executed
copies of Amendments Nos. 1 and 2 thereto, dated June 15, 1995 and July 24,
1995, respectively, each
Lazer-Tron Corporation
As of July 28, 1995
Page 2
in the form provided to us by Lazer-Tron; certain publicly available documents
for each of Lazer-Tron and Acclaim; internal budgets and projections provided to
us by Lazer-Tron; certain marketing materials and press releases provided to us
by each of Lazer-Tron and Acclaim; publicly available data and information for
companies which we have determined to be comparable; the historical stock prices
for each of Lazer-Tron, Acclaim and other companies which we have determined to
be comparable; and available research reports for each of Lazer-Tron, Acclaim
and other companies which we have determined to be comparable. We note that
Acclaim denied our request to be shown its internally prepared forecasts.
In our review we have assumed, with your permission, that the documents to
be prepared, used and signed by the parties to formally effect the Transaction,
including the agreements effecting the merger between NEWCO and Lazer-Tron, and
the proxy or other disclosure material to be delivered to the shareholders of
Lazer-Tron to elicit any necessary consents to the Transaction, will effect the
Transaction on the terms set forth in the Agreement without material alteration.
We have reviewed such relevant financial and other information that was
publicly available or furnished to us by Lazer-Tron and Acclaim, including
information provided during discussions with each company. In addition, we have
compared certain financial and securities data of Lazer-Tron and Acclaim with
that of various other companies whose securities are publicly traded, reviewed
recent merger and acquisition transactions of companies we determined to be
similar and conducted such other financial analysis as we have determined, based
upon our judgement as investment bankers, to be appropriate for purposes of this
opinion. We have also taken into account the views of the management and certain
shareholders of Lazer-Tron as to the prospects of Lazer-Tron if the Transaction
is not effected. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of Lazer-Tron or investing
in Lazer-Tron. Furthermore, we have not negotiated the Transaction, provided any
legal advice nor advised you with respect to alternatives to the Transaction.
Although we have performed a valuation of Lazer-Tron and Acclaim using a number
of commonly accepted methodologies, we have not made an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) of
Lazer-Tron or Acclaim.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available or furnished or otherwise communicated
to us by Lazer-Tron or Acclaim. With respect to financial projections of
Lazer-Tron provided to us, we have reviewed those projections in light of
discussions we have conducted with industry sources, and have made certain
adjustments where we have determined it was appropriate to do so. Independent of
the foregoing, we have assumed that the projections were reasonably prepared,
based upon assumptions reflecting the best currently available estimates and
good faith judgments of management as to the future performance of Lazer-Tron
and Acclaim and that neither the management of Lazer-Tron, nor the management of
Acclaim, has any information or beliefs that would make the projections
misleading.
Our opinion is based upon analysis of the foregoing factors in light of our
assessment of general economic, financial and market conditions as they exist
and as they can be evaluated by us as of the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the per share consideration to be received by the shareholders
of Lazer-Tron in the Transaction is fair to the shareholders of Lazer-Tron from
a financial point of view.
Very truly yours,
VAN KASPER & COMPANY
LAZER-TRON CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
Originally Scheduled for July 30, 1995
and Adjourned to August 21, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF LAZER-TRON
CORPORATION.
The undersigned hereby appoints Norman B. Petermeier and Mathew F. Kelly, or
either of them, as proxies, each with full power of substitution, and hereby
authorizes them to represent and to vote, as designated below, all shares of
Common Stock, no par value of Lazer-Tron Corporation ("Lazer-Tron"), held of
record by the undersigned on May 24, 1995 at the Special Meeting of
Shareholders of Lazer-Tron to be held at Lazer-Tron's offices at 4430 Willow
Road, Pleasanton, California originally scheduled for July 21, 1995 and
adjourned to August 30, 1995, at 9:00 a.m. Pacific Standard Time, and at any
adjournments or postponements thereof.
1. Approval of the Merger Agreement and the Merger, as described in the
accompanying Prospectus/Proxy Statement as amended by the Supplement dated
August 10, 1995 thereto.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponements of the Special
Meeting.
The Board of Directors recommends that you vote FOR the proposals.
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. WHEN NO CHOICE IS
INDICATED, THIS PROXY WILL BE VOTED FOR THE PROPOSALS. In their discretion,
the proxy holders are authorized to vote upon such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof to the extent authorized by Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, as amended.
(Continued and to be signed on reverse side)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LAZER-TRON CORPORATION.
__________________________________________________
Print Shareholder's name
__________________________________________________
Signatures of Shareholders or Authorized Signatory
__________________________________________________
Dated: ____________________________________ 1995
Please sign exactly as your name appears on
your stock certificate. If shares of stock
stand of record in the names of two or more
persons or in the name of husband and wife,
whether as joint tenants or otherwise, both or
all of such persons should sign the proxy. If
shares of stock are held of record by a
corporation, the proxy should be executed by
the president or vice president and the
secretary or assistant secretary. Executors,
administrators or other fiduciaries who execute
the above proxy for a deceased shareholder
should give their full title. Please date the
proxy.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND PROMPTLY RETURN THE PROXY IN THE ENCLOSED POSTAGE PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING
PROSPECTUS/PROXY STATEMENT
------------------------
PROSPECTUS
ACCLAIM ENTERTAINMENT, INC.
UP TO 2,697,003 SHARES OF COMMON STOCK
------------------------
PROXY STATEMENT
LAZER-TRON CORPORATION
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 21, 1995
------------------------
Acclaim Entertainment, Inc. ('Acclaim', and together with its subsidiaries,
the 'Company') has entered into an Agreement and Plan of Merger (the 'Merger
Agreement'), dated as of March 22, 1995, as amended as of June 15, 1995, with
Lazer-Tron Corporation ('Lazer-Tron'), pursuant to which Acclaim agreed to
acquire Lazer-Tron through the merger (the 'Merger') of Acclaim Arcade Holdings,
Inc. (the 'Subsidiary'), a wholly-owned subsidiary of Acclaim, with and into
Lazer-Tron on the terms described herein. In exchange for all of the issued and
outstanding shares of common stock, no par value per share (the 'Lazer-Tron
Common Stock'), of Lazer-Tron (including the purchase from Lazer-Tron of 7,414
shares of Lazer-Tron Common Stock pursuant to the Lazer-Tron 1994 Employee Stock
Purchase Plan), the shareholders of Lazer-Tron (the 'Lazer-Tron Shareholders')
will receive an aggregate of up to 2,285,598 shares of common stock, par value
$0.02 per share, of Acclaim (the 'Acclaim Common Stock'). As a result of the
Merger, all outstanding options ('Lazer-Tron Stock Options') and warrants (the
'Lazer-Tron Warrants') of Lazer-Tron will be exercisable following the Merger
for up to an aggregate of 653,872 shares of Acclaim Common Stock, as more fully
described herein. The exchange of Lazer-Tron Common Stock for Acclaim Common
Stock and the right of holders of Lazer-Tron Stock Options and Lazer-Tron
Warrants to receive Acclaim Common Stock are collectively referred to herein as
the 'Merger Consideration'. The consummation of the Merger is subject to a
number of conditions. See 'The Merger.' The Merger is not being submitted to a
vote of the stockholders of Acclaim and no proxies are being solicited in
respect thereof.
This Prospectus/Proxy Statement covers the issuance by Acclaim to the
Lazer-Tron Shareholders, certain holders of Lazer-Tron Stock Options, consisting
of those issued pursuant to the Lazer-Tron 1994 Directors Stock Option Plan and
certain non-qualified stock options, and holders of Lazer-Tron Warrants, of up
to an aggregate of 2,697,003 shares of Acclaim Common Stock in payment of the
Merger Consideration. All other holders of Lazer-Tron Stock Options will
receive, upon exercise thereof, shares of Acclaim Common Stock issuable pursuant
to the Acclaim 1988 Stock Option Plan, which shares have previously been
registered under the Securities Act of 1933, as amended, on Form S-8. Acclaim
will not receive any proceeds from the resale by the Lazer-Tron Shareholders or
holders of Lazer-Tron Stock Options or Lazer-Tron Warrants of any securities
received pursuant to this Prospectus/Proxy Statement.
The fraction of a share of Acclaim Common Stock to be received for each
share of Lazer-Tron Common Stock exchanged in connection with the Merger is
determined pursuant to an exchange rate formula based upon the average closing
price of the Acclaim Common Stock on The Nasdaq National Market (as reported in
the Wall Street Journal) for the 20 business days ending on the second business
day prior to the later of the date of the Special Meeting or the latest
adjournment thereof (the 'Acclaim Average Common Stock Price'). If the Acclaim
Average Common Stock Price is between $16.00 and $20.00 per share, the exchange
rate for each share of Lazer-Tron Common Stock will be one-half share of Acclaim
Common Stock, however, (i) if the Acclaim Average Common Stock Price is below
$16.00, the exchange rate will be increased from one-half share of Acclaim
Common Stock to a fraction equal to $8.00 divided by the Acclaim Average Common
Stock Price, and (ii) if the Acclaim Average Common Stock Price is above $20.00,
the exchange rate will be decreased from one-half share of Acclaim Common Stock
to a fraction equal to $10.00 divided by the Acclaim Average Common Stock Price.
A press release will be issued at the close of business on such second business
day, and on the subsequent business day prior to the date of the Special Meeting
or the latest adjournment thereof, announcing such fraction of a share of
Acclaim Common Stock to be exchanged for each share of Lazer-Tron Common Stock
upon consummation of the Merger.
Lazer-Tron Shareholders may contact Georgeson & Company, Inc., which is
acting as information agent for Lazer-Tron, toll free at 1-800-223-2064 at any
time prior to the Special Meeting for information regarding the estimated
Acclaim Average Common Stock Price and the approximate fraction of a share of
Acclaim Common Stock to be received upon exchange for each share of Lazer-Tron
Common Stock in connection with the Merger.
In addition, a registered holder of shares of Lazer-Tron Common Stock may
cast votes or revoke and change prior votes prior to the commencement of the
Special Meeting by dialing toll free at 1-800-521-8454 between 8:00 a.m. and
midnight Eastern Standard Time and following the procedures outlined in the
accompanying Prospectus/Proxy Statement.
This Prospectus/Proxy Statement constitutes (a) the Proxy Statement of
Lazer-Tron relating to the solicitation of proxies by Lazer-Tron for use at the
Special Meeting of shareholders of Lazer-Tron, scheduled to be held on July 21,
1995 (the 'Special Meeting') and (b) the Prospectus of Acclaim filed as part of
the Registration Statement. All information concerning Acclaim and its
subsidiaries in this Prospectus/Proxy Statement has been supplied by Acclaim and
is its sole responsibility. All information concerning Lazer-Tron in this
Prospectus/Proxy Statement has been supplied by Lazer-Tron and is its sole
responsibility.
The Acclaim Common Stock and the Lazer-Tron Common Stock are both traded on
The Nasdaq National Market under the symbol 'AKLM' and 'LZTN', respectively. On
June 16, 1995, the last reported sale price of the Acclaim Common Stock was
$17.25 per share and the Lazer-Tron Common Stock was $8.00 per share.
This Prospectus/Proxy Statement and the accompanying form of proxy are first
being mailed to Lazer-Tron Shareholders on or about June 21, 1995.
SEE 'RISK FACTORS' FOR A DESCRIPTION OF CERTAIN MATERIAL RISK FACTORS TO BE
CONSIDERED BY LAZER-TRON SHAREHOLDERS BEFORE VOTING ON THE MERGER AGREEMENT.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS JUNE 21, 1995.
AVAILABLE INFORMATION
Acclaim and Lazer-Tron are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and, in
accordance therewith, file reports and other information with the Securities and
Exchange Commission (the 'Commission'). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at 7 World Trade Center,
13th floor, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
ADDITIONAL INFORMATION
Acclaim has filed with the Commission a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
'Registration Statement') under the Securities Act of 1933, as amended (the
'Securities Act') with respect to the registration of the securities offered
hereby. This Prospectus/Proxy Statement does not contain all the information set
forth in the Registration Statement. Statements contained herein concerning the
contents of any documents are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, as well as items of information omitted
from this Prospectus/Proxy Statement but contained in the Registration
Statement, and reports and other information filed by Acclaim, may be inspected
without charge at the public reference facilities referred to above and copies
of all or any part thereof may be obtained from the Commission upon request and
payment of the prescribed fee.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, or portions thereof, filed by Acclaim with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Prospectus/Proxy Statement:
(a) Annual Report on Form 10-K for the fiscal year ended August 31,
1994, filed on November 28, 1994 (File No. 0-16986);
(b) Quarterly Report on Form 10-Q for the fiscal quarter ended
November 30, 1994, filed on January 13, 1995 (File No. 0-16986);
(c) Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 1995, filed on April 10, 1995 (File No. 0-16986);
(d) Current Report on Form 8-K, filed on March 31, 1995 (File No.
0-16986);
(e) Current Report on Form 8-K, filed on February 10, 1995; (File No.
0-16986);
(f) Current Report on Form 8-K, filed on October 31, 1994; (File No.
0-16986);
(g) Proxy Statement relating to the Annual Meeting of Stockholders of
Acclaim held on January 31, 1995, filed on January 3, 1995 (File No.
0-16986); and
(h) The information in respect of Acclaim Common Stock under the
caption 'Description of Registrant's Securities to be Registered' contained
in the Registration Statement on Form 8-A, filed on June 8, 1988 (File No.
0-16986), as amended by the Current Report on Form 8-K, filed on August 25,
1989 (File No. 33-9460-C), relating to the one-for-two reverse stock split
effected by Acclaim.
All documents subsequently filed by Acclaim pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment hereto indicating that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Prospectus/Proxy Statement and to be a part of
this Prospectus/Proxy Statement from the respective dates of filings of such
documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus/Proxy Statement to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be
2
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus/Proxy Statement.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST FROM ACCLAIM
ENTERTAINMENT, INC., ONE ACCLAIM PLAZA, GLEN COVE, NEW YORK 11542-2708,
ATTENTION: SANDY DEGENNARO, VICE PRESIDENT, FINANCE, TELEPHONE NUMBER: (516)
656-5000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY JULY 5, 1995.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS/PROXY STATEMENT IN CONNECTION WITH THE SOLICITATIONS MADE HEREBY AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY ACCLAIM OR LAZER-TRON. THIS PROSPECTUS/PROXY STATEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY, OR A SOLICITATION OF A PROXY, TO ANY PERSON OR BY
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF
THE SECURITIES TO WHICH THIS PROSPECTUS/PROXY STATEMENT RELATES SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF EITHER ACCLAIM OR LAZER-TRON SINCE THE DATE OF THIS PROSPECTUS/PROXY
STATEMENT.
3
TABLE OF CONTENTS
PAGE
----
SUMMARY.................................................................................................... 6
Special Meeting of Shareholders....................................................................... 6
Record Date........................................................................................... 6
The Merger............................................................................................ 6
Lazer-Tron Stock Options and Lazer-Tron Warrants...................................................... 7
Opinion of Financial Advisor.......................................................................... 8
Shareholder Approval.................................................................................. 8
Rights of Dissenting Shareholders..................................................................... 9
Effective Date of the Merger.......................................................................... 9
Interests of Certain Persons in the Merger............................................................ 9
Legal Proceedings Relating to the Merger.............................................................. 10
Federal Tax Consequences of the Merger................................................................ 10
Accounting Treatment.................................................................................. 10
Regulatory Approvals.................................................................................. 10
Employment Agreements................................................................................. 10
Representations, Warranties and Covenants............................................................. 10
Conditions to the Merger.............................................................................. 11
Termination of the Merger Agreement................................................................... 11
Amendment of the Merger Agreement..................................................................... 11
No Solicitation....................................................................................... 11
Break-up Fee.......................................................................................... 11
Stock Option Agreement................................................................................ 11
Business of the Companies............................................................................. 12
Market Prices Of Acclaim Common Stock And Lazer-Tron Common Stock..................................... 12
Selected Comparative Data............................................................................. 13
Comparative Per Share Data............................................................................ 13
ACCLAIM SELECTED CONSOLIDATED FINANCIAL DATA............................................................... 14
LAZER-TRON SELECTED FINANCIAL DATA......................................................................... 15
RISK FACTORS............................................................................................... 16
THE SPECIAL MEETING........................................................................................ 21
Date, Time and Place of the Special Meeting........................................................... 21
Record Date and Outstanding Shares.................................................................... 21
Voting of Proxies..................................................................................... 21
Vote Required and Voting Intentions of Certain Shareholders........................................... 22
Solicitation of Proxies and Expenses.................................................................. 22
Appraisal and Dissenters' Rights...................................................................... 22
THE MERGER................................................................................................. 24
General............................................................................................... 24
Background of the Merger.............................................................................. 24
Acclaim's Reasons for the Merger...................................................................... 24
Lazer-Tron's Reasons for the Merger................................................................... 24
Effective Date........................................................................................ 25
Merger Consideration.................................................................................. 26
Lazer-Tron Stock Options and Lazer-Tron Warrants...................................................... 27
Interests of Certain Persons in the Merger............................................................ 28
Legal Proceedings Relating to the Merger.............................................................. 28
Opinion of Financial Advisor.......................................................................... 29
Exchange Procedures................................................................................... 30
Representations and Warranties........................................................................ 31
4
PAGE
----
Covenants............................................................................................. 31
Conditions to the Merger.............................................................................. 32
Indemnification....................................................................................... 33
Certain U.S. Federal Income Tax Matters............................................................... 34
Expenses.............................................................................................. 36
Accounting Treatment.................................................................................. 36
Regulatory Approvals.................................................................................. 37
Termination of the Merger Agreement................................................................... 37
Amendment of the Merger Agreement..................................................................... 37
No Solicitation....................................................................................... 37
Break-up Fee.......................................................................................... 38
Stock Option Agreement................................................................................ 38
Affiliates Agreements................................................................................. 39
Employment Agreements................................................................................. 39
Employee Option Agreements............................................................................ 40
Severance Agreements.................................................................................. 40
Articles of Incorporation and By-laws................................................................. 40
Directors and Executive Officers of the Surviving Corporation......................................... 40
Affiliates' Restrictions on Sale of Acclaim Common Stock.............................................. 40
Vote Required; Recommendation......................................................................... 41
MARKET FOR ACCLAIM AND LAZER-TRON COMMON EQUITY AND RELATED SHAREHOLDER MATTERS............................ 42
DIVIDEND POLICY............................................................................................ 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF LAZER-TRON............................... 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF LAZER-TRON........ 45
BUSINESS OF LAZER-TRON..................................................................................... 50
DESCRIPTION OF LAZER-TRON CAPITAL STOCK.................................................................... 56
INFORMATION CONCERNING ACCLAIM............................................................................. 59
COMPARISON OF RIGHTS OF HOLDERS OF ACCLAIM COMMON STOCK AND HOLDERS OF CAPITAL STOCK OF LAZER-TRON......... 64
LEGAL OPINIONS............................................................................................. 70
EXPERTS.................................................................................................... 70
MISCELLANEOUS.............................................................................................. 71
FINANCIAL STATEMENTS OF LAZER-TRON......................................................................... F-1
EXHIBIT A--Agreement and Plan of Merger and Amendment No. 1 to Agreement and Plan of Merger
EXHIBIT B--Chapter 13--Dissenters' Rights under the California General Corporation Law
EXHIBIT C--Fairness Opinion of Van Kasper & Company
5
SUMMARY
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information set
forth elsewhere herein or incorporated by reference in this Prospectus/Proxy
Statement and the exhibits hereto. Shareholders of Lazer-Tron are urged to read
this Prospectus/Proxy Statement and the exhibits hereto in their entirety.
SPECIAL MEETING OF SHAREHOLDERS
A special meeting (the 'Special Meeting') of shareholders of Lazer-Tron
Corporation, a California corporation ('Lazer-Tron') will be held at the
Sheraton Inn located at 5115 Hopyard Road, Pleasanton, California, on July 21,
1995, at 9:00 a.m. local time, for the purpose of considering and voting upon
the Agreement and Plan of Merger dated as of March 22, 1995, as amended as of
June 15, 1995 (the 'Merger Agreement') providing for the merger with and into
Lazer-Tron (the 'Merger') of a wholly-owned subsidiary (the 'Subsidiary') of
Acclaim Entertainment, Inc. ('Acclaim') formed for such purpose. Certain
directors, officers, affiliates and shareholders of Lazer-Tron holding
approximately 1,007,047 shares, or an aggregate of approximately 28.3% of the
total shares outstanding as of the Record Date (defined below), of the common
stock, no par value per share, of Lazer-Tron (the 'Lazer-Tron Common Stock')
have agreed to vote such shares in favor of the Merger.
RECORD DATE
The close of business on May 24, 1995 has been fixed as the record date
(the 'Record Date') for the determination of the shareholders of Lazer-Tron
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were outstanding and entitled to vote 3,563,832 shares of Lazer-Tron
Common Stock, each of which will be entitled to one vote on each matter to be
acted upon at the Special Meeting. See 'The Special Meeting--Record Date and
Outstanding Shares.'
THE MERGER
At the Effective Time (as defined below), the Subsidiary will merge with
and into Lazer-Tron, and Lazer-Tron will be the surviving corporation (the
'Surviving Corporation') and a wholly-owned subsidiary of Acclaim. Each share of
Lazer-Tron Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares, if any, held by shareholders who have
exercised dissenters' rights under Section 1300 et seq. of the California
General Corporation Law (the 'CGCL')) shall, by reason of the Merger and without
any action by the holder thereof, be converted into the right to receive a
fraction of a share of Acclaim Common Stock, such fraction to be determined
pursuant to an exchange rate formula (rounded up to the nearest one-thousandth)
based on the average closing sale price of the Acclaim Common Stock on The
Nasdaq National Market (as reported by the Wall Street Journal) for the 20
business days ending on the second business day prior to the later of the date
of the Special Meeting or the latest adjournment thereof (the 'Acclaim Average
Common Stock Price') as follows:
(a) if the Acclaim Average Common Stock Price is between $16.00 and
$20.00 per share, each share of Lazer-Tron Common Stock will be converted
into the right to receive .5 shares of Acclaim Common Stock;
(b) if the Acclaim Average Common Stock Price is below $16.00 and at
least $12.50, each share of Lazer-Tron Common Stock will be converted into
the right to receive between .5 and .64 shares of Acclaim Common Stock
determined by dividing $8.00 by the Acclaim Average Common Stock Price; or
(c) if the Acclaim Average Common Stock Price is above $20.00, each
share of Lazer-Tron Common Stock will be converted into the right to
receive a fraction of a share of Acclaim Common Stock determined by
dividing $10.00 by the Acclaim Average Common Stock Price, which will
result in the receipt of less than .5 shares of Acclaim Common Stock.
The actual fraction of a share of Acclaim Common Stock to be exchanged for
each share of Lazer-Tron Common Stock in connection with the Merger will be
determined at the close of business on the second business day prior to the
later of the date of the Special Meeting or the latest adjournment thereof. A
press release will be
6
issued at the close of business on such second business day, and on the
subsequent business day prior to the date of the Special Meeting or the latest
adjournment thereof, announcing the applicable Acclaim Average Common Stock
Price.
Further, Lazer-Tron Shareholders may contact Georgeson & Company, Inc.,
which is acting as information agent for Lazer-Tron, toll free at 1-800-223-2064
at any time prior to the Special Meeting for information regarding the estimated
Acclaim Average Common Stock Price and the approximate fraction of a share of
Acclaim Common Stock to be received upon exchange for each share of Lazer-Tron
Common Stock in connection with the Merger.
Assuming approval of the Merger Agreement and the Merger at the Special
Meeting, the closing of the Merger is anticipated to take place no later than
one business day following the date of the Special Meeting or the latest
adjournment thereof (the 'Closing Date').
By way of example, the chart below demonstrates the fraction of a share of
Acclaim Common Stock a Lazer-Tron Shareholder would receive for each share of
Lazer-Tron Common Stock based upon the applicable sample Acclaim Average Common
Stock Prices set forth:
ACCLAIM AVERAGE FRACTION OF A SHARE OF ACCLAIM COMMON
COMMON STOCK ISSUABLE IN EXCHANGE FOR EACH
STOCK PRICE SHARE OF LAZER-TRON COMMON STOCK
--------------- -------------------------------------
$12.50 .640
14.00 .572
16.00 .500
18.00 .500
20.00 .500
22.00 .455
If (i) the Acclaim Average Common Stock Price, or (ii) the average of the
closing sale price of a share of Acclaim Common Stock on The Nasdaq National
Market (as reported in the Wall Street Journal) for the 20 business days ending
on the second business day prior to the Closing Date (the 'Acclaim Average
Closing Common Stock Price'), in either case is less than $12.50, each of
Acclaim and Lazer-Tron, at its sole option, will have the right to give notice
of its election to terminate the Merger Agreement. See 'The Merger--Termination
of the Merger Agreement.' In the event that the Acclaim Average Common Stock
Price or the Acclaim Average Closing Common Stock Price is less than $12.50 and
the Merger Agreement is not terminated, Lazer-Tron will undertake to resubmit
for the approval of Lazer-Tron Shareholders the resulting fraction of a share of
Acclaim Common Stock that would be received for each share of Lazer-Tron Common
Stock.
No certificate representing fractional shares of Acclaim Common Stock shall
be issued upon the surrender for exchange of a certificate of Lazer-Tron Common
Stock, and such fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of Acclaim. Acclaim shall pay cash in
lieu of fractional shares of Acclaim Common Stock to be received in the Merger.
See 'The Merger--Exchange Procedures.'
Assuming the maximum number of shares of Acclaim Common Stock are issuable
pursuant to the Merger (but without giving effect to shares of Acclaim Common
Stock issuable upon exercise of Lazer-Tron Stock Options and Lazer-Tron
Warrants), Lazer-Tron's shareholders ('Lazer-Tron Shareholders') will own an
aggregate of approximately 4.9% of the total outstanding shares of Acclaim
Common Stock after consummation of the Merger.
LAZER-TRON STOCK OPTIONS AND LAZER-TRON WARRANTS
At the Effective Time, each outstanding option to purchase Lazer-Tron
Common Stock (a 'Lazer-Tron Stock Option') granted under the Lazer-Tron 1989
Stock Option Plan (the 'Employee Option Plan') (the Employee Option Plan
together with the Lazer-Tron 1994 Directors Stock Option Plan (the 'Directors
Option Plan') are collectively referred to herein as, the 'Lazer-Tron Stock
Option Plans') and each outstanding warrant (the 'Lazer-Tron Warrants'), whether
vested or unvested, shall, by virtue of the Merger and without any further
action on the part of such holder thereof, be exercisable for that number of
shares of Acclaim Common Stock as the holder of such Lazer-Tron Stock Option or
Lazer-Tron Warrant would have been entitled to receive pursuant
7
to the Merger had such Lazer-Tron Stock Option or Lazer-Tron Warrant been
exercised in full immediately prior to the Effective Time. Currently outstanding
Lazer-Tron Stock Options issued under the Directors Option Plan accelerate as to
vesting and become immediately exercisable in full as a result of the Merger.
The Lazer-Tron Stock Options issued under the Directors Option Plan will expire
by their terms 90 days following resignation of the holders thereof as directors
of Lazer-Tron, which resignations are anticipated to be effective at the
Effective Time.
Holders of Lazer-Tron Stock Options (other than Lazer-Tron Stock Options
issued under the Directors Option Plan and certain non-qualified Lazer-Tron
Stock Options (the 'Non-qualified Lazer-Tron Stock Options') to purchase an
aggregate of up to 25,588 shares of Lazer-Tron Common Stock) will receive, upon
exercise thereof, that number of shares of Acclaim Common Stock, as determined
above, issuable pursuant to the Acclaim 1988 Stock Option Plan, which have
previously been registered under the Securities Act on Form S-8. In addition,
each Sales Agent Warrant, which is exercisable for shares of Lazer-Tron Common
Stock and an additional warrant (the 'Underlying Warrant') to purchase
additional shares of Lazer-Tron Common Stock, will be exercisable for that
number of shares of Acclaim Common Stock as the holder of such Sales Agent
Warrant would have been entitled to receive pursuant to the Merger had such
Sales Agent Warrant (and the Underlying Warrant) been exercised in full
immediately prior to the Effective Time.
The issuance of shares of Acclaim Common Stock upon the exercise of
outstanding (i) Lazer-Tron Warrants, (ii) the Non-qualified Lazer-Tron Stock
Options and (iii) Lazer-Tron Stock Options issued under the Directors Option
Plan are registered pursuant to the Registration Statement of which this
Prospectus/Proxy Statement forms a part, which registration will be kept current
following consummation of the Merger throughout the exercise period of such
Lazer-Tron Stock Options issued under the Directors Option Plan and the Non-
qualified Lazer-Tron Stock Options.
OPINION OF FINANCIAL ADVISOR
Van Kasper & Company ('Van Kasper') has been retained by Lazer-Tron to act
as financial advisor in connection with the Merger and related matters. Van
Kasper has delivered to Lazer-Tron's Board of Directors its written opinion,
dated March 14, 1995, to the effect that, as of such date and based upon the
matters described therein, the consideration to be received in the Merger by
Lazer-Tron Shareholders is fair to such Lazer-Tron Shareholders from a financial
point of view. Reference is made to the full text of such opinion, a copy of
which is reprinted herein in its entirety as Exhibit C hereto. Lazer-Tron
Shareholders are urged to read the opinion in its entirety. See 'The
Merger--Opinion of Financial Advisor.'
SHAREHOLDER APPROVAL
Approval of the Merger Agreement and the Merger by the Lazer-Tron
Shareholders requires the affirmative vote of a majority of the shares entitled
to vote at the Special Meeting. See 'The Merger Vote Required; Recommendation.'
Certain directors, officers, affiliates and shareholders of Lazer-Tron holding
approximately 1,007,047 shares of Lazer-Tron Common Stock (an aggregate of
approximately 28.3% of the total shares outstanding as of the Record Date) have
agreed to vote such shares in favor of the Merger.
The directors and executive officers of Lazer-Tron and their affiliates
hold approximately 22.4% of the total outstanding shares of Lazer-Tron Common
Stock entitled to vote at the Special Meeting. In addition, the parents of
Matthew F. and Bryan M. Kelly (each of whom is an officer and director of
Lazer-Tron) beneficially hold approximately 6.0% of the total outstanding shares
of Lazer-Tron Common Stock entitled to vote at the Special Meeting. As a result,
the current officers, directors and affiliated shareholders of Lazer-Tron will
have significant influence over the shareholder vote on the Merger Agreement and
the Merger.
Lazer-Tron Shareholders may contact Georgeson & Company, Inc., which is
acting as information agent for Lazer-Tron, toll free at 1-800-223-2064 at any
time prior to the Special Meeting for information regarding the estimated
Acclaim Average Common Stock Price and the approximate fraction of a share of
Acclaim Common Stock to be received upon exchange for each share of Lazer-Tron
Common Stock in connection with the Merger.
8
In addition, a registered holder of shares of Lazer-Tron Common Stock may
cast votes or revoke and change prior votes prior to the commencement of the
Special Meeting by dialing toll free at 1-800-521-8454 between 8:00 a.m. and
midnight Eastern Standard Time and following the procedures outlined below.
o The registered holder of shares of Lazer-Tron to be voted should dial the
toll free number listed above and tell the operator that such holder
wishes to send a collect proxygram to Lazer-Tron, identification number
4381.
o The operator will need the registered holder's six digit identification
number appearing in red ink in the upper left hand corner on the reverse
of the proxy card. Each Lazer-Tron Shareholder is advised to keep such
holder's identification number confidential and not to provide such
number to any other parties.
o The operator will have the text of the proxy. The registered holder
should then inform the operator how such holder wishes to vote on the
items listed on the proxy.
o Registered holders should give the operator their name, address and
number of shares exactly as they appear on their proxy card.
Registered holders of shares of Lazer-Tron Common Stock may revoke a
previously submitted proxy by following the telephonic procedure set forth
above. If a registered holder needs assistance such holder may call Georgeson &
Company, Inc. Banks and brokers may call collect at (212) 440-9800; all others
may call toll free at (800)-223-2064.
If a Lazer-Tron Shareholder's shares are registered in the name of a
broker, bank, nominee or other institution, only such broker, bank, nominee or
other institution can vote such shares. These Lazer-Tron Shareholders should not
use the telephonic procedures set forth above to vote any shares registered in
the name of such broker, bank, nominee or other institution on their behalf.
Such Lazer-Tron Shareholders desiring to take advantage of the telephonic voting
procedure should contact their account representative and ask him or her to vote
such shares. See 'The Special Meeting--Voting of Proxies.'
The foregoing procedures do not limit a Lazer-Tron Shareholder's right to
cast a final vote at the Special Meeting by attending the Special Meeting and
revoking any vote previously cast.
THE BOARD OF DIRECTORS OF LAZER-TRON HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF LAZER-TRON AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
LAZER-TRON UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER BY THE LAZER-TRON SHAREHOLDERS. THE PRIMARY FACTORS CONSIDERED AND RELIED
UPON BY THE BOARD OF DIRECTORS OF LAZER-TRON IN REACHING ITS RECOMMENDATIONS ARE
REFERRED TO IN 'THE MERGER--LAZER-TRON'S REASONS FOR THE MERGER.'
RIGHTS OF DISSENTING SHAREHOLDERS
If demands for payment under Chapter 13 of the CGCL are filed with respect
to 5% or more of the outstanding shares of Lazer-Tron Common Stock, the holders
of which vote against the Merger, then such holders shall be entitled to
exercise dissenters' rights to the extent available under Chapter 13 of the
CGCL. In addition, any shares of Lazer-Tron Common Stock whose transfer is
restricted by law or regulation or by Lazer-Tron and that are voted against the
Merger shall be entitled to exercise dissenters' rights to the extent available
under Chapter 13 of the CGCL. If and to the extent dissenters' rights are
available under and have been properly demanded in accordance with the
provisions of Chapter 13 of the CGCL ('Dissenting Shares'), such Dissenting
Shares will not be converted into the right to receive the Merger Consideration
and the holders thereof shall have only such rights as are provided in Chapter
13 of the CGCL. Additionally, it is a condition to consummation of the Merger
that Dissenting Shares and/or shares of common stock of Lazer-Tron capable of
becoming Dissenting Shares will not constitute in excess of 10% of the
Lazer-Tron Common Stock. See 'The Special Meeting--Appraisal and Dissenters'
Rights' and 'The Merger--Conditions to the Merger.'
9
EFFECTIVE DATE OF THE MERGER
If approved by the Lazer-Tron Shareholders, the Merger will become
effective on the later of the date the Merger Agreement, or an appropriate
certificate of merger, is filed with each of the Secretary of State of the
States of Delaware and California (the 'Effective Time'). See 'The
Merger--Effective Date.'
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On or before the Effective Time, certain management personnel of Lazer-Tron
will enter into (i) employment and non-competition agreements with the Surviving
Corporation, (ii) employee option agreements with Acclaim and/or (iii) severance
agreements with Lazer-Tron. Each of Roger Smith, Dr. Morton Grosser and Robert
Pryt, directors of Lazer-Tron, have previously been granted options to purchase
7,000 shares of Lazer-Tron Common Stock at $7.50 per share and 5,000 shares of
Lazer-Tron Common Stock at $12.75 per share, of which 4,500 were vested and
exercisable as of May 31, 1995 at $7.50 per share. As a result of the Merger,
all of such options accelerate as to vesting and become immediately exercisable
in full. Pursuant to the terms of the Directors Option Plan, such options will
expire 90 days following the resignation of the holders thereof as directors of
Lazer-Tron, which resignations are anticipated to be effective as of the
Effective Time. Lazer-Tron has agreed to pay Mr. Smith $100 per hour for
services rendered to Lazer-Tron in connection with the negotiation of the Merger
Agreement and consummation of the Merger. Acclaim has agreed, if the Merger is
consummated, (i) to provide certain benefits to Lazer-Tron employees and (ii)
that the Surviving Corporation will honor all rights to indemnification in favor
of Lazer-Tron's officers and directors and maintain directors' and officers'
liability insurance coverage for a period of six years following the Effective
Time. Lazer-Tron has paid Van Kasper, the underwriter of Lazer-Tron's initial
public offering and holder of Lazer-Tron Warrants to purchase 55,000 shares of
Lazer-Tron Common Stock, a fee of $85,000 for acting as Lazer-Tron's financial
advisor in connection with the Merger and rendering its opinion as to the
fairness of the Merger from a financial point of view. See 'The
Merger--Interests of Certain Persons in the Merger.'
LEGAL PROCEEDINGS RELATING TO THE MERGER
Lazer-Tron and certain of its directors and officers have been named as
defendants in a lawsuit relating to the Merger. Pursuant to the Merger
Agreement, Acclaim has agreed to assume the defense of such lawsuit and to
indemnify Lazer-Tron and its directors and officers from any damages and costs
in connection therewith. See 'The Merger--Legal Proceedings Relating to the
Merger' and '--Indemnification.'
FEDERAL TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (the 'Code').
For a discussion of the federal income tax consequences of the Merger and
certain other transactions contemplated in connection therewith, see 'The
Merger--Certain U.S. Federal Income Tax Matters.'
ACCOUNTING TREATMENT
The Merger is intended to be accounted for as a pooling of interests, which
accounting treatment is also a condition to Acclaim's obligation to consummate
the Merger. In this regard, Dissenting Shares and/or shares of Lazer-Tron Common
Stock capable of becoming Dissenting Shares cannot constitute in excess of 10%
of the Lazer-Tron Common Stock outstanding in order for the Merger to be treated
as a pooling of interests. Certain affiliates of Lazer-Tron and Acclaim have
entered into agreements restricting the sale or other disposition of their
shares of capital stock of Lazer-Tron and Acclaim, as the case may be, prior to
the Merger and the resale or other disposition of shares of Acclaim Common
Stock, including those received in the Merger, in order to meet the requirements
for accounting for the Merger as a pooling of interests. See 'The
Merger--Accounting Treatment' and '--Affiliates Agreements.'
10
REGULATORY APPROVALS
No further federal or state regulatory requirements must be complied with
in order to consummate the Merger. See 'The Merger--Regulatory Approvals'.
EMPLOYMENT AGREEMENTS
Norman B. Petermeier, Bryan M. Kelly and Matthew F. Kelly have each agreed
to enter into an employment and non-competition agreement with the Surviving
Corporation. See 'The Merger--Employment Agreements.'
REPRESENTATIONS, WARRANTIES AND COVENANTS
Pursuant to the Merger Agreement, Lazer-Tron and Acclaim each have made
certain representations, warranties and covenants customary in transactions of
this type. See 'The Merger--Representations and Warranties' and '--Covenants.'
CONDITIONS TO THE MERGER
The obligations of each of Acclaim and Lazer-Tron to consummate the Merger
are subject to certain conditions customary in transactions of this type,
including, among others, (i) the approval of the Merger Agreement by the
Lazer-Tron Shareholders; (ii) obtaining all required consents; and (iii) the
receipt of certain opinions of counsel and accountants' letters. See 'The
Merger--Conditions to the Merger.'
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time by mutual consent of
Acclaim and Lazer-Tron or by either party if, among other conditions, (i) the
Acclaim Average Common Stock Price or the Acclaim Average Closing Common Stock
Price is less than $12.50; (ii) the Merger is not consummated by July 31, 1995;
(iii) the Lazer-Tron Shareholders do not approve the Merger; (iv) in certain
circumstances, Lazer-Tron's Board of Directors accepts, approves or recommends
to the Lazer-Tron Shareholders an Acquisition Transaction (hereinafter defined)
or amends, withholds or withdraws its recommendation of the Merger to the
Lazer-Tron Shareholders; or (v) the conditions to such party's obligations
become impossible to satisfy or are not satisfied, other than as a result of its
own acts or omissions in violation of the Merger Agreement. The Merger Agreement
may also be terminated at any time by Acclaim if there has been a material
breach by Lazer-Tron of the Merger Agreement. The Merger Agreement may also be
terminated at any time by Lazer-Tron if there has been a material breach by
Acclaim of the Merger Agreement. See 'The Merger--Termination of the Merger
Agreement.'
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended by Lazer-Tron or Acclaim at any time
before or after approval of the Merger Agreement by the Lazer-Tron Shareholders,
but, after any such approval, no amendment may be made which by law requires
further approval by such shareholders without obtaining such approval. See 'The
Merger--Amendment of the Merger Agreement.'
NO SOLICITATION
Lazer-Tron has agreed to cease any existing discussions with any third
parties conducted prior to the date of the Merger Agreement with respect to any
Acquisition Transaction. Lazer-Tron, subject to certain exceptions, has agreed
not to solicit, initiate or encourage any persons concerning any Acquisition
Transaction. In the event Lazer-Tron receives a proposal relating to an
Acquisition Transaction, Lazer-Tron's Board of Directors is not prevented,
pursuant to its fiduciary duties, from approving such proposal or recommending
such Acquisition Transaction to Lazer-Tron Shareholders and, in such case,
Lazer-Tron's Board of Directors may amend, withhold or withdraw its
recommendation of the Merger, which actions may result in the payment to Acclaim
of the Break-up Fee described herein and the exercisability of the stock option
granted to Acclaim as described below. See 'The Merger--No Solicitation.'
11
BREAK-UP FEE
In the event that (i) Lazer-Tron or Lazer-Tron's Board of Directors
exercises its rights described under 'The Merger--No Solicitation' in connection
with an Acquisition Transaction and (ii) as a result, the Merger is not
consummated or the Merger Agreement is terminated, then Lazer-Tron must pay to
Acclaim: (x) $200,000 and (y) if such Acquisition Transaction is consummated
within one year, a sum equal to 5% of the value (less the $200,000 payment) of
the aggregate consideration actually received in connection with such
Acquisition Transaction. See 'The Merger--Break-up Fee.'
STOCK OPTION AGREEMENT
Pursuant to the terms of the Merger Agreement, Lazer-Tron has granted to
Acclaim an option to purchase up to 250,000 shares of Lazer-Tron Common Stock at
an exercise price of $8.00 per share, which option may only be exercised (for a
two year period) in the event (i) of a suit or proceeding to enjoin, prevent,
restrain, set aside or invalidate the Merger Agreement or the Merger or seeking
damages from or to impose obligations upon Lazer-Tron or Acclaim or (ii)
Lazer-Tron's Board of Directors considers, responds to or provides information
regarding Lazer-Tron in connection with, or is approached by a third party with
respect to, an Acquisition Transaction, and as a result, in either case, the
Merger is not consummated. See 'The Merger--Stock Option Agreement.'
BUSINESS OF THE COMPANIES
ACCLAIM
Acclaim, together with its subsidiaries (Acclaim and its subsidiaries are
collectively referred to herein as the 'Company'), is an entertainment publisher
which engages in or plans to engage in (i) the publication of interactive
entertainment software ('Software') for use with interactive entertainment
hardware platforms; (ii) the development and publication of comic books, which
commenced in July 1994 through the acquisition of Acclaim Comics, Inc., formerly
Voyager Communications Inc.; (iii) the marketing of its motion capture
technology and studio services, which commenced in the first quarter of fiscal
1995; (iv) the distribution of coin-operated arcade games, which is anticipated
to commence in fiscal 1996 (and, with respect to redemption games, will commence
upon the consummation of the Merger); (v) the distribution of Software for
affiliated labels, which commenced in the first quarter of fiscal 1995; and (vi)
the electronic distribution of interactive entertainment through the partnership
established in October 1994 between a subsidiary of Acclaim and a subsidiary of
Tele-Communications, Inc. To date, the Company's principal business has been as
a leading publisher of Software for dedicated interactive entertainment hardware
platforms. The Company is currently engaged in two industry segments: the
development and publication of Software and the development and publication of
comic books.
A Delaware corporation, Acclaim, was founded in 1987. The Company has
overseas operations in Japan, Canada, France, Germany, Spain and the United
Kingdom. The Company's executive offices are located at One Acclaim Plaza, Glen
Cove, New York 11542-2708 and its telephone number is (516) 656-5000.
For additional information regarding Acclaim and the interactive
entertainment industry, see 'Information Concerning Acclaim.'
LAZER-TRON
Lazer-Tron designs, develops, manufactures and markets coin- and
token-operated redemption games for use by family entertainment centers and
other entertainment venues, including shopping malls, free standing arcades and
amusement and theme parks. Redemption games award a player tickets based on the
player's skill level in playing the game. The tickets may be redeemed for prizes
or merchandise. Lazer-Tron currently offers 19 ticket and 2 non-ticket
redemption coin- or token-operated games. See 'Business of Lazer-Tron.'
Lazer-Tron is a California corporation, incorporated in 1988. The term
'Lazer-Tron' refers to Lazer-Tron Corporation and its subsidiary, Lazer-Tron
Limited. Lazer-Tron's executive offices are located at 4430 Willow Road,
Pleasanton, California 94588 and its telephone number is (510) 460-0873.
12
MARKET PRICES OF ACCLAIM COMMON STOCK AND LAZER-TRON COMMON STOCK
On March 6, 1995, the last trading date prior to the date a letter of
intent relating to the proposed Merger was publicly announced, the closing price
per share of Acclaim Common Stock and Lazer-Tron Common Stock, as reported by
The Nasdaq National Market, was approximately $15.13 and $7.88, respectively.
See 'Market For Acclaim and Lazer-Tron Common Equity and Related Shareholder
Matters.'
SELECTED COMPARATIVE DATA
The following table sets forth certain historical comparative data of
Acclaim and Lazer-Tron for the periods indicated (amounts shown in thousands):
SIX NINE
MONTHS MONTHS
FISCAL YEAR ENDED ENDED ENDED
------------------------ -------- ----------
8/31/94 6/30/94 2/28/95 3/31/95
-------- ---------- -------- ----------
ACCLAIM LAZER-TRON ACCLAIM LAZER-TRON
-------- ---------- -------- ----------
Sales............................................... $480,756 $ 15,377 $318,377 $ 9,900
Gross Profit........................................ $260,012 $ 5,169 $171,785 $ 3,269
Total Assets........................................ $335,878 $ 13,291 $426,055 $ 13,844
Stockholders Equity................................. $175,243 $ 11,033 $295,050 $ 12,580
Net Income.......................................... $ 45,055 $ 1,693 $ 29,225 $ 401
COMPARATIVE PER SHARE DATA
The following table sets forth for the periods indicated book value and
earnings per share on a historical basis for the Acclaim Common Stock and the
Lazer-Tron Common Stock. Neither Acclaim nor Lazer-Tron has paid any cash
dividends since inception.
FISCAL YEAR ENDED
SIX MONTHS AUGUST 31,
ENDED -----------------------
ACCLAIM FEBRUARY 28, 1995 1994 1993 1992
---------------------------------------------------------------------- ----------------- ----- ----- -----
Before Merger:
Net income per share................................................ $ .62 $1.00 $ .63 $ .37
Book value per share................................................ 6.22 3.89 2.16 1.71
FISCAL YEAR ENDED
SIX MONTHS JUNE 30,
ENDED -----------------------
LAZER-TRON MARCH 31, 1995 1994 1993 1992
---------------------------------------------------------------------- ----------------- ----- ----- -----
Before Merger:
Net income per share................................................ $ .02 $ .59 $ .25 $ .05
Book value per share................................................ 3.12 3.82 .94 .08
FISCAL YEAR ENDED
SIX MONTHS AUGUST 31,
ENDED -----------------------
FEBRUARY 28, 1995 1994 1993 1992
----------------- ----- ----- -----
Pro Forma Combined(1)
After Merger:
Equivalent net income per share..................................... $ .59 $ .99 $ .62 $ .35
Equivalent book value per share..................................... 6.15 3.97 2.13 1.64
------------------
(1) Pro forma amounts are calculated based on the assumption that the Merger
Consideration will be paid in shares of Acclaim Common Stock for all
outstanding shares of Lazer-Tron Common Stock and reflect the dilutive
effect of outstanding Lazer-Tron Options and Lazer-Tron Warrants, which
would result in the issuance of an aggregate of approximately 2,583,000
equivalent shares of Acclaim Common Stock.
13
ACCLAIM SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The following tables should be read in conjunction with the financial
statements of Acclaim and the notes thereto appearing in Acclaim's Form 10-K for
the fiscal year ended August 31, 1994 and the related 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' appearing therein
and the financial statements of Acclaim appearing in Acclaim's Form 10-Q for the
fiscal quarter ended February 28, 1995 and the related 'Management's Discussion
and Analysis of Financial Condition and Results of Operations' appearing
therein. The selected financial data has been derived from the financial
statements of Acclaim, which (other than as of and for the six months ended
February 28, 1994 and 1995) have been audited by Grant Thornton LLP for the
fiscal years ended August 31, 1991 through 1994 and by other auditors for the
fiscal year ended August 31, 1990. The results of operations for the six months
ended February 28, 1995 are not necessarily indicative of the results of
operations for the full fiscal year.
SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, FEBRUARY 28,
-------------------------------------------------------- --------------------
1990(1) 1991 1992(2) 1993 1994(3) 1994 1995(4)
-------- -------- -------- -------- -------- -------- --------
STATEMENT OF OPERATIONS
DATA:
Net revenues................ $141,470 $122,136 $214,628 $327,091 $480,756 $242,891 $318,377
Cost of revenues............ 75,377 76,423 114,114 170,748 220,744 107,285 146,592
Gross profit................ 66,093 45,713 100,514 156,343 260,012 135,606 171,785
Selling, advertising,
general and administrative
expenses.................. 40,493 46,989 68,642 104,986 176,725 93,631 116,665
Operating interest.......... 2,550 3,628 1,583 1,183 1,979 1,072 1,912
Depreciation and
amortization.............. 763 2,394 3,197 3,227 3,838 1,681 3,572
Earnings (loss) from
operations................ 22,287 (7,298) 27,092 46,947 77,470 39,222 49,636
Other income (expense),
net....................... 830 (444) (3,255) 1,138 (475) (33) 289
Earnings (loss) before
income taxes.............. 23,117 (7,742) 23,837 48,085 76,995 39,189 49,925
Net earnings (loss)......... 14,232 (5,839) 13,846 28,185 45,055 22,974 29,225
Net earnings (loss) per
common share and common
equivalent share.......... $ 0.51 $ (0.21) $ 0.37 $ 0.63 $ 1.00 $ 0.51 $ 0.62
------------------
(1) Includes results of operations of LJN Toys Ltd. from April 20, 1990.
(2) Includes results of operations of Arena Entertainment Inc. from January 4,
1992.
(3) Includes results of operations of Acclaim Comics, Inc. from July 29, 1994.
(4) Includes results of operations of Iguana Entertainment, Inc. from January 5,
1995.
AT AUGUST 31, FEBRUARY 28,
-------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
Working capital............. $ 30,211 $ 16,654 $ 51,402 $ 80,564 $131,820 $112,488 $181,232
Total assets................ 76,063 75,608 129,179 206,771 335,878 209,317 426,055
Current portion of long-term
debt...................... 87 4,087 87 87 1,538 87 40,196
Long-term liabilities....... 5,850 3,030 3,380 2,538 41,754 2,610 1,710
Stockholders' equity........ 39,299 32,667 64,706 96,867 175,243 129,192 295,050
14
LAZER-TRON SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The selected financial data set forth below, with respect to Lazer-Tron's
statements of income for the years ended June 30, 1992, 1993 and 1994 and with
respect to Lazer-Tron's balance sheets at June 30, 1993 and 1994, is derived
from financial statements of Lazer-Tron that have been audited by Ernst & Young
LLP, independent auditors. The selected financial data, with respect to
Lazer-Tron's statements of income for the nine months ended March 31, 1994 and
1995, and with respect to Lazer-Tron's balance sheet at March 31, 1995, is
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting only of normal recurring accruals, that
Lazer-Tron considers necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for the nine
months ended March 31, 1995 are not necessarily indicative of the results that
may be expected for the entire year ending June 30, 1995. The data should be
read in conjunction with the financial statements of Lazer-Tron, related notes
and other information included herein.
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
--------------------------- ------------------
1992 1993 1994 1994 1995
------ ------ ------- ------- -------
STATEMENT OF INCOME DATA:
Net sales.................................................. $2,922 $7,215 $15,377 $10,288 $ 9,900
Cost of sales.............................................. 2,189 5,099 10,208 6,917 6,631
------ ------ ------- ------- -------
Gross profit............................................ 733 2,116 5,169 3,371 3,269
Operating expenses:
Research and development................................ 88 181 452 330 1,005
Selling, general and administrative..................... 444 982 1,947 1,297 1,582
------ ------ ------- ------- -------
Total operating expenses.............................. 532 1,163 2,399 1,627 2,587
------ ------ ------- ------- -------
Operating income........................................... 201 953 2,770 1,744 682
Merger costs............................................... -- -- -- -- (249)
Interest income (expense), net............................. (40) (33) 51 15 288
------ ------ ------- ------- -------
Income before income taxes................................. 161 920 2,821 1,759 721
Provision for income taxes................................. 22 252 1,128 705 320
------ ------ ------- ------- -------
Net income................................................. $ 139 $ 668 $ 1,693 $ 1,054 $ 401
====== ====== ======= ======= =======
Net income per share(1)...................................... $ 0.05 $ 0.25 $ 0.59 $ 0.38 $ 0.10
====== ====== ======= ======= =======
Number of shares used in computing per share amounts(1).... 2,648 2,670 2,888 2,785 4,036
====== ====== ======= ======= =======
AT
MARCH
AT JUNE 30, 31,
------------------- --------
1993 1994 1995
------ ------- --------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................... $1,822 $ 7,255 $ 7,893
Working capital........................................................ 2,341 10,727 12,112
Total assets........................................................... 3,941 13,291 13,844
Long-term debt......................................................... -- -- --
Total shareholders' equity............................................. 2,516 11,033 12,580
------------------
(1) For a description of the computation of the net income per share and the
number of shares used in computing per share amounts, see Note 1 of Notes to
Financial Statements.
15
RISK FACTORS
Investors in Lazer-Tron or Acclaim should carefully consider the following
factors, among others, relating to Lazer-Tron and its business.
Investment in Acclaim. In the event that the Merger is consummated, each
Lazer-Tron Shareholder who becomes a stockholder of Acclaim will be exposed to
different investment considerations by reason of that shareholder's ownership of
Acclaim Common Stock rather than Lazer-Tron Common Stock. Lazer-Tron designs,
develops, manufacturers and markets coin- and token-operated redemption games
for use by entertainment venues, whereas Acclaim's principal business has been
as a leading publisher of software for dedicated interactive entertainment
hardware platforms. Acclaim anticipates that the interactive entertainment
industry will undergo significant changes in both the short- and long-term
future due, in large part, to the introduction of the next generation of
Entertainment Platforms incorporating 32- and 64-bit processors, as well as the
success of personal computer/compact disk/multimedia hardware systems ('PC CD
Systems'), the development of remote and electronic delivery systems and the
entry and participation of new companies in the industry. Accordingly, each
Lazer-Tron Shareholder should consider these different businesses in considering
whether to vote for the Merger Agreement and the Merger at the Special Meeting.
See 'Business of Lazer-Tron' and 'Information Concerning Acclaim.'
Rights as Holders of Acclaim Common Stock. Upon consummation of the
Merger, the former shareholders of Lazer-Tron, which is a corporation organized
under the CGCL, will become stockholders of Acclaim, a corporation organized
under the DGCL. After the Effective Time, the rights of the Lazer-Tron
Shareholders who become stockholders of Acclaim will no longer be governed by
Lazer-Tron's Amended and Restated Articles of Incorporation and Amended and
Restated Bylaws and the CGCL, but instead will be governed by Acclaim's
Certificate of Incorporation and Bylaws and the DGCL. See 'Comparison of Rights
of Holders of Acclaim Common Stock and Holders of Capital Stock of Lazer-Tron'
for a summary comparison of certain differences between the rights of Lazer-Tron
Shareholders and the rights of Acclaim stockholders.
Dilution of Voting Power. Each former shareholder of Lazer-Tron will own a
significantly smaller percentage of the outstanding shares of Acclaim Common
Stock immediately following the Effective Time than the percentage of the
outstanding shares of Lazer-Tron Common Stock which that shareholder owned
immediately prior to the Effective Time. Consequently, the Merger will cause an
immediate dilution of each such Lazer-Tron Shareholder's voting power relative
to the outstanding shares of Acclaim. Lazer-Tron Shareholders will own in the
aggregate approximately 4.9% of the total outstanding Acclaim Common Stock
immediately following consummation of the Merger.
Recent Market Developments. Lazer-Tron's net sales and net income for its
last two quarters ended December 31, 1994 and March 31, 1995 are below
Lazer-Tron's net sales and net income levels for the comparable quarters in the
immediately previous year, due in part to a general softness in demand for new
game sales to arcade/family entertainment centers. According to industry trade
magazines, owner-operators of family entertainment centers and other
entertainment venues ('Operators') are experiencing a decline in revenue, due in
part to the absence of a recent 'hit' video game which helps draw customers to
the arcade. In addition, during recent periods, the redemption game segment of
the coin-operated game market has experienced slower expansion of the number of
new family entertainment center and arcade locations, an increasing
consolidation of business at the Operator and distributor levels, as well as
increased competition among existing and new game manufacturers. Large companies
such as Sega, Namco, Sony, Blockbuster and Cineplex Odeon movie theaters have
announced plans to enter, or expand their presence within, the location-based
entertainment business. Certain of these companies offer their own games which
may create greater competition among game suppliers, as well as affect the
ability of small Operators to compete. In addition, the historical growth in the
redemption game market has attracted new competitors to the market. Although
these competitors were initially small closely held companies, recently large
game manufacturers such as Time Warner Interactive (which includes Atari), Sega,
Data East, Konami, Sammy, Electronic Arts and Mattel have entered or announced
their intention to enter, or to expand their presence within, the coin-operated
redemption game market. While Lazer-Tron believes these recent market
developments could adversely affect its business, Lazer-Tron's management
believes that the Merger, and the advantages of being allied with Acclaim, may
assist Lazer-Tron in meeting the challenges of these competitors.
16
See 'Business of Lazer-Tron--Competition', 'The Merger--Lazer-Tron's Reasons for
the Merger' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations of Lazer-Tron.'
Dependence on New Products. Historically, Lazer-Tron has derived most of
its revenue from an arcade game within the first few years of its introduction.
Accordingly, to maintain or increase its net sales, Lazer-Tron must successfully
develop and market new products at an increasingly rapid pace to replace
declining revenues from older games. For fiscal 1993, sales of Spin-to-Win,
initially shipped in August 1992, accounted for approximately 60% of
Lazer-Tron's net sales; in fiscal 1994, sales of the Spin-to-Win series
(includes Spin-to-Win, Jungle Rama and Spin A 21) and two games initially
shipped in 1994, Ribbit Racin and Aftershock, accounted for approximately 70% of
Lazer-Tron's total net sales; and for the first nine months of fiscal 1995,
sales of the Spin-to-Win series, Aftershock, Ribbit Racin and three games
initially shipped in fiscal 1994, Pirate's Gold and Pogger (single and four
player), accounted for approximately 70% of Lazer-Tron's total net sales.
Creation of a successful game is subject to a number of variables which are
difficult to predict. For a new game to be successful, it should involve a novel
concept, incorporate newer technologies, incline the consumer to play the game
multiple times and should be easy for a variety of age groups to play, yet be
difficult to master. Consumer preferences and acceptance of games is highly
subjective and can depend in part upon current trends in the entertainment
marketplace, the availability of alternative games and other sources of
entertainment. If Lazer-Tron is not successful in introducing new products which
gain market acceptance, Lazer-Tron's business and operating results would be
adversely affected. See 'Business of Lazer-Tron--Products,' '--Product
Development' and '--Customers and Backlog.'
Technological Change; Increasing Cost and Complexity of Product
Development; Product Delays. Lazer-Tron believes that a key factor in its
ability to successfully introduce new games in the future will be its ability to
continue to incorporate newer technologies into its games. The length of time
required to develop Lazer-Tron's games has typically ranged from eight to twelve
months. However, as new games become increasingly complex and sophisticated,
longer and more costly development cycles may be expected. Increased product
development expenditures may result in greater financial risks to Lazer-Tron and
impact quarterly operating results if the games are not successful or are
introduced to the market on a delayed basis. In the past, Lazer-Tron has
experienced delays in the introduction of new games and these delays may occur
in the future. If new games are not introduced when planned, Lazer-Tron's
business and operating results could be adversely affected. See 'Business of
Lazer-Tron--Product Development' and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations of Lazer-Tron.'
Potential Quarterly Fluctuations. Lazer-Tron's operating results are
subject to quarterly fluctuations due to a variety of factors, including
seasonal customer demand, timing of new product introductions, competitive
pressures and general economic conditions. Family entertainment centers and
other entertainment venues experience seasonal fluctuations in customer
patronage and revenues, with revenues typically the highest when schools are not
in session and during periods of peak shopping mall activity. Accordingly,
industry-wide sales of games to the arcade marketplace have historically been
subject to seasonal fluctuations, with significant concentrations of orders and
shipments occurring prior to summer (fourth fiscal quarter) and, to a lesser
extent, prior to Christmas (second fiscal quarter). These seasonal factors have
adversely impacted Lazer-Tron's first and third fiscal quarter operating
results, and Lazer-Tron expects these factors to continue to have this impact.
In addition, Lazer-Tron has significantly increased its investment in research
and development, and if such efforts do not result in increased revenues,
operating results will be further adversely affected. Lazer-Tron's expenses are
based, in part, on anticipated future revenue. A significant portion of
Lazer-Tron's marketing, administrative and development expenses does not vary in
relation to revenues. Accordingly, if revenues fluctuate or are below
expectations, Lazer-Tron's business and operating results would be adversely
affected. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations of Lazer-Tron.'
Competition. Lazer-Tron's current games compete with other redemption
games, as well as with video, sports and other electronic games, for acceptance
and floor space at family entertainment centers and other entertainment venues.
Demand for Lazer-Tron's products may be adversely affected by the increasing
number of competitive games available to Operators. Competition has also
increased in the redemption game market in recent periods, as existing
competitors and new competitors have entered the redemption game market.
Lazer-Tron's games also compete with arcade video games which typically offer
graphics, animation and other features different than those incorporated in
Lazer-Tron's products. Further, competitors may seek to develop
17
games which resemble or emulate Lazer-Tron's games, which could adversely impact
sales. Lazer-Tron's competitors include both domestic and foreign companies,
some of which have substantially greater financial, technical and marketing
resources than those of Lazer-Tron. See 'Business of Lazer-Tron--Competition.'
Competing Entertainment Alternatives. Lazer-Tron's games, and the family
entertainment centers and other entertainment venues which purchase its games,
compete with other forms of entertainment, both within and outside of the home.
The out-of-the-home entertainment industry is experiencing significant change
due to technological developments, the demand for family entertainment and
shifting consumer preferences. Numerous out-of-the-home entertainment
alternatives are being developed, and additional offerings are expected to be
created in response to these developments that are or may be directly
competitive with Lazer-Tron's games and the redemption industry generally. There
can be no assurance that Lazer-Tron's games or the redemption game industry will
continue to compete effectively, or that new developments in out-of-the-home
entertainment will not result in changes in consumer preferences that will make
Lazer-Tron's games less attractive to consumers.
Similarly, alternative forms of in-the-home entertainment are greatly
expanding and are expected to change significantly with the advent of such
offerings as interactive television and use of multi-media entertainment on
computers. New product offerings for in-the-home use can affect where consumers
elect to spend their entertainment time and money. To the extent consumers elect
in-the-home entertainment over out-of-the-home entertainment, Lazer-Tron's
market opportunities and its operating results could be adversely affected.
Risks of Entry to Arcade Video Game Market. Lazer-Tron is seeking to
develop redemption video games and, possibly, other types of arcade video games,
which strategy involves significant risks. Lazer-Tron has not previously
developed video game products, which involve complex and technologically
sophisticated development of high-quality video graphics and sound. In order to
develop video games, Lazer-Tron has hired additional engineers, including those
with video game experience. The time, potential delays and cost to develop these
games are expected to be similar to or greater than for Lazer-Tron's prior
products. If Lazer-Tron elects to address the arcade video game market,
Lazer-Tron will face significant new challenges, including intense competition
from large companies with established market positions in the video games
marketplace. In addition, the market for arcade video games is undergoing rapid
technological changes, with new platforms, standards and technologies being
introduced which could impact any products Lazer-Tron might develop. There can
be no assurance that Lazer-Tron will be able successfully to develop video games
for the redemption market or the general arcade video game market. See 'Business
of Lazer-Tron--Product Development' and '--Competition.'
Dependence upon Distributors. Substantially all of Lazer-Tron's net sales
are derived from sales to approximately 30 domestic distributors, 19 foreign
distributors and several major family entertainment center and arcade Operators.
In fiscal 1993, Nickels and Dimes, Incorporated, the Operator of the 'Tilt' and
'Gold Rush' chains of family entertainment centers, accounted for approximately
11% of net sales; for fiscal 1994 and the first nine months of fiscal 1995, no
single customer accounted for more than 10% of net sales. Loss of any of
Lazer-Tron's major distributors or major Operators, or a significant decrease in
product shipments to, or an inability to collect amounts due from, any of these
customers, could have an adverse effect on Lazer-Tron's business and operating
results. In addition, Lazer-Tron believes the distribution business for the
coin-operated game industry is undergoing a consolidation resulting in fewer
distributors, which may have the effect of decreasing demand for new games and
increasing pricing pressure on game manufacturers. See 'Business of
Lazer-Tron--Marketing and Distribution' and '--Customers and Backlog.'
Dependence on Key Personnel. Lazer-Tron's ability to create, develop and
market its games, and to manage its growth, has been highly dependent upon three
of its executives--Norman B. Petermeier, President and Chief Executive Officer;
Matthew F. Kelly, Vice President of Marketing; and Bryan M. Kelly, Vice
President of Engineering. Lazer-Tron's success also depends on its ability to
attract and retain additional key technical, management and other personnel. The
game industry is characterized by a high level of employee mobility and
aggressive recruiting of skilled personnel, in particular, engineers. There can
be no assurance that Lazer-Tron will be successful in attracting and retaining
key personnel. The loss of the services of any of its key executives or the
failure to attract and retain other key personnel could have an adverse effect
on Lazer-Tron's business. See 'Business of Lazer-Tron--Employees'.
18
Management of Business. Lazer-Tron's recent status as a public company,
expansion of its research and development and sales efforts and recent rapid
growth in the number of its employees has placed substantial burdens on its
management resources and controls. Lazer-Tron's ability to manage its business
effectively will require it to continue to implement and improve its
operational, financial and management information systems and controls, and to
train, motivate and manage its employees. Lazer-Tron's failure to manage its
business effectively could have an adverse effect on Lazer-Tron's business and
operating results.
Governmental Regulation. The games produced by Lazer-Tron are intended to
be games of skill or predominantly of skill. To the extent that Lazer-Tron's
games are deemed to be games of chance or not predominantly of skill under
federal or California law or the law of any other jurisdiction in which the
games are located, they would be regulated by gambling or similar laws of that
jurisdiction and could be banned. In addition, local municipalities and
governments often regulate the types of games that can be played and the
location of arcades in their jurisdiction. Where appropriate, Lazer-Tron seeks a
legal opinion to the effect that a game is a game of skill. On occasion local
authorities have prohibited the installation of certain of Lazer-Tron's games.
Lazer-Tron believes that these occurrences have not materially adversely
affected the business of Lazer-Tron; however, there can be no assurance that
similar events in the future would not have an adverse effect on Lazer-Tron's
business or operating results.
International Sales. In fiscal 1993, 1994, and the first nine months of
fiscal 1995, international sales, principally to distributors in the Far East,
accounted for approximately 24%, 21% and 31% respectively, of Lazer-Tron's net
sales. Lazer-Tron anticipates that international sales may continue to account
for a significant portion of Lazer-Tron's net sales. Lazer-Tron's international
business is subject to special risks, including fluctuating exchange rates,
changes in export controls, tariffs and other regulatory requirements, in
addition to currency controls and political and economic risks. International
sales are denominated in United States dollars and most are backed by letters of
credit, which reduces the risks attendant with such sales. See 'Business of
Lazer-Tron--Customers and Backlog.'
Patent and Proprietary Rights. While Lazer-Tron has actively sought patent
protection in the United States on its games where available, it has not to date
obtained patent protection outside of the United States, nor can there be any
assurances that any existing or future patent will provide meaningful protection
from competition. Lazer-Tron may be unable, for financial or other reasons, to
enforce its rights under any patent that it has obtained or may obtain in the
future. In the past, Lazer-Tron has settled a claim that one of its games
violated patents of another party, resulting in the payment of royalties. In
addition, a complaint has recently been filed against Lazer-Tron alleging
trademark infringement. There can be no assurance that in the future
Lazer-Tron's products will not be claimed to violate or infringe patents,
tradenames or marks or other proprietary rights of others which will require
Lazer-Tron to enter into royalty arrangements or result in costly litigation
which might be resolved adversely to Lazer-Tron. See 'Business of
Lazer-Tron--Patents, Proprietary Rights and Licenses' and '--Legal Proceedings.'
Risk of Product Liability; Availability of Insurance. The design,
development and manufacture of Lazer-Tron's games involve an inherent risk of
product liability claims and associated adverse publicity. Although Lazer-Tron
currently maintains product liability insurance in the amount of $1,000,000,
there can be no assurance that the coverage limits of Lazer-Tron's insurance
policy will be adequate. There also can be no assurance that Lazer-Tron will be
able to maintain product liability insurance on acceptable terms or with
adequate coverage against potential liabilities. A successful claim brought
against Lazer-Tron in excess of Lazer-Tron's insurance coverage could have an
adverse effect upon Lazer-Tron's business and its financial condition.
Volatility of Stock Price. The public trading market for Lazer-Tron Common
Stock was first established after Lazer-Tron's initial public offering in May
1994. Between the date of Lazer-Tron's initial public offering and May 31, 1995,
the market price of Lazer-Tron Common Stock has traded at a high of $15.75 per
share and a low of $7.00 per share. See 'Market For Acclaim and Lazer-Tron
Common Equity and Related Shareholder Matters.' Future announcements concerning
Lazer-Tron or its competitors, including quarterly results, technological
innovations, new product introductions, governmental regulation, litigation or
changes in earnings estimates published by analysts, may cause the market price
of Lazer-Tron Common Stock to fluctuate substantially. The stock market has from
time to time experienced extreme price and volume fluctuations which
19
have particularly affected the market price for many emerging growth companies
and which often have been unrelated to the operating performance or prospects of
these companies. These fluctuations, as well as general economic, political and
market conditions, such as recessions or international currency fluctuations,
may adversely affect the market price of Lazer-Tron's Common Stock. There can be
no assurance that the market price of Lazer-Tron Common Stock will not decline
below its present market price. In addition, the trading volume of Lazer-Tron's
Common Stock has been relatively low. Accordingly, relatively modest volumes of
sales or purchases of Lazer-Tron Common Stock have, and in the future could
cause, fluctuations in Lazer-Tron's stock price, affecting the ability of
shareholders to effectively buy or sell Lazer-Tron's Common Stock.
Shares Issuable Pursuant to Options and Warrants. As of May 31, 1995,
Lazer-Tron has outstanding warrants to purchase 581,233 shares of Lazer-Tron
Common Stock at a weighted average exercise price of approximately $4.99 per
share. See 'Description of Lazer-Tron Capital Stock--Lazer-Tron Warrants.' In
addition, as of May 31, 1995, there are outstanding options to purchase up to
440,442 shares of Lazer-Tron Common Stock at a weighted average exercise price
of approximately $4.97 per share under the Lazer-Tron Stock Option Plans. As
long as these warrants and options are outstanding, the holders thereof are
given the opportunity to profit from a rise in the market price of Lazer-Tron
Common Stock without assuming the risks of ownership. Exercise of these options
and warrants might dilute the net book value per share of Lazer-Tron Common
Stock. The existence of the warrants and options may also adversely affect the
terms on which Lazer-Tron can obtain additional equity financing. Moreover, the
holders are likely to exercise their warrants and options at times when
Lazer-Tron would otherwise be able to obtain capital on terms more favorable
than could be obtained through the exercise of the warrants and options.
Control by Officers and Directors. Officers and directors of Lazer-Tron,
as a group, beneficially owned as of May 31, 1995 approximately 27.0% of the
outstanding Lazer-Tron Common Stock, giving effect to the exercise of all
outstanding options held by these persons which are exercisable within sixty
days of May 31, 1995. In addition, as of May 31, 1995, the parents of Matthew F.
and Bryan M. Kelly beneficially held approximately 6.0% of the outstanding
Lazer-Tron Common Stock. As a result, the current officers and directors and
affiliated shareholders of Lazer-Tron have significant influence over the
affairs of Lazer-Tron requiring shareholder approval. See 'Security Ownership of
Certain Beneficial Owners and Management of Lazer-Tron.'
20
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on July 21, 1995 at 9:00 a.m., local time,
at the Sheraton Inn located at 5115 Hopyard Road, Pleasanton, California.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Lazer-Tron Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Special Meeting.
As of the close of business on the Record Date, there were 3,563,832 shares of
Lazer-Tron Common Stock outstanding and entitled to vote, held of record by
approximately 213 shareholders (although Lazer-Tron has been informed that there
are approximately 1,800 beneficial owners). A majority of these shares, present
in person or represented by proxy, will constitute a quorum for the transaction
of business. Proxies marked to abstain from voting on a proposal and broker non-
votes will be included in determining the presence of a quorum. Each Lazer-Tron
shareholder is entitled to one vote for each share of Lazer-Tron Common Stock
held as of the Record Date.
VOTING OF PROXIES
The Lazer-Tron proxy accompanying this Prospectus/Proxy Statement is
solicited on behalf of the Board of Directors of Lazer-Tron for use at the
Special Meeting. Lazer-Tron Shareholders are requested to complete, date and
sign the accompanying proxy and promptly return it in the accompanying envelope
or otherwise mail or deliver it to Lazer-Tron. All proxies that are properly
executed and returned, and that are not revoked, will be voted at the Special
Meeting in accordance with the instructions indicated on the proxies or, if no
direction is indicated, to approve the Merger Agreements and the Merger.
Lazer-Tron's Board of Directors does not presently intend to bring any business
before the Special Meeting other than the proposal referred to in this
Prospectus/Proxy Statement and specified in the notice of the Special Meeting.
So far as is known to Lazer-Tron's Board of Directors, no other matters are to
be brought before the Special Meeting. As to any business that may properly come
before the Special Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting such proxies. A Lazer-Tron Shareholder who has given a proxy
may revoke it at any time before it is exercised at the Special Meeting, by (i)
delivering to the Secretary of Lazer-Tron (by any means, including facsimile) a
written notice, bearing a date later than the proxy, stating that the proxy is
revoked, (ii) signing and so delivering prior to the vote at the Special Meeting
a proxy relating to the same shares and bearing a later date or (iii) attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not, by itself, revoke a proxy).
Lazer-Tron Shareholders may contact Georgeson & Company, Inc., which is
acting as information agent for Lazer-Tron, toll free at 1-800-223-2064 at any
time prior to the Special Meeting for information regarding the estimated
Acclaim Average Common Stock Price and the approximate fraction of a share of
Acclaim Common Stock to be received upon exchange for each share of Lazer-Tron
Common Stock in connection with the Merger.
In addition, a registered holder of shares of Lazer-Tron Common Stock may
cast votes or revoke and change prior votes prior to the commencement of the
Special Meeting by dialing toll free at 1-800-521-8454 between 8:00 a.m. and
midnight Eastern Standard Time and following the procedures outlined below.
o The registered holder of shares of Lazer-Tron to be voted should dial the
toll free number listed above and tell the operator that such holder wishes to
send a collect proxygram to Lazer-Tron, identification number 4381.
o The operator will need the registered holder's six digit identification
number appearing in red ink in the upper left hand corner on the reverse of the
proxy card. Each Lazer-Tron Shareholder is advised to keep such holder's
identification number confidential and not to provide such number to any other
parties.
o The operator will have the text of the proxy. The registered holder
should then inform the operator how such holder wishes to vote on the items
listed on the proxy.
o Registered holders should give the operator their name, address and
number of shares exactly as they appear on their proxy card.
Registered holders of shares of Lazer-Tron Common Stock may revoke a
previously submitted proxy by following the telephonic procedure set forth
above. If a registered holder needs assistance such holder may call Georgeson &
Company, Inc. Banks and brokers may call collect at (212) 440-9800; all others
may call toll free at
21
(800) 223-2064.
The foregoing procedures do not limit a Lazer-Tron Shareholder's right to
cast a final vote at the Special Meeting by attending the Special Meeting and
revoking any vote previously cast.
If a Lazer-Tron Shareholder's shares are registered in the name of a
broker, bank, nominee or other institution, only such broker, bank, nominee or
other institution can vote such shares. These Lazer-Tron Shareholders should not
use the telephonic procedures set forth above to vote any shares registered in
the name of such broker, bank, nominee or other institution on their behalf.
Such Lazer-Tron Shareholders desiring to take advantage of the telephonic voting
procedure should contact their account representative and ask him or her to vote
such shares.
VOTE REQUIRED AND VOTING INTENTIONS OF CERTAIN SHAREHOLDERS
Approval by Lazer-Tron Shareholders of the Merger Agreement and the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of Lazer-Tron Common Stock entitled to vote. Proxies marked to abstain
from voting and broker non-votes will have the same effect as votes against
approval of the Merger Agreements and the Merger. Certain executive officers,
directors, affiliates and shareholders of Lazer-Tron, who on the Record Date
together beneficially owned (exclusive of options and warrants) a total of
1,007,047 outstanding shares of Lazer-Tron Common Stock (constituting
approximately 28.3% of the Lazer-Tron Common Stock then outstanding), have
agreed to vote for approval and adoption of the Merger Agreements and the Merger
and the transactions contemplated thereby.
SOLICITATION OF PROXIES AND EXPENSES
Lazer-Tron and Acclaim will equally share all expenses incurred in
connection with the printing and mailing of this Prospectus/Proxy Statement, and
Lazer-Tron will bear all other costs to solicit proxies in the enclosed form
from its shareholders. In addition to solicitation by mail, the directors,
officers and employees of Lazer-Tron may solicit proxies from shareholders by
telephone, facsimile, telegram, letter or in person. Following the original
mailing of the proxies and other soliciting materials, Lazer-Tron will request
brokers, custodians, nominees and other record holders to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
Lazer-Tron Common Stock and to request authority for the exercise of proxies. In
such cases, Lazer-Tron, upon the request of the record holders, will reimburse
such holders for their reasonable expenses.
APPRAISAL AND DISSENTERS' RIGHTS
If the Merger Agreement is approved by the required vote of Lazer-Tron
shareholders and is not abandoned or terminated, each holder of Lazer-Tron
Common Stock who voted against the Merger may, by complying with Sections 1300
through 1312 of the California Law, be entitled to dissenters' rights as
described therein, provided that (i) such holder's shares of Lazer-Tron Common
Stock are subject to restriction on transfer imposed by Lazer-Tron or by law or
regulation or (ii) demands for payment pursuant to such dissenters' rights are
filed with respect to 5% or more of the outstanding shares of Lazer-Tron Common
Stock on or before the date of the Special Meeting. Acclaim's obligation to
consummate the Merger is conditioned on the fact that the holders of no more
than 10% of the outstanding shares of Lazer-Tron Common Stock are entitled to
exercise dissenters' rights. The record holders of the shares of Lazer-Tron
Common Stock which are eligible to, and do, exercise their dissenters' rights
with respect to the Merger are referred to herein as 'Dissenting Shareholders,'
and the shares of stock with respect to which they may exercise dissenters'
rights are referred to herein as 'Dissenting Shares.' If a Lazer-Tron
shareholder has a beneficial interest in shares of Lazer-Tron Common Stock that
are held of record in the name of another person, such as a broker or nominee,
and such shareholder desires to perfect whatever dissenters' rights such
beneficial shareholder may have, such beneficial shareholder must act promptly
to cause the holder of record timely and properly to follow the steps summarized
below.
The following discussion is not a complete statement of the California Law
relating to dissenters' rights, and is qualified in its entirety by reference to
Sections 1300 through 1312 of the California Law attached to this
Prospectus/Proxy Statement as Exhibit B and incorporated herein by reference.
This discussion and Section 1300 through 1312 of the California Law should be
reviewed carefully by any shareholder who wishes to exercise statutory
dissenters' rights or wishes to preserve the right to do so, since failure to
comply with the required procedures will result in the loss of such rights.
Shares of Lazer-Tron Common Stock must satisfy each of the following
requirements to qualify as Dissenting Shares under the California Law: (i) such
shares of Lazer-Tron Common Stock must have been outstanding on the record date
for the determination of the holders of Lazer-Tron Common Stock entitled to vote
on the Merger; (ii) such shares of Lazer-Tron Common Stock must have been voted
against the Merger; (iii) the
22
holder of such shares of Lazer-Tron Common Stock must make a written demand that
Lazer-Tron repurchase shares of Lazer-Tron Common Stock at fair market value and
such demand must be received by either Lazer-Tron or Lazer-Tron's transfer agent
no later than the date of the Special Meeting; and (iv) the holder of such
shares of Lazer-Tron Common Stock must submit certificates for endorsement (as
described below). A vote by proxy or in person against the Merger does not in
and of itself constitute a demand for appraisal under the California Law. In
addition, in order for such shares of Lazer-Tron Common Stock to qualify as
Dissenting Shares, (i) demands for payment must have been filed with respect to
5% or more of the outstanding shares of Lazer-Tron Common Stock on or before the
Special Meeting or (ii) such shares of Lazer-Tron Common Stock must be subject
to restriction on transfer imposed by Lazer-Tron or by any law or regulation.
Pursuant to Sections 1300 through 1312 of the California Law, Dissenting
Shareholders may require Lazer-Tron to repurchase their Dissenting Shares at a
price equal to the fair market value of such shares determined as of the day
before the first announcement of the terms of the Merger, excluding any
appreciation or depreciation in consequence of the Merger, but adjusted for any
stock split, reverse stock split or stock dividend which becomes effective
thereafter. On March 6, 1995, the last full day of trading prior to the public
announcement of the letter of intent relating to the Merger, the closing price
per share of Lazer-Tron Common Stock was $7.88.
The demand of a Dissenting Shareholder must be made in writing upon
Lazer-Tron no later than the date of the Special Meeting and is required by law
to state the number and class of Dissenting Shares held of record by the
Dissenting Shareholder which the Dissenting Shareholder demands that Lazer-Tron
purchase, and to contain a statement of what the Dissenting Shareholder claims
to be the fair market value of the Dissenting Shares as of the day before the
first announcement of the Merger. The statement of fair market value in such
demand by the Dissenting Shareholder constitutes an offer by the Dissenting
Shareholder to sell the Dissenting Shares at such price.
If there are any Dissenting Shareholders, then within 10 days following
approval of the Merger by Lazer-Tron Shareholders, Lazer-Tron is required to
mail to each holder of Dissenting Shares a notice of the approval of the Merger,
a statement of the price determined by Lazer-Tron to represent the fair market
value of Dissenting Shares (which shall constitute an offer by Lazer-Tron to
purchase such Dissenting Shares at such stated price), and a description of the
procedures to be followed for such shareholders to exercise their rights as
Dissenting Shareholders.
Within 30 days after the date on which the notice of the approval of the
Merger by the outstanding shares was mailed to a Dissenting Shareholder, that
shareholder who wishes to be paid the full value of his or her Dissenting Shares
must submit to Lazer-Tron or its transfer agent certificates representing any
Dissenting Shares which the Dissenting Shareholder demands Lazer-Tron purchase,
so that such Dissenting Shares may either be stamped or endorsed with the
statement that the shares are Dissenting Shares or exchanged for certificates of
appropriate denomination so stamped or endorsed.
If, upon a Dissenting Shareholder's surrender of the certificates
representing that Dissenting Shareholder's Dissenting Shares, Lazer-Tron and the
Dissenting Shareholder agree that such shares are Dissenting Shares and agree
upon the price to be paid for such shares, then the agreed price is required by
law to be paid to the Dissenting Shareholder within the later of 30 days after
the date of such agreement or 30 days after any statutory or contractual
conditions to the consummation of the Merger are satisfied, unless provided
otherwise by agreement.
If Lazer-Tron and a Dissenting Shareholder disagree as to whether such
Dissenting Shareholder's proposed Dissenting Shares are entitled to be
classified as Dissenting Shares or as to the fair market value of such shares,
then such Dissenting Shareholder has the right to bring an action in California
Superior Court, within six months after the date on which the notice of the
approval of the Merger by Lazer-Tron Shareholders was mailed to the Dissenting
Shareholder, to resolve such dispute. In such action, the court will determine
whether the shares of Lazer-Tron Common Stock held by such Dissenting
Shareholder are Dissenting Shares, the fair market value of such shares, or
both. The California Law provides, among other things, that a Dissenting
Shareholder may not withdraw a demand for payment of the fair market value of
Dissenting Shares unless Lazer-Tron consents to such request for withdrawal.
Prior to the Effective Time, Lazer-Tron shall give Acclaim prompt notice of
any written demands for appraisal or withdrawals of demands for appraisal
received by Lazer-Tron and, except with the prior written consent of Acclaim,
shall not settle or offer to settle any such demands.
23
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between Acclaim
and Lazer-Tron in which Holdings, a recently formed wholly-owned subsidiary of
Acclaim would be merged with and into Lazer-Tron, with Lazer-Tron being the
surviving corporation. The holders of Lazer-Tron Common Stock would be issued
shares of Acclaim Common Stock in a transaction intended to qualify as a
pooling-of-interests for accounting purposes and as a tax-free reorganization
for federal income tax purposes. As a result of the Merger, Lazer-Tron would
become a wholly-owned subsidiary of Acclaim and the Lazer-Tron Shareholders
would become stockholders of Acclaim (as more fully described below). The
discussion in this Prospectus/Proxy Statement of the Merger and the description
of the Merger's principal terms are subject to and qualified in their entirety
by reference to the Merger Agreement, a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A and which is incorporated herein by
reference.
BACKGROUND OF THE MERGER
Acclaim has attempted for some time to diversify and expand its operations.
Lazer-Tron was first contacted in September 1994 by an executive of Acclaim. At
that time, representatives of Acclaim conducted preliminary discussions with
Lazer-Tron regarding a possible transaction, and in early November 1994 Acclaim
proposed acquiring Lazer-Tron at a price of approximately $31.5 million (which
amount reflected Lazer-Tron's market capitalization in September 1994 when the
first discussions were had). Subsequently, the public trading price of
Lazer-Tron's common stock increased significantly and negotiations were
terminated. In February 1995, Acclaim again contacted Lazer-Tron to commence
negotiations and additional discussions and preliminary due diligence was
conducted in early March 1995. Negotiations were successful and, subject to
satisfactory completion of due diligence and legal review and preparation of
definitive documentation, on March 7, 1995 a letter of intent was executed;
additional negotiations were then conducted and on March 22, 1995 the Merger
Agreement was executed. On June 15, 1995, the Merger Agreement was amended to
reflect certain modifications and clarifications. The Merger Consideration was
determined by Acclaim and Lazer-Tron in arm's length negotiations. In
negotiating the Merger Consideration, Acclaim, among other things, reviewed
Lazer-Tron's historical financial statements, reviewed the potential for growth
in Lazer-Tron's business, the expansion of its business through licensing
properties and the use of advanced technologies in product development.
ACCLAIM'S REASONS FOR THE MERGER
The Merger is being proposed in order to achieve the ownership by Acclaim
of Lazer-Tron. Acclaim has recently established coin-op operations and believes
that Lazer-Tron will broaden Acclaim's offerings in the coin-op segment and will
present Acclaim with further opportunities to expand its product offerings and
exploit new successful properties across its growing entertainment business.
Acclaim also believes that certain synergies exist between the two companies,
particularly in manufacturing and sales organization, credit and collection
procedures and marketing to a similar customer base.
LAZER-TRON'S REASONS FOR THE MERGER
The Board of Directors of Lazer-Tron considered that Lazer-Tron, as a
subsidiary of a larger, more diversified company such as Acclaim, would have the
potential to realize improved operating and financial performance compared to
Lazer-Tron continuing to operate as an independent entity. The Board of
Directors of Lazer-Tron has identified certain benefits for Lazer-Tron
Shareholders and potential benefits that it believes will contribute to the
success of Lazer-Tron following the Merger. These potential benefits principally
include the following:
o Providing Lazer-Tron Shareholders with Acclaim stock, where Lazer-Tron's
Board believes the Acclaim stock may provide Lazer-Tron Shareholders with a
greater possibility for long-term appreciation and liquidity than could be
realized from Lazer-Tron Common Stock if Lazer-Tron remains as a stand-alone
entity.
o The potential to increase the ability of Lazer-Tron to effectively
compete in the coin-operated game market, particularly as the market becomes
more competitive with new market entrants.
24
o The availability of greater resources from Acclaim for product
development, marketing and distribution.
o The potential ability to increase international revenues through
Acclaim's broad international distribution and marketing network.
o The potential ability of Lazer-Tron and Acclaim to offer complementary
products and increase the breadth of products offered. Lazer-Tron games may be
able to be expanded into additional entertainment markets currently or proposed
to be addressed by Acclaim, such as video or interactive television.
o The ability of Acclaim and Lazer-Tron to share technology and increase
research and development capacity to improve each other's games and develop new
games.
o The opportunity to expand Lazer-Tron's customer base with the credibility
and established reputation of Acclaim.
In the course of its deliberations, the Board of Directors of Lazer-Tron
reviewed a number of additional factors relevant to the Merger. In particular,
the Lazer-Tron Board considered, among other things: (i) information concerning
Acclaim's and Lazer-Tron's respective businesses, prospects, financial
conditions, historical financial performance, operations and product mix,
including possible future product releases; (ii) comparisons of trading prices
and volumes of the two companies' stocks; (iii) an analysis of analyst coverage
of the two companies; (iv) an evaluation of the prospects of Lazer-Tron on a
stand-alone basis; (v) an analysis of various adjustments that would be made in
the Merger Consideration at various assumed prices of Acclaim Common Stock and
the effect of applying the Merger Consideration at the assumed prices; (vi) the
compatibility of the management and businesses of Acclaim and Lazer-Tron; (vii)
a financial presentation by Van Kasper, including the opinion of Van Kasper that
the Merger Consideration was fair from a financial point of view to the
shareholders of Lazer-Tron; and (viii) reports from management and legal
advisors on specific terms of the relevant agreements and other matters. For a
discussion of many of the foregoing factors, see '--Opinion of Financial
Advisor' below.
The Board of Directors of Lazer-Tron also considered a number of
potentially negative factors in its deliberations concerning the Merger,
including, among other things: (i) characteristics of the interactive
entertainment industry in which Acclaim is engaged, including the rapid
technological change experienced in the industry, and the changing of platforms
in the industry from 16 bit platforms to 32- and 64-bit platforms and the advent
of other competing technologies such as PC-CD ROM; (ii) that 16-bit software
sales appeared to peak in 1994 and the expectations of Acclaim, as well as
industry analysts, that it will continue to decline in calendar 1995; (iii) the
dependence of Acclaim on 16 bit cartridge platforms and the ongoing and expected
transitions in those and other platforms; (iv) the need for Acclaim to
continually develop 'hit' entertainment products to maintain revenue growth and
business momentum; (v) the possibility that the business combination with
Acclaim might adversely affect Lazer-Tron's relationship with distributors,
customers or other third parties; (vi) the possibility of management disruption
associated with the Merger and the risk that, despite the efforts of Lazer-Tron
and Acclaim, key technical and management personnel of Lazer-Tron might not
continue with Lazer-Tron; (vii) the risk that the benefits sought to be achieved
by the Merger will not be achieved; (vi) the risks of the interactive software
industry in general and Acclaim in particular; and (vii) the other risks
described above under Lazer-Tron's 'Risk Factors' and 'Information Concerning
Acclaim.'
In view of the wide variety of factors considered by the Board of Directors
of Lazer-Tron, the Board did not find it practical to, and did not, quantify or
otherwise assign relative weights to the specific factors considered. After
taking into consideration the factors set forth above, the Board of Directors of
Lazer-Tron determined that the Merger was fair to, and in the best interests of,
Lazer-Tron and its shareholders and that Lazer-Tron should proceed with the
Merger at this time.
EFFECTIVE DATE
The Merger will become effective upon completion of the later of the
filings by the Delaware Secretary of State and the California Secretary of State
of the Merger Agreement of an appropriate certificate of merger, as provided by
applicable law. Such filings will be made concurrently with the closing of the
Merger (the 'Closing'), which is anticipated to be held within one business day
subsequent to the date of the Special Meeting or the latest adjournment thereof.
See '--Conditions to the Merger.'
25
MERGER CONSIDERATION
The Merger Consideration was determined by Acclaim and Lazer-Tron in arm's
length negotiations. In negotiating the Merger Consideration, Acclaim, among
other things, reviewed Lazer-Tron's historical financial statements, reviewed
the potential for growth in Lazer-Tron's business, the expansion of its business
through licensing properties and the use of advanced technologies in product
development.
At the Effective Time, the Subsidiary will merge with and into Lazer-Tron,
and Lazer-Tron will be the surviving corporation and a wholly-owned subsidiary
of Acclaim. Each share of Lazer-Tron Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares, if any, held by
shareholders who have exercised dissenters' rights under Section 1300 et seq. of
the California General Corporation Law (the 'CGCL')) shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive a fraction of a share of Acclaim Common Stock, such fraction to be
determined pursuant to an exchange rate formula (rounded up to the nearest
one-thousandth) based on the average closing sale price of the Acclaim Common
Stock on The Nasdaq National Market (as reported by the Wall Street Journal) for
the 20 business days ending on the second business day prior to the later of the
date of the Special Meeting or the latest adjournment thereof (the 'Acclaim
Average Common Stock Price') as follows:
(a) if the Acclaim Average Common Stock Price is between $16.00 and
$20.00 per share, each share of Lazer-Tron Common Stock will be converted
into the right to receive .5 shares of Acclaim Common Stock;
(b) if the Acclaim Average Common Stock Price is below $16.00 and at
least $12.50, each share of Lazer-Tron Common Stock will be converted into
the right to receive between .5 and .64 shares of Acclaim Common Stock
determined by dividing $8.00 by the Acclaim Average Common Stock Price; or
(c) if the Acclaim Average Common Stock Price is above $20.00, each
share of Lazer-Tron Common Stock will be converted into the right to
receive a fraction of a share of Acclaim Common Stock determined by
dividing $10.00 by the Acclaim Average Common Stock Price, which will
result in the receipt of less than .5 shares of Acclaim Common Stock.
The actual fraction of a share of Acclaim Common Stock to be exchanged for
each share of Lazer-Tron Common Stock in connection with the Merger will be
determined at the close of business on the second business day prior to the
later of the date of the Special Meeting or the latest adjournment thereof. A
press release will be issued at the close of business on such second business
day, and on the subsequent business day prior to the date of the Special Meeting
or the latest adjournment thereof, announcing the applicable Acclaim Average
Common Stock Price.
Further, Lazer-Tron Shareholders may contact Georgeson & Company, Inc.,
which is acting as information agent for Lazer-Tron, toll free at 1-800-223-2064
at any time prior to the Special Meeting for information regarding the estimated
Acclaim Average Common Stock Price and the approximate fraction of a share of
Acclaim Common Stock to be received upon exchange for each share of Lazer-Tron
Common Stock in connection with the Merger.
Assuming approval of the Merger Agreement and the Merger at the Special
Meeting, the closing of the Merger is anticipated to take place no later than
one business day following the date of the Special Meeting or the latest
adjournment thereof.
By way of example, the chart below demonstrates the fraction of a share of
Acclaim Common Stock a Lazer-Tron Shareholder would receive for each share of
Lazer-Tron Common Stock based upon the applicable sample Acclaim Average Common
Stock Prices set forth:
ACCLAIM AVERAGE FRACTION OF A SHARE OF ACCLAIM COMMON
COMMON STOCK STOCK ISSUABLE IN EXCHANGE FOR EACH
PRICE SHARE OF LAZER-TRON COMMON STOCK
---------------- -------------------------------------
$12.50 .640
14.00 .572
16.00 .500
18.00 .500
20.00 .500
22.00 .455
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If (i) the Acclaim Average Common Stock Price or (ii) the Acclaim Average
Closing Common Stock Price, in either case, is less than $12.50, each of Acclaim
and Lazer-Tron, at its sole option, will have the right to give notice of its
election to terminate the Merger Agreement. See 'The Merger--Termination of the
Merger Agreement.' In the event that the Acclaim Average Common Stock Price or
the Acclaim Average Closing Common Stock Price is less than $12.50 and the
Merger Agreement is not terminated, Lazer-Tron will undertake to resubmit for
the approval of Lazer-Tron Shareholders the resulting fraction of a share of
Acclaim Common Stock that would be received for each share of Lazer-Tron Common
Stock.
No certificate representing fractional shares of Acclaim Common Stock shall
be issued upon the surrender for exchange of a certificate of Lazer-Tron Common
Stock, and such fractional share interests will not entitle the owner thereof to
vote or to any rights of a stockholder of Acclaim. Acclaim shall pay cash in
lieu of fractional shares of Acclaim Common Stock to be received in the Merger.
See 'The Merger--Exchange Procedures.'
Assuming the maximum number of shares of Acclaim Common Stock are issuable
pursuant to the Merger (but without giving effect to shares of Acclaim Common
Stock issuable upon exercise of Lazer-Tron Stock Options and Lazer-Tron
Warrants), Lazer-Tron Shareholders will own an aggregate of approximately 4.9%
of the total outstanding shares of Acclaim Common Stock after consummation of
the Merger.
LAZER-TRON STOCK OPTIONS AND LAZER-TRON WARRANTS
At the Effective Time, each outstanding Lazer-Tron Stock Option granted
under the Lazer-Tron Stock Option Plans and Lazer-Tron Warrant, whether vested
or unvested, shall, by virtue of the Merger and without any further action on
the part of any holder thereof, be exercisable for that number of shares of
Acclaim Common Stock as the holder of such Lazer-Tron Stock Option or Lazer-Tron
Warrant would have been entitled to receive pursuant to the Merger had such
Lazer-Tron Stock Option or Lazer-Tron Warrant been exercised in full immediately
prior to the Effective Time. The exercise price per share for such shares of
Acclaim Common Stock will be equal to (x) the aggregate exercise price for
Lazer-Tron Common Stock purchasable pursuant to such Lazer-Tron Stock Option or
Lazer-Tron Warrant divided by (y) the number of shares of Acclaim Common Stock
deemed directly purchasable pursuant to such Lazer-Tron Stock Option or
Lazer-Tron Warrant as a result of the Merger. Currently outstanding Lazer-Tron
Stock Options issued under the Directors Option Plan accelerate as to vesting
and become immediately exercisable in full pursuant to the terms of the
Directors Option Plan as a result of the Merger. Pursuant to the terms of the
Directors Option Plan, such options will expire 90 days following the
resignation of the holders thereof as directors of Lazer-Tron, which
resignations are anticipated to be effective as of the Effective Time. In
addition, holders of the Sales Agent Warrants, which are each exercisable for
one share of Lazer-Tron Common Stock and one Underlying Warrant to purchase
one-half of a share of Lazer-Tron Common Stock, will be exercisable for that
number of shares of Acclaim Common Stock as the holders of such Sales Agent
Warrants would have been entitled to receive pursuant to the Merger had such
Sales Agent Warrants (and the Underlying Warrants) been exercised in full
immediately prior to the Effective Time. Holders of Lazer-Tron Stock Options
(other than holders of Non-qualified Lazer-Tron Stock Options and holders of
options issued under the Directors Option Plan) will receive, upon exercise
thereof, that number of shares of Acclaim Common Stock, as determined above,
issuable pursuant to the Acclaim 1988 Stock Option Plan, which have previously
been registered under the Securities Act on Form S-8.
If the foregoing calculation results in a Lazer-Tron Stock Option or
Lazer-Tron Warrant (or would result in an Underlying Warrant) being exercisable
for a fraction of a share of Acclaim Common Stock, then the number of shares of
Acclaim Common Stock subject to such Lazer-Tron Stock Option or Lazer-Tron
Warrant (or Underlying Warrant) will be rounded down to the nearest whole number
of shares with no cash being paid for such fractional share. Continuous
employment or service with Lazer-Tron will be credited to an optionee for
purposes of determining the number of shares of Acclaim Common Stock subject to
exercise under a Lazer-Tron Stock Option.
The issuance of shares of Acclaim Common Stock upon the exercise of
outstanding Lazer-Tron Warrants, Lazer-Tron Stock Options issued under the
Directors Option Plan and Non-qualified Lazer-Tron Stock Options, are registered
pursuant to the Registration Statement of which this Prospectus/Proxy Statement
forms a part, which registration will be kept current following consummation of
the Merger throughout the exercise period of the Lazer-Tron Stock Options issued
under the Directors Option Plan and Non-qualified Lazer-Tron Stock Options.
27
Prior to the Effective Time, but in any event no later than July 1, 1995,
the 1994 Employee Stock Purchase Plan (the 'Employee Purchase Plan') will be
terminated (subject to consummation of the Merger) and all funds held in
applicable employees' accounts under the Employee Purchase Plan will be applied
to purchase shares of Lazer-Tron Common Stock at a price per share and upon
terms determined in accordance with the Employee Purchase Plan. All such shares
of Lazer-Tron Common Stock issued under the Employee Purchase Plan shall be
exchanged for Acclaim Common Stock pursuant to the Merger. It is anticipated
that approximately 7,414 shares of Lazer-Tron Common Stock will be purchased
under the Employee Purchase Plan for the offering period thereunder ending June
30, 1995.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
On or before the Effective Time, Norman B. Petermeier, Bryan Kelly and
Matthew Kelly will enter into employment and non-competition agreements with the
Surviving Corporation and stock option agreements with Acclaim. In addition,
certain other management personnel of Lazer-Tron have already entered into
severance agreements with Lazer-Tron providing for a severance payment equal to
six months salary if their employment is terminated under certain circumstances
within one year of consummation of the Merger. See '--Affiliates Agreements,'
'--Employment Agreements' and '--Employee Option Agreements.'
Under the Directors Option Plan, non-employee directors Roger Smith, Dr.
Morton Grosser and Robert Pryt each have been granted options to purchase 7,000
shares of Lazer-Tron Common Stock at $7.50 per share and 5,000 shares of
Lazer-Tron Common Stock at $12.75 per share. As of May 31, 1995, 4,500 of such
shares owned by each such person were vested and exercisable, all of which are
exercisable at $7.50 per share. As a result of the Merger all of such options
accelerate as to vesting and become fully exercisable. Pursuant to the terms of
the Directors Option Plan, such options will expire 90 days following the
resignation of the holders thereof as directors of Lazer-Tron, which
resignations are anticipated to be effected as of the Effective Time.
Acclaim has agreed to indemnify the officers and directors of Lazer-Tron
against certain damages that may be incurred by such persons by reason of the
Merger Agreement or the transactions contemplated thereby and to otherwise cause
the Surviving Corporation to maintain for six years its existing indemnification
arrangements with such persons and maintain directors' and officers' liability
insurance coverage. In the event the Surviving Corporation is unable to maintain
such directors' and officers' liability insurance, Acclaim has agreed to insure
such coverage (up to $1 million). See '--Covenants,' ' Conditions to the
Merger,' '--Indemnification' and ' Legal Proceedings Relating to the Merger.'
Under an agreement between Lazer-Tron and Roger Smith, who is currently a
director of Lazer-Tron, Mr. Smith has agreed to provide assistance to Lazer-Tron
in the negotiation of the Merger and the Merger Agreement and related matters.
Pursuant to that agreement, Lazer-Tron is paying Mr. Smith $100 per hour for
those services, and a total of $13,250 has been paid, and no additional amount
is payable, to Mr. Smith as of the date hereof.
Pursuant to a letter agreement, dated March 8, 1995, between Lazer-Tron and
Van Kasper, the underwriter of Lazer-Tron's initial public offering and the
holder of Warrants to purchase 55,000 shares of Lazer-Tron Common Stock at an
exercise price of $9.60 per share, Lazer-Tron paid Van Kasper a fee of $85,000
for acting as Lazer-Tron's financial advisor in connection with the Merger and
rendering its opinion as to the fairness of the Merger from a financial point of
view, which fairness opinion is attached hereto as Exhibit C.
LEGAL PROCEEDINGS RELATING TO THE MERGER
On April 28, 1995, Lazer-Tron and certain of its directors and officers
were named as defendants in a lawsuit filed in the Superior Court of the State
of California, County of Alameda--Eastern Division. This action, titled
Goldstein v. Lazer-Tron Corporation, et al., has been filed seeking, among other
things, certification of the lawsuit as a class action on behalf of all
Lazer-Tron Shareholders, a preliminary and permanent injunction to prohibit
consummation of the Merger and to compel the individual defendants to fulfill
what the plaintiff claims are their fiduciary duties to among other things,
cooperate with any other entity with an interest in acquiring Lazer-Tron and
enhance Lazer-Tron's value as a merger candidate. On May 30, 1995, an amended
complaint was filed. The plaintiff has alleged that the individual defendants
have violated state law by committing unfair business practices, and have
breached their fiduciary duties as a result of the manner in which, and the
timing of, the determination to merge Lazer-Tron occurred, the manner in which
negotiations with Acclaim were conducted
28
and in recommending approval of the Merger Agreement and the Merger. Lazer-Tron
and the individual defendants have not yet filed an answer to the complaint and
discovery has recently commenced. Lazer-Tron intends to vigorously defend this
action. Management of Lazer-Tron believes, based on the allegations stated in
the complaint, discovery proceedings to date, its own view of the relevant facts
and circumstances surrounding the negotiation of the Merger Agreement and
preliminary settlement discussions, that the ultimate outcome of this action is
not expected to have a material adverse effect on Lazer-Tron or the consummation
of the Merger. However, no assurance can be given that management's assessment
will prove correct. Pursuant to the terms of the Merger Agreement, Acclaim has
agreed to assume the defense of this action and to indemnify Lazer-Tron and its
directors and officers from any damages and costs in connection with this
action, subject to Acclaim's rights under the Merger Agreement to decide in the
future not to proceed with the Merger and to discontinue its defense of this
action and indemnification of Lazer-Tron and its directors and officers
subsequent to the date the Merger Agreement is terminated or the Merger is
abandoned.
OPINION OF FINANCIAL ADVISOR
Lazer-Tron retained Van Kasper to act as its financial advisor in
connection with the Merger. Van Kasper was selected by Lazer-Tron's Board of
Directors to act as Lazer-Tron's financial advisor based on Van Kasper's
qualifications, experience, expertise and reputation, as well as Van Kasper's
investment banking relationship and familiarity with Lazer-Tron. Van Kasper is a
well recognized investment banking and advisory firm. As part of its investment
banking business, Van Kasper is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
Van Kasper has rendered to Lazer-Tron's Board of Directors its written
opinion dated March 14, 1995 that, as of such date, the Merger was fair from a
financial point of view to the shareholders of Lazer-Tron. Van Kasper did not
determine or make any recommendation with respect to the amount of consideration
to be paid in connection with the Merger.
The full text of the opinion of Van Kasper, which sets forth assumptions
made, matters considered and limitations on the review undertaken, is attached
as Exhibit C to this Prospectus/Proxy Statement. Lazer-Tron Shareholders are
urged to read the opinion carefully and in its entirety. Van Kasper's opinion is
directed only to the fairness of the Merger from a financial point of view to
the shareholders of Lazer-Tron and does not constitute a recommendation to any
shareholder of Lazer-Tron as to how such shareholder should vote at the Special
Meeting. The opinion of Van Kasper is subject to certain conditions and
limitations set forth therein, and the summary of that opinion set forth in this
Prospectus/Proxy Statement is qualified in its entirety by reference to the full
text of such opinion.
In connection with Van Kasper's opinion, Van Kasper reviewed drafts of the
Merger Agreement. In Van Kasper's review it assumed, with Lazer-Tron's
permission, that the documents to be prepared, used and signed by the parties to
formally effect the Merger, including the agreements effecting the Merger
between the Subsidiary and Lazer-Tron and the proxy or other disclosure material
to be delivered to the shareholders of Lazer-Tron to elicit any necessary
consents to the Merger, would effect the Merger on the terms set forth in the
Merger Agreement without material alteration.
Van Kasper reviewed such relevant financial and other information that was
publicly available or furnished to it by Lazer-Tron and Acclaim, including
information provided during discussions with each company. In addition, Van
Kasper compared certain financial and securities data of Lazer-Tron and Acclaim
with that of various other companies whose securities are publicly traded,
reviewed recent merger and acquisition transactions of companies Van Kasper
determined to be similar and conducted such other financial analysis as it
determined, based upon its judgment as investment bankers, to be appropriate for
purposes of its opinion. Van Kasper also took into account the views of the
management and certain shareholders of Lazer-Tron as to the prospects of
Lazer-Tron if the Merger is not effected. Furthermore, Van Kasper did not
negotiate the Merger, provide any legal advice or advise Lazer-Tron with respect
to alternatives to the Merger. Although Van Kasper performed a valuation of
Lazer-Tron and Acclaim using a number of commonly accepted methodologies, Van
Kasper did not make an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Lazer-Tron or Acclaim.
In rendering its opinion, Van Kasper relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available or furnished or otherwise
29
communicated to Van Kasper by Lazer-Tron or Acclaim. Lazer-Tron provided to Van
Kasper certain financial projections of Lazer-Tron and Van Kasper reviewed those
projections in light of discussions it had conducted with analysts and other
industry sources, and made certain adjustments where it determined it was
appropriate to do so. Independent of the foregoing, Van Kasper assumed that the
projections were reasonably prepared, based upon assumptions reflecting the best
currently available estimates and good faith judgments of management as to the
future performance of Lazer-Tron and that the management of Lazer-Tron did not
have any information or beliefs that would make the projections misleading. Van
Kasper did not have the benefit of reviewing Acclaim's financial projections
since it is the policy of Acclaim not to disseminate such information to third
parties.
Van Kasper makes a market in Lazer-Tron Common Stock. Van Kasper and its
affiliates have provided financial advisory and financing services to Lazer-Tron
since March 1994, including services rendered in connection with Lazer-Tron's
initial public offering of common stock in May 1994, and has received customary
fees in connection with these services, including, in consideration of its
services in connection with the initial public offering, warrants to purchase
55,000 shares of Lazer-Tron Common Stock at an exercise price of $9.60, which
warrants expire on May 26, 1999.
Pursuant to a letter agreement dated March 8, 1995, between Lazer-Tron and
Van Kasper, Lazer-Tron paid Van Kasper a fee of $85,000 for acting as
Lazer-Tron's financial advisor in connection with the Merger and rendering its
opinion as to the fairness of the Merger from a financial point of view.
Lazer-Tron also agreed to reimburse Van Kasper for its out-of-pocket expenses
and to indemnify Van Kasper and its directors, officers, agents, employees and
controlling persons against certain liabilities and expenses related to Van
Kasper's engagement.
EXCHANGE PROCEDURES
Promptly after the Effective Time, American Securities Transfer, Inc. (the
'Exchange Agent') will mail to each person, who was, at the Effective Time, a
holder of record of shares of Lazer-Tron Common Stock, a letter of transmittal
to be used by such holder in forwarding their certificates representing shares
of Lazer-Tron Common Stock (the 'Certificates'), and instructions for effecting
the surrender of the Certificates in exchange for certificates representing
shares of Acclaim Common Stock. Upon surrender to the Exchange Agent of
Certificate(s) for cancellation, together with a letter of transmittal, the
holder of such Certificate(s) will be entitled to receive a certificate
representing that number of whole shares of Acclaim Common Stock (and cash in
lieu of any fractional shares) which such holder has the right to receive in
respect of the Certificate(s) surrendered, and the Certificate(s) so surrendered
will be cancelled. LAZER-TRON SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. Until so
surrendered, after the Effective Time such Certificates represent only the right
to receive such shares of Acclaim Common Stock (and such cash, if applicable)
and will not evidence any interest in or rights to exercise the rights of
stockholders of Acclaim.
Following the Effective Time, there will be no transfers on the transfer
books of Lazer-Tron of shares of Lazer-Tron Common Stock which were outstanding
immediately prior to the Effective Time. Dividends, if any, paid on Acclaim
stock with a record date after the Effective Time will be held in trust by the
Exchange Agent and will not be paid to former Lazer-Tron shareholders until they
have complied with the foregoing procedures for surrender of their Certificates.
Any portion of the monies from which cash payments in lieu of fractional
interests in shares of Acclaim Common Stock will be made (including the proceeds
of any investments thereof) and any shares of Acclaim Common Stock that are
unclaimed by the former shareholders of Lazer-Tron six months after the
Effective Time will be delivered by the Exchange Agent to Acclaim. Any former
shareholders of Lazer-Tron which have not theretofore complied with the exchange
procedures in the Merger Agreement may thereafter look to Acclaim only as a
general creditor for payment of their shares of Acclaim Common Stock, cash in
lieu of fractional shares, and any unpaid dividends and distributions on shares
of Acclaim Common Stock, deliverable in respect of each share of Lazer-Tron
Common Stock such shareholder holds. Notwithstanding the foregoing, none of
Lazer-Tron, Acclaim, the Exchange Agent or any other person will be liable to
any former holder of shares of Lazer-Tron Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
30
REPRESENTATIONS AND WARRANTIES
Pursuant to the Merger Agreement, Lazer-Tron has made certain
representations and warranties to Acclaim and the Subsidiary with respect to,
among other things, Lazer-Tron's organization, capitalization, authority to
consummate the Merger and the transactions contemplated under the Merger
Agreement, obtaining consents needed in connection with the consummation of the
Merger and related transactions, ownership of assets (including certain
intellectual property rights), contractual and other commitments, liabilities,
legal proceedings, financial statements and financial condition, compliance with
applicable law including filing and reporting obligations as a public company,
pooling matters, tax matters and other representations customary in transactions
of this type.
Acclaim and the Subsidiary have made certain representations and warranties
to Lazer-Tron with respect to, among other things, their organization,
capitalization, authority to consummate the Merger and the transactions
contemplated under the Merger Agreement, obtaining consents needed in connection
with the consummation of the Merger and related transactions, legal proceedings,
compliance with applicable law, including filing and reporting obligations as a
public company, the intended operation of the Surviving Corporation prior to and
following the Merger and other representations customary in transactions of this
type.
COVENANTS
Pursuant to the Merger Agreement, Lazer-Tron is subject to certain
covenants with respect to actions to be taken during the period of time between
the date of the Merger Agreement and the earlier of the Effective Time or the
termination of the Merger Agreement, including, among other things, actions
regarding the operation of its business in the ordinary course, dividend and
stock distributions, capitalization, and actions which may adversely affect the
accounting treatment of the Merger as a pooling or that would adversely affect
the treatment of the Merger as a tax free reorganization and other covenants
customary in transactions of this type. In addition Lazer-Tron agreed to use its
best efforts to cause any person who becomes an affiliate of Lazer-Tron
subsequent to the date of the Merger Agreement to execute an Affiliates
Agreement.
Pursuant to the Merger Agreement, Acclaim is subject to certain covenants
with respect to actions to be taken during the period of time between the date
of the Merger Agreement and the earlier of the Effective Time or the termination
of the Merger Agreement, including, among other things, actions regarding the
operation of its business in the ordinary course, the operation of the Surviving
Corporation following the Merger, assumption of Lazer-Tron's obligations in
respect of the Warrants (subject to Acclaim's right to renegotiate certain
provisions of the Underwriter's Warrants and Sales Agent Warrants) and actions
which may adversely affect the accounting treatment of the Merger as a pooling
or that would adversely affect the treatment of the Merger as a tax free
reorganization and other covenants customary in transactions of this type.
Acclaim also has agreed, if the Merger is consummated, to use its best
efforts to cause the Acclaim Common Stock to be issued in the Merger and the
shares of Acclaim Common Stock issued upon exercise of Lazer-Tron Stock Options
or Lazer-Tron Warrants, to be quoted on The Nasdaq National Market or listed on
such securities exchange as Acclaim Common Stock is then listed; to provide
certain benefits to Lazer-Tron's employees; to cause the Surviving Corporation
to honor all rights to indemnification in favor of Lazer-Tron's present or
former officers and directors for a period of six years following the Effective
Time; to cause the Surviving Corporation to maintain directors' and officers'
liability insurance coverage comparable to that presently maintained by
Lazer-Tron (not to exceed $1 million) or, if the Surviving Corporation cannot
maintain such insurance, to provide comparable indemnity (not to exceed $1
million), for a period of six years following the Effective Time; and to cause
the Surviving Corporation to pay certain accrued and unpaid employee bonuses
relating to Lazer-Tron's fiscal year ending June 30, 1995.
CONDITIONS TO THE MERGER
The obligations of Acclaim and the Subsidiary to consummate the Merger are
subject to certain conditions customary in transactions of this type, including,
among others, the following:
(i) the Merger Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding Lazer-Tron
Common Stock in accordance with applicable law, and
31
Dissenting Shares and/or shares of common stock of Lazer-Tron capable of
becoming Dissenting Shares after the Closing shall not constitute in excess
of 10% of the shares eligible to vote for such approval and adoption;
(ii) all Lazer-Tron Stock Option Plans and employee cash bonus or cash
incentive performance plans shall have been terminated;
(iii) all waivers, consents, approvals, authorizations or orders
(including the consent of certain third parties) required by Lazer-Tron for
any of the transactions contemplated by the Merger Agreement shall have
been obtained;
(iv) each of Messrs. Norman B. Petermeier, Matthew F. Kelly and Bryan
M. Kelly shall have entered into an employment and non-competition
agreement with the Surviving Corporation, the form of which has previously
been agreed to;
(v) the Acclaim Average Common Stock Price or the Acclaim Average
Closing Common Stock Price shall not be less than $12.50;
(vi) Acclaim shall have received certain certificates, opinions of
counsel and accountants' letters;
(vii) Acclaim shall have received from Lazer-Tron no later than five
days prior to the Closing or the tenth day of the month during which the
Closing occurs, a closing balance sheet reflecting certain minimum amounts
with respect to Lazer-Tron's working capital and net worth, and shall have
notified Lazer-Tron of its acceptance of Lazer-Tron's calculations;
(viii) certain agreements between Lazer-Tron and each of its existing
affiliates relating to the treatment of the Merger as a pooling shall have
been entered into and shall be in full force and effect as of the Closing
Date;
(ix) the holders of the Lazer-Tron Stock Options and Lazer-Tron
Warrants and registration rights, with respect thereto, will have consented
to certain changes therein if and to the extent reasonably requested by
Acclaim;
(x) completion of Acclaim's due diligence of Lazer-Tron's operations
and financial condition to the satisfaction of Acclaim and its counsel;
(xi) no court, agency or other governmental authority shall have
issued any order, decree or judgment to set aside, restrain, enjoin or
prevent the performance of certain of Acclaim's obligations under the
Merger Agreement;
(xii) Acclaim shall have received a letter from Grant Thornton LLP
with respect to Acclaim and a letter from Ernst & Young LLP with respect to
Lazer-Tron to the effect that Lazer-Tron and Acclaim may participate in a
transaction such as the Merger in a manner so as to permit the Merger to
qualify as a pooling of interests, provided that Acclaim may not exercise
its rights to terminate the Merger Agreement as a result of the failure of
this condition if the reason that such letters cannot be delivered is
solely as a result of the actions or omissions of Acclaim or its
affiliates; and
(xiii) there shall not have been instituted by any third party certain
suits or proceedings to enjoin, prevent, set aside, restrain or invalidate
the Merger Agreement or the transactions thereby contemplated or seeking
damages from or to impose obligations upon Lazer-Tron or its directors or
officers or Acclaim by reason of the Merger Agreement or the transactions
thereby contemplated.
32
The obligation of Lazer-Tron to consummate the Merger is subject to certain
conditions customary in transactions of this type, including, among others, the
following:
(i) the Merger Agreement shall have been approved and adopted by the
shareholders of Lazer-Tron at the Special Meeting;
(ii) each of Messrs. Norman B. Petermeier, Matthew F. Kelly and Bryan
M. Kelly shall have entered into an employment and non-competition
agreement with the Surviving Corporation, the form of which has previously
been agreed to;
(iii) the Acclaim Average Common Stock Price or the Acclaim Average
Closing Common Stock Price shall not be less than $12.50;
(iv) all waivers, consents, approvals, authorizations or orders
(including the consent of certain third parties) required by Acclaim for
any of the transactions contemplated by the Merger Agreement shall have
been obtained;
(v) no court, agency or other governmental authority shall have issued
any order, decree or judgment to set aside, restrain, enjoin or prevent the
performance of certain of Lazer-Tron's obligations under the Merger
Agreement;
(vi) Lazer-Tron shall have received certain certificates, opinions of
counsel and accountants' letters; and
(vii) there shall not have been instituted by any third party certain
suits or proceedings to enjoin or prevent the Merger or seek damages from
or to impose obligations upon Lazer-Tron or its directors or officers by
reason of the Merger Agreement or the transactions contemplated thereby, as
to any of which Acclaim has not agreed to provide indemnity. In the event
any third party institutes any such suit or proceeding and Acclaim
nevertheless determines to consummate the Merger, Acclaim will indemnify
Lazer-Tron, its officers and directors against any damages arising in
connection with such claim or proceeding.
Any of Lazer-Tron's or Acclaim's and the Subsidiary's conditions to Closing
may be waived in whole or in part at or prior to the Closing by Lazer-Tron or
Acclaim, respectively, without approval of the shareholders of either company.
Neither Lazer-Tron nor Acclaim currently intends to waive any such conditions to
Closing.
INDEMNIFICATION
Lazer-Tron has agreed to indemnify Acclaim, the Subsidiary and their
respective directors, officers, employees and agents (the 'Acclaim Parties')
against any damages which each may incur by reason of (i) certain breaches by
Lazer-Tron, Lazer-Tron's affiliates, the Kelly Family Trust and the 1992 Kelly
Family Trust, Bryan M. Kelly, Matthew F. Kelly or Norman B. Petermeier of
representations, warranties, covenants and agreements of Lazer-Tron as described
in the Merger Agreement or related Affiliates Agreements or other agreements
entered into by such persons, as applicable, as contemplated by the Merger
Agreement, (ii) the failure of such persons to perform any of their obligations
required under the Merger Agreement or any such related agreements, or (iii)
third party allegations which, if true, would constitute a breach by any of such
persons of any representation, warranty or covenant contained in the Merger
Agreement, as applicable. Lazer-Tron's obligations and liabilities under this
indemnity are subject to the limitations described below in '--Break-up Fee.'
Acclaim has agreed to indemnify Lazer-Tron, its directors, officers,
employees and agents (the 'Lazer-Tron Parties') against any damages which each
may incur by reason of (i) certain breaches by Acclaim or the Subsidiary of
their representations, warranties, covenants and agreements as described in the
Merger Agreement or related agreements contemplated thereby, (ii) the failure of
Acclaim or the Subsidiary to perform any of their obligations required under the
Merger Agreement or any such related agreements or (iii) third party allegations
which, if true, would constitute a breach by Acclaim or the Subsidiary of any
representation, warranty or covenant contained in the Merger Agreement.
The foregoing indemnities are only applicable in the event the Merger is
not consummated as a result of such breaches or claims, inasmuch as such
representations, warranties, covenants and agreements do not survive
33
the Closing, except to the extent such covenants by their terms are to be
performed after the Closing; provided that such representations, warranties,
covenants and agreements of Lazer-Tron do survive the Closing for a limited
period of time in connection with the 'termination for cause' provision of the
employment agreements between the Surviving Corporation and certain members of
Lazer-Tron's Management. See '--Employment Agreements.' Neither the Acclaim
Parties nor the Lazer-Tron Parties shall be entitled to be indemnified unless
the aggregate of all losses incurred by the Acclaim Parties or the Lazer-Tron
Parties, as the case may be, exceeds $150,000. Notwithstanding the foregoing,
(i) Acclaim shall be entitled to be indemnified on a dollar-for-dollar basis
from and against all losses if the Lazer-Tron Parties or Lazer-Tron shall have
acted in bad faith or shall have engaged in willful misconduct and (ii)
Lazer-Tron shall be entitled to be indemnified on a dollar-for-dollar basis from
and against all losses if Acclaim shall have acted in bad faith or shall have
engaged in willful misconduct.
Additionally, notwithstanding certain of the conditions to Lazer-Tron's
obligations discussed above, in the event a third party institutes any suit or
proceeding against Lazer-Tron, its directors or officers relating to the Merger,
Acclaim has the right to proceed, and to cause Lazer-Tron to proceed, with the
consummation of the Merger provided that Acclaim agrees to indemnify such
parties and assume the defense of any such suit or proceeding. In the event
Acclaim does not provide such indemnity and assume the defense of such suit or
proceeding, then a condition to Lazer-Tron's proceeding with the Merger will not
have been satisfied, and unless waived, Lazer-Tron will not be obligated to
consummate the Merger. On April 28, 1995, Lazer-Tron and certain of its
directors and officers were named as defendants in a lawsuit relating to the
Merger. Acclaim has agreed to indemnify such parties and assume the defense of
the action, subject to its rights under the Merger Agreement not to proceed with
the Merger and to discontinue its defense of the action and indemnification of
Lazer-Tron, its directors and officers subsequent to the date the Merger
Agreement is terminated or the Merger is abandoned. See '--Legal Proceedings
Relating to the Merger.'
CERTAIN U.S. FEDERAL INCOME TAX MATTERS
The following is a discussion of certain U.S. federal income tax
consequences of the Merger that are generally applicable to Acclaim, the
Subsidiary, Lazer-Tron, and Lazer-Tron shareholders. This discussion is based on
currently existing provisions of the Code, existing regulations thereunder
(including final, temporary or proposed), and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences described herein.
The following discussion is intended only as a summary of certain principal
U.S. federal income tax consequences of the Merger and does not purport to be a
complete analysis or listing of all of the potential tax effects relevant to a
decision on whether to vote in favor of approval and adoption of the Merger
Agreement and the Merger. In particular, this discussion does not deal with all
U.S. federal income tax considerations that may be relevant to particular
Lazer-Tron shareholders in light of their particular circumstances, such as
shareholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, or who acquired
their shares in connection with stock warrants, stock option or stock purchase
plans, or in other compensatory transactions. The discussion also does not
address the effects of the Merger on holders of Lazer-Tron Options or Lazer-Tron
Warrants. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws or the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger), including without
limitation transactions in which Lazer-Tron Common Stock is acquired or Acclaim
Common Stock is disposed of.
ACCORDINGLY, LAZER-TRON SHAREHOLDERS AND OTHERS AFFECTED BY THE MERGER ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX
CONSEQUENCES TO THEM.
The Merger has been structured with the intent that it be tax free to
Acclaim, Lazer-Tron and their respective shareholders for U.S. federal income
tax purposes. Fenwick & West, counsel to Lazer-Tron, will render an opinion that
the Merger, if consummated on the terms described in this Joint Prospectus/Proxy
Statement, will constitute a reorganization under Section 368(a) of the Code (a
'Reorganization'). The tax opinion referenced
34
above shall be referred to as the 'Tax Opinion.' The Tax Opinion will be based
on and will be subject to certain assumptions and limitations as well as
representations received from Acclaim, the Subsidiary and Lazer-Tron, discussed
below. An opinion of counsel only represents counsel's best legal judgment, and
has no binding effect or official status of any kind, and no assurance can be
given that contrary positions may not be taken by the Internal Revenue Service
(the 'IRS') or a court considering the issues. Neither Lazer-Tron nor Acclaim
has requested or will request a ruling from the IRS with regard to any of the
U.S. federal income tax consequences of the Merger.
Tax Consequences Generally Applicable to Acclaim, the Subsidiary,
Lazer-Tron, and Lazer-Tron Shareholders
Subject to the limitations, qualifications and assumptions referred to
herein, the following U.S. federal income tax consequences will result from the
Merger:
(a) The Merger will constitute a Reorganization if carried out in the
manner set forth in the Merger Agreement, and the agreements referred to
therein. In such event, no gain or loss will be recognized by holders of
Lazer-Tron Common Stock upon exchange of such shares solely for Acclaim
Common Stock in the Merger, except for cash received in lieu of a
fractional share of Acclaim Common Stock. Cash payments received by holders
of Lazer-Tron Common Stock in lieu of a fractional share of Acclaim Common
Stock would be treated as if such fractional share of Acclaim Common Stock
had been issued in the Merger and then redeemed by Acclaim. A Lazer-Tron
Shareholder receiving such cash will recognize gain or loss, upon such
payment, measured by the difference (if any) between the amount of cash
received and the shareholder's adjusted tax basis in such fractional share.
A Dissenting Shareholder receiving cash would be treated as if the
Dissenting Shareholder had sold his or her Lazer-Tron Common Stock to
Acclaim for cash. A Dissenting Shareholder receiving such cash will
recognize gain or loss, upon such payment, measured by the difference (if
any) between the amount of cash received and the shareholder's basis in
such Dissenting Shares. Such gain or loss generally would be treated as
capital gain or capital loss for each such shareholder if he or she held
his or her Lazer-Tron Common Stock as a capital asset at the time of the
Merger.
(b) The aggregate tax basis of the Acclaim Common Stock received by
Lazer-Tron Shareholders in the Merger (including any fractional share of
Acclaim Common Stock not actually received) will be the same as the
aggregate tax basis of the Lazer-Tron Common Stock surrendered in exchange
for the Acclaim Common Stock (including any fractional shares of Acclaim
Common Stock not actually received). The aggregate tax basis of the whole
shares of Acclaim Common Stock actually received by Lazer-Tron Shareholders
will be the total aggregate basis described in the immediately preceding
sentence, reduced by the basis allocable to fractional shares.
(c) The holding period of the Acclaim Common Stock received by each
Lazer-Tron Shareholder in the Merger will include the period for which the
Lazer-Tron Common Stock surrendered in exchange therefor were considered to
be held, provided that the Lazer-Tron Common Stock so surrendered is held
as a capital asset at the time of the Merger.
(d) No gain or loss will be recognized by Acclaim, the Subsidiary, or
Lazer-Tron in connection with the Merger.
Limitations on Opinion and Discussion
The discussion of certain U.S. federal income tax consequences presented
above and the Tax Opinion which will be delivered by Lazer-Tron's counsel will
be subject to certain assumptions and will be based on the accuracy of the
representations in the Merger Agreement, exhibits thereto, and the agreements
and documents referred to therein. Among the principal assumptions upon which
the above tax discussion and Tax Opinion will be based include that the Merger
will be consummated pursuant to the Merger Agreement, that Lazer-Tron after the
Merger will have retained substantially all of its assets, that Lazer-Tron will
continue its business as a wholly-owned subsidiary of Acclaim, that not more
than twenty percent (20%) of the total consideration received by Lazer-Tron
shareholders in exchange for their Lazer-Tron Common Stock will be other than
Acclaim Common Stock in the Merger and that all the significant historic
shareholders of Lazer-Tron have not disposed of Lazer-Tron Common Stock in
contemplation of the Merger and do not have any plan or intention, existing at
or
35
prior to the time of the Merger, to dispose of the Acclaim Common Stock to be
received in the Merger such that they would not have a significant continuing
equity interest in Lazer-Tron after the Merger by virtue of their ownership of
Acclaim Common Stock.
A successful IRS challenge to the status of the Merger as a Reorganization
would result in Lazer-Tron shareholders being treated as if they sold their
Lazer-Tron Common Stock in a taxable transaction. In such event, each Lazer-Tron
Shareholder would be required to recognize all of his or her realized gain or
loss with respect to the disposition of each of his or her shares of Lazer-Tron
Common Stock equal to the difference between the Lazer-Tron Shareholder's basis
in such shares and the fair market value, as of the date the Merger becomes
effective, of the Acclaim Common Stock received in exchange therefor (plus any
cash received for fractional shares). Such gain or loss generally would be
treated as capital gain or capital loss for each such shareholder if he or she
held his or her Lazer-Tron Common Stock as a capital asset at the time of the
Merger. In such event, a Lazer-Tron Shareholder's aggregate basis in the Acclaim
Common Stock so received would equal their fair market value as of the Effective
Time of the Merger, and the Lazer-Tron Shareholder's holding period for such
Acclaim Common Stock would begin the day after the Merger. Dissenting
Shareholders will be treated as described above.
Even if the Merger qualifies as a Reorganization, a recipient of Acclaim
Common Stock at the time of the Merger would recognize gain to the extent that
such shares were considered to be received in exchange for services or property
(other than solely in exchange for Lazer-Tron Common Stock). Gain would also
have to be recognized to the extent that a Lazer-Tron Shareholder was treated as
receiving (directly or indirectly) consideration other than Acclaim Common Stock
in exchange for Lazer-Tron Common Stock. All or a portion of such gain amounts
may be taxable as ordinary income.
EXPENSES
Each of Acclaim, on the one hand, and Lazer-Tron, on the other hand, will
bear their respective expenses related to the Merger Agreement and the
transactions contemplated thereby, except that expenses incurred in connection
with the printing and mailing of the Prospectus/Proxy Statement and the
Registration Statement on Form S-4 shall be shared equally by Lazer-Tron and
Acclaim.
Pursuant to a letter agreement, dated March 8, 1995, between Lazer-Tron and
Van Kasper, Lazer-Tron paid Van Kasper a fee of $85,000 for acting as
Lazer-Tron's financial advisor in connection with the Merger and rendering its
opinion as to the fairness of the Merger from a financial point of view. Total
transaction costs and other direct costs, including legal and accounting
expenses, associated with the Merger to be incurred by Lazer-Tron and Acclaim
are anticipated to total approximately $1,000,000.
ACCOUNTING TREATMENT
The acquisition of Lazer-Tron by Acclaim through the Merger is intended to
be accounted for by Acclaim as a pooling of interests. Under this method of
accounting, the assets and liabilities of Lazer-Tron and Acclaim will be
combined based on the respective carrying values of the accounts in the
historical financial statements of each entity. Results of operations of Acclaim
will include income of Lazer-Tron and Acclaim for the entire fiscal period in
which the combination occurs and the historical results of operations of the
separate companies for years prior to the Merger will be combined and reported
as the results of operations of Acclaim.
To support the treatment of the Merger as a pooling of interests, the
affiliates of Lazer-Tron have entered into agreements imposing certain resale
limitations on their Lazer-Tron Common Stock prior to the consummation of the
Merger and their Acclaim Common Stock following consummation of the Merger.
Certain affiliates of Acclaim have entered into similar agreements. See
'--Affiliates Agreements.'
Acclaim's obligation to consummate the Merger is conditioned upon the
receipt by Acclaim of letters from Ernst & Young LLP and Grant Thornton LLP
confirming that the Merger will qualify for pooling of interests accounting
treatment.
36
REGULATORY APPROVALS
The Merger may not be consummated until notifications have been given and
certain information has been furnished to the Federal Trade Commission and the
Antitrust Division of the U.S. Justice Department under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the 'HSR Act'). The required
notifications and information were provided and the applicable waiting period
under the HSR Act has expired. No further federal or state regulatory
requirements must be complied with in order to consummate the Merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated:
(i) at any time by mutual consent of Acclaim and Lazer-Tron;
(ii) by either Acclaim or Lazer-Tron if the Acclaim Average Common
Stock Price or the Acclaim Average Closing Common Stock Price is less than
$12.50;
(iii) by either Acclaim or Lazer-Tron if the Merger is not consummated
on or before July 31, 1995 (unless the failure to consummate the Merger by
such date is due to a breach of a representation or warranty or of a
covenant by such party seeking to terminate the Merger Agreement); provided
however, that (a) in the event the Closing Balance Sheet is dated as of
July 31, 1995, such consummation date shall automatically be extended to
August 15, 1995 and (b) in the event the Closing Balance Sheet is dated as
of July 31, 1995 and Acclaim disputes the calculations therein, such
consummation date will be automatically extended to August 31, 1995;
(iv) by either Acclaim or Lazer-Tron if (a) approval of the Merger by
the Lazer-Tron Shareholders is not obtained, (b) Lazer-Tron's Board of
Directors in the exercise of its fiduciary duties, accepts, approves or
recommends to the Lazer-Tron Shareholders an Acquisition Transaction (as
hereinafter defined) or similar transaction involving a third party or any
of its subsidiaries or divisions, or (c) the Lazer-Tron Board of Directors
in the exercise of its fiduciary duties, amends, withholds or withdraws its
recommendation to Lazer-Tron Shareholders to vote in favor of the Merger
Agreement;
(v) by Acclaim if there has been a material violation or breach by
Lazer-Tron or any party to a Lazer-Tron Affiliates Agreement (as
hereinafter defined) of any representation, warranty or any agreement
or certain covenants contained in the Merger Agreement or such
Lazer-Tron Affiliates Agreement or any failed condition to Acclaim's
obligations under the Merger Agreement;
(vi) by Lazer-Tron if there has been a material violation or breach by
Acclaim of any representation, warranty or any agreement or covenant
contained in the Merger Agreement or any failed condition to Lazer-Tron's
obligations under the Merger Agreement; or
(vii) by either Lazer-Tron or Acclaim, if (a) the conditions to such
party's obligations have become impossible to satisfy or have not been
satisfied, other than as a result of its own acts or omissions in violation
of its obligations under the Merger Agreement or (b) any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger has become final and
nonappealable.
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended by Lazer-Tron or Acclaim and the
Subsidiary at any time before or after approval of the Merger Agreement by the
Lazer-Tron Shareholders, but, after any such approval, no amendment shall be
made which by law requires further approval by such shareholders without first
obtaining such further approval.
NO SOLICITATION
Lazer-Tron has agreed to cease any existing discussions or negotiations
with any third parties conducted prior to the date of the Merger Agreement with
respect to any merger, business combination, sale of a significant amount of
assets outside of the ordinary course of business, sale of shares of capital
stock outside of the ordinary
37
course of business or similar transaction involving such party or any of
its subsidiaries or divisions (an 'Acquisition Transaction'). Lazer-Tron has
agreed not to, and to use its best efforts to ensure that none of its
affiliates, officers, directors, representatives, agents or affiliates, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) any person, entity or group concerning any Acquisition Transaction
(other than the transactions contemplated by the Merger Agreement); provided,
however, that (i) Lazer-Tron's Board of Directors is not precluded, pursuant to
its fiduciary duties as determined by Lazer-Tron's Board of Directors after
consultation with outside legal counsel, from entering into, or causing
Lazer-Tron's officers, representatives, agents or affiliates from entering into,
negotiations with or furnishing information to a third party which has initiated
contact with Lazer-Tron, from passing on to Lazer-Tron Shareholders information
regarding any such third party proposal or inquiry consistent with such
fiduciary duties, or otherwise fulfilling such fiduciary duties and (ii)
Lazer-Tron may participate in negotiations with or furnish information to a
third party which has initiated contact with Lazer-Tron with respect to an
Acquisition Transaction consistent with the fiduciary obligations of its Board
of Directors. In the event Lazer-Tron receives a proposal relating to an
Acquisition Transaction, Lazer-Tron's Board of Directors is not prevented from
approving such proposal or recommending such Acquisition Transaction to
Lazer-Tron's Shareholders if Lazer-Tron's Board of Directors determines in good
faith that failure to take such action would result in a breach of its fiduciary
duties as determined by Lazer-Tron's Board of Directors after consultation with
outside counsel and, in such case, Lazer-Tron's Board of Directors may amend,
withhold or withdraw its recommendation of the Merger. However, the taking of
such action, including Lazer-Tron's Board amending, withholding or withdrawing
its recommendation regarding the Merger, in connection with an Acquisition
Transaction will not relieve Lazer-Tron of its obligations described below under
'--Break-Up Fee' and '--Stock Option Agreement.'
BREAK-UP FEE
In the event that (i) Lazer-Tron or Lazer-Tron's Board of Directors
exercises its rights, as described above under '--No Solicitation' in connection
with an Acquisition Transaction and (ii) as a result, the Merger is not
consummated or the Merger Agreement is terminated, then Lazer-Tron must: (x) pay
to Acclaim two hundred thousand dollars ($200,000), and (y) if such Acquisition
Transaction is consummated within one year, then Lazer-Tron must pay to Acclaim
a sum equal to 5% of the value (less such $200,000) of the aggregate
consideration actually received in connection with such Acquisition Transaction,
calculated in a manner consistent with the valuation of such consideration in
connection with such Acquisition Transaction, which amounts will be Acclaim's
sole remedy in those circumstances so long as Lazer-Tron is not in breach of the
Merger Agreement as a result of the willful action or inaction of Lazer-Tron or
its officers, directors, employees and agents.
STOCK OPTION AGREEMENT
Pursuant to the terms of the Merger Agreement, Lazer-Tron and Acclaim
entered into a Stock Option Agreement dated March 22, 1995. Pursuant to such
Stock Option Agreement, Lazer-Tron granted to Acclaim an option to purchase up
to 250,000 shares of Lazer-Tron Common Stock at an exercise price of $8.00 per
share, which option may only be exercised in the event, and only during the two
year period following the occurrence of such event, that (i) a suit or
proceeding is instituted to enjoin, prevent, restrain, set aside or invalidate
the Merger Agreement or the transactions contemplated thereby or seeking damages
from or to impose obligations upon Lazer-Tron or Acclaim by reason of the Merger
Agreement or the transactions contemplated thereby and/or any order, decree or
judgment with respect to the foregoing is issued and, as a result, Acclaim
elects not to consummate the Merger or (ii) Lazer-Tron's Board of Directors
considers, responds to or provides information regarding Lazer-Tron in
connection with, or is approached by a third party with respect to, an
Acquisition Transaction and, as a result, Lazer-Tron's Board of Directors
withdraws or modifies in any way adverse to Acclaim its recommendation to
Lazer-Tron's Shareholders that they vote to approve the Merger Agreement and/or
Lazer-Tron enters into negotiations relating to an Acquisition Transaction and,
as a result, the Merger is not consummated or the Merger Agreement is
terminated.
38
AFFILIATES AGREEMENTS
Acclaim has registered, pursuant to the Registration Statement of which
this Prospectus/Proxy Statement forms a part, the shares of Acclaim Common Stock
to be issued to holders of Lazer-Tron Common Stock in the Merger under the
Securities Act, thereby allowing such securities to be traded without
restriction by all former holders of capital stock of Lazer-Tron not deemed to
be 'affiliates' (as such term is defined for purposes of Rule 145 under the
Securities Act) of Lazer-Tron at the time the Merger Agreement is submitted for
a vote to Lazer-Tron Shareholders.
Pursuant to the terms of the Lazer-Tron affiliates agreements entered into
on March 22, 1995 (the 'Lazer-Tron Affiliates Agreements') between certain
beneficial owners of Lazer-Tron Common Stock (the 'Lazer-Tron Affiliates'),
Acclaim and Lazer-Tron, each Lazer-Tron Affiliate has agreed (a) not to dispose
of any shares of capital stock of Lazer-Tron owned by such Lazer-Tron Affiliate
during the period beginning March 22, 1995 and ending 30 days prior to the
Effective Time and (b) not to dispose of or reduce his risk relative to any
shares of capital stock of Lazer-Tron owned by such Lazer-Tron Affiliate or
shares of Acclaim Common Stock acquired by such Lazer-Tron Affiliate in the
Merger during the period beginning 30 days prior to the Effective Time and
continuing until such time as financial results covering at least 30 days of
combined operations of Acclaim and Lazer-Tron after the Effective Time have been
filed with the Commission or publicly reported by Acclaim. In addition, certain
of the Lazer-Tron Affiliates holding as of the Record Date approximately 28.3%
of the outstanding shares of Lazer-Tron Common Stock have agreed to vote their
shares in favor of the Merger Agreement and the transactions contemplated
thereby at the Special Meeting.
Certain beneficial owners of Acclaim Common Stock (the 'Acclaim
Affiliates') have entered into affiliates agreements dated March 22, 1995 (the
'Acclaim Affiliates Agreements,' and together with the Lazer-Tron Affiliates
Agreements collectively referred to herein as the 'Affiliates Agreements') with
Acclaim, pursuant to which each such Acclaim Affiliate has agreed not to dispose
of or reduce his risk relative to shares of Acclaim Common Stock during the
period commencing on March 22, 1995 until such time as financial results
covering at least 30 days of combined operations of Acclaim and Lazer-Tron after
the Effective Time have been filed with the Commission or publicly reported by
Acclaim.
EMPLOYMENT AGREEMENTS
It is a condition to the consummation of the Merger that employment
agreements (the 'Employment Agreements') between the Surviving Corporation and
each of Norman B. Petermeier, Matthew F. Kelly and Bryan M. Kelly (the
'Employees') be entered into at the Effective Time.
Pursuant to the Employment Agreements, Norman B. Petermeier will serve as
President of the Surviving Corporation and receive an annual base salary of
$150,000, Matthew F. Kelly will serve as Vice President of Marketing of the
Surviving Corporation and receive an annual base salary of $125,000 and Bryan M.
Kelly will serve as Vice President of Engineering of the Surviving Corporation
and receive an annual base salary of $125,000. Each of the Employees is also
entitled to a bonus in an amount equal to up to 50% of his base salary,
determined in the discretion of the Board of Directors of the Surviving
Corporation based solely upon the achievement by the Surviving Corporation of
specific objectives set forth in the Surviving Corporation's business plan for
such fiscal year and such individual's contribution to the Surviving
Corporation's and Acclaim's financial performance and profitability. Each
Employee is also entitled to certain benefits including an automobile allowance,
life insurance, reimbursement of certain expenses and participation in other
Acclaim employee benefit plans. Employees shall also be indemnified by the
Surviving Corporation to the fullest extent permitted by California law.
Each Employee will agree, to the extent permitted by law, not to compete
with the business of the Surviving Corporation, Acclaim, or any affiliate
thereof in any geographic area where such businesses operate for a period
terminating on the earlier of (i) the first anniversary of the termination of
the initial term of employment, (ii) the first anniversary of the termination of
employment, and (iii) the fifth anniversary of the date of the Employment
Agreement. Each Employment Agreement will also prohibit the Employee until the
earlier of (i) the first anniversary of the termination of the initial term of
employment or (ii) the first anniversary of the termination of the Employee's
employment, to the extent permitted by law, from soliciting, persuading or
attempting to
39
persuade any employee of the Surviving Corporation, Acclaim or any affiliate
thereof to leave the Surviving Corporation's or Acclaim's employ.
Under the Employment Agreement, the Employee can be terminated for 'cause',
which includes, among other things, any breach by Lazer-Tron of any
representation or warranty (except certain financial representations and
warranties and breaches of representations and warranties of which Acclaim had
knowledge as of the date of the Employment Agreement) made by Lazer-Tron under
the Merger Agreement. Such representations and warranties will survive for a
period of one year following the Effective Date (except for certain financial
representations and warranties, which shall survive until such time as an audit
report relating to the combined audited financial statements of Acclaim and
Lazer-Tron for a period subsequent to the consummation of the Merger is issued).
If the Surviving Corporation terminates any Employee without cause, or if such
Employee resigns as a result of a material reduction of such Employee's duties
or working conditions or a reduction in such Employee's compensation, such
Employee will be entitled to cash payments in an aggregate amount equal to the
Employee's then current annual base salary and bonus, if any, paid to the
Employee for the most recent fiscal year, certain employee benefits and a cash
payment in an amount equal to his annual base salary and bonus that have
actually accrued with respect to the Employee as of the date of termination.
EMPLOYEE OPTION AGREEMENTS
On March 22, 1995, each of the Employees entered into separate agreements
(the 'Option Agreements') with Acclaim whereby each Employee will be granted
stock options (the 'Employee Options') to purchase 40,000 shares, in the case of
Norman Petermeier, and 30,000 shares, in the cases of Matthew Kelly and Bryan
Kelly, of Acclaim Common Stock concurrently with the Closing and upon the
execution of such Employee's Employment Agreement. The Employee Options will
have an option price equal to the closing sale price of Acclaim Common Stock on
the date of the Closing (as reported on The Nasdaq National Market) and will
expire on the tenth anniversary of the Closing Date. The Employee Options will
also be subject to and governed by all of the terms of Acclaim's 1988 Stock
Option Plan, as amended, including the provisions with respect to acceleration
and early termination, except to the extent modified by the Option Agreements.
SEVERANCE AGREEMENTS
On March 22, 1995, Lazer-Tron entered into severance agreements (the
'Severance Agreements') with each of Suzanne Bouldoukian, Jeffrey Allen, Ronald
Carrara and Patrick Boudreau providing for a severance payment in an amount
equal to six months of such employee's base salary as of the date of the
Severance Agreement if, within one year from the date of the Severance
Agreement, such employee is terminated without cause or a material adverse
change occurs in the circumstances of such employee's employment.
ARTICLES OF INCORPORATION AND BY-LAWS
The Articles of Incorporation of Lazer-Tron and the By-laws of Lazer-Tron,
each as in effect immediately prior to the effective date of the Merger, will
remain in effect as the Articles of Incorporation and By-laws of the Surviving
Corporation after the Merger, and thereafter may be amended in accordance with
their respective terms and applicable law.
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION
At the Effective Time, the Board of Directors of the Surviving Corporation
shall consist of Gregory E. Fischbach, James Scoroposki, Robert Holmes, Anthony
R. Williams and Norman B. Petermeier and the officers of the Surviving
Corporation shall be the existing officers of Lazer-Tron, each to hold office in
accordance with the Articles of Incorporation and By-laws of the Surviving
Corporation.
AFFILIATES' RESTRICTIONS ON SALE OF ACCLAIM COMMON STOCK
The shares of Acclaim Common Stock to be issued in the Merger are
registered, pursuant to the Registration Statement of which this
Prospectus/Proxy Statement forms a part, under the Securities Act, thereby
allowing those shares to be traded without restriction by all former holders of
Lazer-Tron Common Stock (i) who are not
40
deemed to be 'affiliates' (as defined for purposes of Rule 145 under the
Securities Act) of Lazer-Tron at the time of the Special Meeting and (ii) who do
not become 'affiliates' of Acclaim after the Merger.
Consequently, each of the 'affiliates' of Lazer-Tron has been advised that
such affiliate may not be permitted under current law to make any public sale of
any Acclaim Common Stock received upon consummation of the Merger except under
certain circumstances, including where such sale is permitted pursuant to Rule
145 under the Securities Act. See '--Affiliates Agreements'. In general, Rule
145, as currently in effect, imposes restrictions on the manner in which such
affiliates may make resales of Acclaim Common Stock and also on the number of
shares of Acclaim Common Stock that such affiliates and others (including
persons with whom the affiliates act in concert) may sell within any three-month
period. These restrictions will generally apply for at least a period of two
years after the Merger (or longer if the person is an affiliate of Acclaim).
VOTE REQUIRED; RECOMMENDATION
Approval of the Merger Agreement by the shareholders of Lazer-Tron requires
the affirmative vote of a majority of the outstanding shares of Lazer-Tron
Common Stock entitled to vote at the Special Meeting. Certain directors,
officers and affiliates of Lazer-Tron holding an aggregate of 1,007,047 shares
of Lazer-Tron Common Stock have agreed to vote such shares in favor of the
Merger. Such shares comprise an aggregate of approximately 28.3% of the shares
of Lazer-Tron Common Stock outstanding as of the Record Date. It is a condition
precedent to the obligations of Acclaim to consummate the Merger that Dissenting
Shares and/or shares of common stock of Lazer-Tron capable of becoming
Dissenting Shares after the Closing shall not constitute in excess of 10% of the
shares eligible to vote for such approval and adoption.
THE BOARD OF DIRECTORS OF LAZER-TRON HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF LAZER-TRON AND ITS SHAREHOLDERS AND HAS UNANIMOUSLY
RECOMMENDED A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENTS AND THE
MERGER.
41
MARKET FOR ACCLAIM AND LAZER-TRON COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The Acclaim Common Stock and the Lazer-Tron Common Stock are traded on the
Nasdaq Stock Market's National Market System. On June 16, 1995, the closing sale
prices for the Acclaim Common Stock and the Lazer-Tron Common Stock were $17.25
per share and $8.00 per share, respectively. As of such date, there were
approximately 1,217 holders of record of the Acclaim Common Stock and 206
holders of record of the
Lazer-Tron Common Stock.
The following table sets forth the range of high and low sales prices for
the Acclaim Common Stock and the Lazer-Tron Common Stock for each of the periods
indicated:
PRICE
----------------
PERIOD HIGH LOW
--------------------------------------------------------------------------- ------ ------
ACCLAIM(1)
Fiscal Year 1993
First Quarter......................................................... $10.42 $ 6.25
Second Quarter........................................................ 15.17 10.17
Third Quarter......................................................... 17.83 11.00
Fourth Quarter........................................................ 26.63 15.67
Fiscal Year 1994
First Quarter......................................................... 31.38 21.75
Second Quarter........................................................ 25.63 19.63
Third Quarter......................................................... 27.13 13.25
Fourth Quarter........................................................ 19.25 14.25
Fiscal Year 1995
First Quarter......................................................... 20.63 15.63
Second Quarter........................................................ 15.63 13.44
Third Quarter......................................................... 17.50 13.69
LAZER-TRON
Fiscal Year 1994
Fourth Quarter (from May 26, 1994)(2)................................. $ 8.25 $ 8.00
Fiscal Year 1995
First Quarter......................................................... 10.88 8.00
Second Quarter........................................................ 15.75 8.75
Third Quarter......................................................... 10.00 7.00
Fourth Quarter (through June 16, 1995)................................ 8.38 7.50
------------------
(1) All common share information has been restated to reflect the three-for-two
stock split in the form of a 50% stock dividend distributed on August 23,
1993.
(2) Prior to May 26, 1994, there was no public market for Lazer-Tron Common
Stock.
DIVIDEND POLICY
Neither Acclaim nor Lazer-Tron have paid any cash dividends since inception
and have no present intention to declare or pay cash dividends in the
foreseeable future. Certain covenants contained in the loan documents of Acclaim
and Lazer-Tron contain restrictions on the payment of dividends by Acclaim and
Lazer-Tron, respectively. Acclaim intends to retain any earnings which it may
realize in the foreseeable future to finance its operations.
42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF LAZER-TRON
The following table sets forth certain information, as of May 31, 1995,
with respect to the beneficial ownership of Lazer-Tron Common Stock by (i) each
person (including any 'group') known by Lazer-Tron to be the beneficial owner of
more than 5% of Lazer-Tron Common Stock, (ii) each director, (iii) each named
executive officer and (iv) all directors and executive officers as a group.
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS
---------------------------------------------------------------------- ------------ -------
Bob K. Pryt(2)........................................................ 330,636 9.1%
BKP Partners, L.P.(3)................................................. 298,636 8.3
Bryan M. Kelly(4)..................................................... 227,930 6.3
Matthew F. Kelly(5)................................................... 222,400 6.2
Andrew McCormick Kelly(6)............................................. 213,400 6.0
Genevieve D. Kelly(6)................................................. 213,400 6.0
Robert K. Williams, III(7)............................................ 205,750 5.8
Charles N. Mathewson(8)............................................... 187,629 5.2
Norman B. Petermeier(9)............................................... 158,201 4.4
Ronald M. Carrara(10)................................................. 6,208 *
Roger V. Smith(11).................................................... 14,000 *
Dr. Morton Grosser(12)................................................ 12,000 *
All directors and executive officers as a group (10 persons)(13)...... 1,021,153 27.0
------------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
(2) Includes the shares held by BKP Partners, L.P. ('BKP') and the shares
subject to a Sales Agent Warrant held by BKP identified in footnote(3) and
12,000 shares subject to options, 4,500 of which are currently exercisable
and 7,500 of which are exercisable within 60 days of May 31, 1995 assuming
the acceleration as to vesting of such options as a result of the Merger.
Mr. Pryt is a director of Lazer-Tron. Mr. Pryt's address is provided in
footnote(3). The number of shares shown as beneficially owned is based on
the Schedule 13D for May 26, 1994 filed by Mr. Pryt and BKP.
(3) Represents 254,799 shares held by BKP and 43,837 shares subject to a Sales
Agent Warrant exercisable within 60 days of May 31, 1995 held by BKP. Mr.
Pryt is the Managing General Partner of BKP. The address of BKP and Mr.
Pryt is One Sansome Street, Suite 3900, San Francisco, California 94104.
The number of shares shown as beneficially owned is based on Schedule 13D
for May 26, 1994 filed by Mr. Pryt and BKP.
(4) Includes 26,300 shares subject to options exercisable within 60 days of May
31, 1995. Bryan M. Kelly is Vice President of Engineering and a director of
Lazer-Tron. His address is 4430 Willow Road, Pleasanton, California 94588.
(5) Includes 26,700 shares subject to options exercisable within 60 days of May
31, 1995. Matthew F. Kelly is Vice President of Marketing and a director of
Lazer-Tron. His address is 4430 Willow Road, Pleasanton, California 94588.
(6) Represents 175,000 shares held by the Kelly Family Trust for Mark Kelly, of
which Genevieve D. Kelly is trustee and 38,400 shares held by the Kelly
Family 1992 Trust, of which Andrew McCormick Kelly and Genevieve D. Kelly
are trustees. Andrew McCormick Kelly and Genevieve D. Kelly are husband and
wife. Their address is 2470 Pioneer Drive, Reno, Nevada 89509.
(Footnotes continued on next page)
43
(Footnotes continued from previous page)
(7) Includes shares held by Mr. Williams' IRA accounts, 6,000 shares subject to
options exercisable within 60 days of May 31, 1995 and 4,750 shares subject
to a Sales Agent Warrant exercisable within 60 days of May 31, 1995. His
address is 153 Kingswood Circle, Danville, California 94506. The number of
shares shown as beneficially owned is based on the Schedule 13D for May 26,
1994 filed by Mr. Williams.
(8) Represents 167,000 shares held by the Charles N. Mathewson Trust and 20,629
shares subject to a Sales Agent Warrant exercisable within 60 days of May
31, 1995 held by the Charles N. Mathewson Trust. His address is c/o
International Game Technology, 5270 Neil Road, Reno, Nevada 89502. The
number of shares shown as beneficially owned is based on the Schedule 13D
for July 13, 1994 filed by Mr. Mathewson.
(9) Includes 36,683 shares subject to options exercisable within 60 days of May
31, 1995. Mr. Petermeier is President, Chief Executive Officer and Chairman
of the Board of Directors of Lazer-Tron.
(10) Represents shares subject to options exercisable within 60 days of May 31,
1995. Mr. Carrara is Vice President of Sales of Lazer-Tron.
(11) Includes 12,000 shares subject to options, 4,500 of which are currently
exercisable and 7,500 of which are exercisable within 60 days of May 31,
1995 assuming the acceleration as to vesting of such options as a result of
the Merger. Mr. Smith is a director of Lazer-Tron.
(12) Represents shares subject to options, 4,500 of which are currently
exercisable and 7,500 of which are exercisable within 60 days of May 31,
1995 assuming the acceleration as to vesting of such options as a result of
the Merger. Dr. Grosser is a director of Lazer-Tron.
(13) Includes the shares subject to options and the Sales Agent Warrant
described in footnotes(2), (4), (5) and (9)-(12), 1,820 additional shares
and 47,958 additional shares subject to options exercisable within 60 days
of May 31, 1995.
44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF LAZER-TRON
OVERVIEW
Lazer-Tron, which was incorporated in 1988, designs, develops, manufactures
and markets coin-and token-operated redemption games for use by family
entertainment centers and other entertainment venues, including shopping malls
and free-standing arcades and amusement and theme parks. The coin-operated
amusement industry includes video games, pinball games, table and sports games
and redemption games. Redemption games typically award a player tickets based on
the player's skill level in playing the game. The tickets may be redeemed for
prizes and merchandise available at the facility offering the redemption games
('Operators'). In recent years the redemption game market experienced increased
popularity primarily due to the expansion of the family entertainment facilities
and arcades offering prize counters. Lazer-Tron entered the redemption game
market as the growth of that market was accelerating and established a strong
position in the redemption market as a manufacturer of innovative, high-quality
and technologically-advanced games.
During recent periods, the coin-operated game market has experienced a
general softness in demand due in part to a slowing of expansion in the number
of new arcade/family entertainment center locations, consolidation of business
at the Operator and distributor levels, as well as increased competition from
existing game manufacturers and new entrants. Lazer-Tron is attempting to
mitigate these shifts in the marketplace by expanding sales into foreign markets
and diversifying into non-ticket redemption games (such as the one-player
Pogger, initially shipped in February 1995), as well as other coin-operated
games such as sports and table games currently in development. However, these
efforts are expected to take time to generate benefits, if any. In addition,
long-term growth in the coin-operated game market depends greatly on the
Operators' ability to properly manage their businesses, which includes proper
equipment maintenance and successful promotion, presentation and marketing of
their merchandise.
In addition to the changes occurring in the coin-operated business, the
demand for redemption games is seasonal. Historically, the majority of
deliveries in the industry take place prior to summer time (Lazer-Tron's fourth
fiscal quarter) and to a lesser extent, prior to the Christmas holiday season
(Lazer-Tron's second fiscal quarter)--when family entertainment centers and
other entertainment venues typically expect their largest volumes of business
(due primarily to the timing of school holidays and family vacations).
Lazer-Tron believes that it will continue to experience the effects of these
seasonality factors, which may adversely affect results for its first fiscal
quarter and, particularly, its third fiscal quarter. In addition, a significant
portion of Lazer-Tron's expenses are relatively fixed, and if sales decrease for
any reason in a single quarter, gross profits and operating results for that
quarter could be adversely affected.
As a result of competition and ever-changing customer preferences, it can
be expected that a majority of the net sales realizable from a game will
generally be recognized within the first few years following its introduction.
From the viewpoint of the Operator, a game must provide an attractive rate of
return by possessing the proper level of 'play appeal' and promote repeat
business so players will return to try to win more tickets for bigger and better
prizes. Accordingly, it is necessary for Lazer-Tron to continue to successfully
develop and market new products as replacements for older redemption games
generating decreasing levels of revenue. As a result of Lazer-Tron's increased
pace of product introductions, research and development expenses have increased
substantially.
Lazer-Tron has and will continue to experience pressure to increase its
salaries and related employee benefits in order to recruit and retain qualified
personnel, in particular engineers and administrative staff. Historically,
Lazer-Tron's salary structure has been generally below market. Lazer-Tron's
growth through fiscal 1994 necessitated, and will continue to require,
expenditures to implement and increase the effectiveness of its administrative,
accounting and manufacturing controls, procedures and information systems. In
addition, Lazer-Tron has incurred incremental professional and other expenses
associated with its status as a public company.
45
RESULTS OF OPERATIONS
General
The following table sets forth for the periods indicated the percentage of
net sales represented by each item reflected on Lazer-Tron's statements of
income:
PERCENTAGE OF PERCENTAGE OF
NET SALES NET SALES
------------------------- ---------------
YEAR ENDED NINE MONTHS
JUNE 30, ENDED MARCH 31,
------------------------- ---------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 74.9 70.7 66.4 67.2 67.0
----- ----- ----- ----- -----
Gross profit...................................... 25.1 29.3 33.6 32.8 33.0
Operating expenses:
Research and development.......................... 3.0 2.5 2.9 3.2 10.1
Selling, general and administrative............... 15.2 13.6 12.7 12.6 16.0
----- ----- ----- ----- -----
Total operating expenses..................... 18.2 16.1 15.6 15.8 26.1
----- ----- ----- ----- -----
Operating income.................................... 6.9 13.2 18.0 17.0 6.9
Merger costs........................................ -- -- -- -- (2.5)
Interest income (expense), net...................... (1.4) (0.5) 0.3 0.1 2.9
----- ----- ----- ----- -----
Income before income taxes.......................... 5.5 12.7 18.3 17.1 7.3
Provision for income taxes.......................... 0.7 3.5 7.3 6.9 3.2
----- ----- ----- ----- -----
Net income.......................................... 4.8% 9.2% 11.0% 10.2% 4.1%
===== ===== ===== ===== =====
NET SALES
Net sales increased 147% from $2,922,000 in fiscal 1992 to $7,215,000 in
fiscal 1993 and increased 113% to $15,377,000 in fiscal 1994. The growth in
sales was principally the result of the increased number of product offerings
introduced by Lazer-Tron. Net sales decreased 4% from $10,288,000 in the first
nine months of fiscal 1994 to $9,900,000 in the same period for 1995. Sales in
the first nine months of fiscal 1995 were impacted by a general softness in
arcade/family entertainment center demand and entrance of new competitors. In
order to expand into new markets, the Company has developed non-ticket
redemption games, such as Pogger, and is designing other such games for release
in the future. Further, results were affected by the timing and acceptance of
new product introductions. The second and third quarters of fiscal 1994
benefited from strong demand for Aftershock, which was initially shipped in July
1993 and Ribbit Racin, Lazer-Tron's strongest selling game ever, which was
initially shipped in October 1993. While Lazer-Tron has initially shipped five
new games in September 1994 and four in the third quarter of fiscal 1995, the
Company believes that sales of these new games were adversely affected by (i)
the slow down in the industry and (ii) introduction of games later in the year
as compared to the timing of new game introductions in prior years. Other
revenue contained in net sales-- generated from customer service and
royalties--was $376,000, $173,000, $97,000, $109,000 and $259,000 in fiscal
1992, 1993 and 1994 and for the first nine months of fiscal 1994 and fiscal
1995, respectively.
Lazer-Tron's pace of new game introductions has increased, with nine games
initially shipped during the first nine months of fiscal 1995, as compared to
four games in the first nine months of fiscal 1994, six games in all of fiscal
1994, five games in fiscal 1993 and one game in fiscal 1992. As a result of the
variety of games offered for sale, Lazer-Tron believes it is now less dependent
upon sales of any one game during a fiscal period. For example, during fiscal
1992 four games were available, with one, Bank-It, representing approximately
50% of net sales. As further illustration, during fiscal 1993 the Spin-to-Win
series represented approximately 70% of game sales, whereas in fiscal 1994 the
Spin-to-Win series and two games introduced in 1994, Ribbit Racin and
Aftershock, represented approximately 70% of the game sales. Finally, for the
first nine months of fiscal 1995, the Spin-to-Win series, Ribbit Racin,
Aftershock and three games initially shipped in 1995, Pirate's Gold and Pogger
(single- and four-player) represented approximately 70% of total game sales.
Lazer-Tron intends to
46
discontinue manufacturing three of its older games--Haunted House, Shuttle
Launch and Vine Climb--during fiscal year 1995; however, they will continue to
be available on a special order basis.
In an effort to offset seasonality in the U.S. and in order to expand into
new markets, Lazer-Tron is continuing to develop distributor relationships in
Europe, South America, Vietnam, South Africa, the Middle East and China, among
others. Due to prior efforts in these and other international markets, foreign
sales grew from $138,000 to $1,765,000 to $3,240,000 in fiscal 1992, 1993 and
1994, respectively, and from $2,250,000 to $3,100,000 in the first nine months
of fiscal 1994 and 1995, respectively.
GROSS PROFIT
Gross profit increased 189% from $733,000 in fiscal 1992 to $2,116,000 in
fiscal 1993. The improvement in gross profit margin from 25.1% of sales in
fiscal 1992 to 29.3% in fiscal 1993 was primarily due to increased manufacturing
and purchasing efficiencies gained as a result of increased sales volume.
Lazer-Tron also realized a higher sales price on the Super Bank-It product sold
in fiscal 1993 than on the Bank-It sold in fiscal 1992. Gross profit increased
144% from $2,116,000 in fiscal 1993 to $5,169,000 in 1994. The improvement in
gross profit margin from 29.3% of sales in fiscal 1993 to 33.6% in 1994 was
primarily due to Lazer-Tron's continued ability to realize increased
manufacturing and purchasing efficiencies as a result of increased sales and the
consolidation of all operations into one building in May 1993. Gross profit
decreased 21% from $980,000 in the three months ended March 31, 1994 to $776,000
in the same period for fiscal 1995 and decreased 3% from $3,371,000 in the first
nine months of fiscal 1994 to $3,269,000 in the same period for fiscal 1995.
While the gross profit margin has remained steady at 33% for these two
nine-month periods, gross profit margins for the comparable three-month periods
ended March 31, 1994 and 1995 have declined primarily due to reduced sales
volume. The reduction in sales volume has been accompanied by a change in the
relative mix of customers in the first nine months of fiscal 1995 as compared to
fiscal 1994, which has begun to impact gross profit margins, particularly in the
third quarter of fiscal 1995. Lazer-Tron is experiencing some increasing
concentration in sales to national distributors who, due to their volume
purchases, receive volume discounts, while sales to smaller distributors, who
typically do not receive similar quantity discounts, has decreased, resulting in
a negative impact on net sales and gross margins. In addition, with foreign
sales increasing during the first nine months of fiscal 1995 as compared to
fiscal 1994, the absolute dollar amount of foreign discounts has increased.
The decline in the gross profit margin due to the above referenced factors
was offset in part by the mix of games sold in fiscal 1994 and the first nine
months of fiscal 1994 and 1995 since more of the higher margin games, such as
Ribbit Racin and Spin-to-Win series, were sold. This trend is consistent between
the first nine months of fiscal 1994 and fiscal 1995. These favorable trends
offset higher royalty expenses incurred by Lazer-Tron in fiscal 1994 as compared
to fiscal 1993. However, royalty expense as a percent of sales dropped from
approximately 5% in fiscal 1993 (an increase from approximately 3% in fiscal
1992), to 4% for the first nine months of fiscal 1994 and to approximately 3% in
fiscal 1994 and the first nine months of 1995; this trend was a result of the
reduction in the number of games sold in the product mix that are subject to
royalty agreements.
While Lazer-Tron games tend to be priced slightly higher than competitive
products, to date product pricing pressure appears to be a result of the
earnings and return on investment potential derived from a game by an Operator.
Due to increasing competition, Lazer-Tron may need to reduce prices in the
future, which could adversely affect gross profit margins. In addition, due to
the increased number of games offered by Lazer-Tron and the slowing of sales,
Lazer-Tron believes the economy of scale benefits from manufacturing and
purchasing efficiencies experienced in prior years started to peak recently;
accordingly, Lazer-Tron does not expect incremental gross margin benefits
attributable to economies of scale experienced in the past to continue.
RESEARCH AND DEVELOPMENT (R&D)
R&D expenses increased 106% from $88,000 in fiscal 1992 to $181,000 in
fiscal 1993, increased 150% to $452,000 in fiscal 1994 and increased 205% from
$330,000 in the first nine months of fiscal 1994 to $1,005,000 in the same
period for fiscal 1995. R&D expenses, as a percentage of net sales, decreased
from 3.0% in fiscal 1992 to 2.5% in fiscal 1993, increased to 2.9% in 1994 and
increased from 3.2% for the first nine months of fiscal 1994 to 10.1% in the
same period for fiscal 1995. However, R&D costs in absolute dollars have
remained
47
fairly consistent on a quarter-to-quarter basis during the first nine months of
fiscal 1995. R&D costs, including payroll and related, temporary labor,
consulting fees, prototype materials and supplies, are expensed as incurred. The
growth in R&D costs was primarily due to acceleration of game development,
leading to increased personnel requirements and prototype material costs. For
example, at March 31, 1994 Lazer-Tron had ten permanent engineers as compared to
16 at March 31, 1995. In addition, during the first nine months of fiscal 1995,
Lazer-Tron established an in-house sound studio and hired its initial video
development team. R&D expenses are expected to increase on a per game basis and
overall as Lazer-Tron continues to increase the pace of non-ticket redemption
and ticket redemption product introductions and expand the development of video
ticket redemption and other leading edge video games.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A)
SG&A expenses increased 121% from $444,000 in fiscal 1992 to $982,000 in
fiscal 1993, increased 98% to $1,947,000 in fiscal 1994 and increased 22% from
$1,297,000 in the first nine months of fiscal 1994 to $1,582,000 in the same
period for fiscal 1995. SG&A expenses decreased as a percentage of net sales
from 15.2% in fiscal 1992 to 13.6% in fiscal 1993 and to 12.7% in fiscal 1994
and increased as a percentage of net sales from 12.6% for the first nine months
of fiscal 1994 to 16.0% in the same period in 1995. However, SG&A costs in
absolute dollars have remained fairly consistent on a quarter-to-quarter basis
during the first nine months of fiscal 1995. The increases in SG&A expenses for
all periods is primarily attributable to: (i) attendance at more national and
international trade shows, including expanded visibility at each show; (ii)
efforts in developing international distributor relationships; (iii) expanded
business development activities; (iv) additional employees and adjustments in
salaries towards market levels; and (v) significant incremental costs related to
being a public company. In addition, during May 1993, Lazer-Tron moved into its
new facility, increasing rent and other occupancy expenses during fiscal 1994
and the first nine months of fiscal 1995, as compared to fiscal 1992 and 1993.
Furthermore, Lazer-Tron has incurred significant additional costs during fiscal
1995 related to being a public company. SG&A expenses are expected to continue
to increase as the Company expands into new arenas.
MERGER COSTS
On March 22, 1995, Lazer-Tron entered into the Merger Agreement with
Acclaim and the Subsidiary. The parties intend that the merger, if consummated,
will be a tax-free transaction, that it will be accounted for as a pooling of
interests and that it will result in Lazer-Tron being a wholly-owned subsidiary
of Acclaim. Through the first nine months of fiscal 1995, Lazer-Tron incurred
merger costs (comprised primarily of legal, financial advisor and accounting
fees) of approximately $249,000. Lazer-Tron expects to incur additional
merger-related costs prior to closing, and such costs could be material to
Lazer-Tron's results for its fourth fiscal quarter.
INTEREST INCOME (EXPENSE), NET
Lazer-Tron had minimal interest-earning cash balances in fiscal 1992 and
1993. Interest income of $51,000 was generated in 1994 from interest-earning
short-term investments. As a result of the repayment of certain borrowings from
shareholders and from a bank, interest expense decreased from approximately
$40,000 in fiscal 1992 and $33,000 in 1993 to a negligible amount in 1994.
Lazer-Tron had minimal interest-earning cash balances for the first nine
months of fiscal 1994. Interest income for the first nine months of fiscal 1995
was generated by U.S. Treasury Bills and money market investments. Interest
income increased for the first nine months of fiscal 1995 as compared to 1994
due to earnings on the proceeds from the initial public offering on May 26,
1994, proceeds from the exercise of the related underwriter over-allotment
option on July 15, 1994 and proceeds from other miscellaneous stock
transactions.
TAX RATES
For the first nine months of fiscal 1995, Lazer-Tron's provision for income
taxes has been computed based on a projected effective tax rate of 35% applied
to Lazer-Tron's pre-tax earnings from ongoing operations, as compared to a 40%
effective tax rate for the first nine months of fiscal 1994. The tax effect of
the costs related to the proposed merger with Acclaim are separately accounted
for in the quarter in which the expenditures are
48
incurred. It is expected that Lazer-Tron will not realize any tax benefit with
respect to the majority of merger-related expenditures.
Lazer-Tron's effective tax rate in fiscal 1992, 1993 and 1994 was 13%, 27%
and 40%, respectively. The tax rates in fiscal 1992 and 1993 were lower
primarily due to the tax benefit associated with the utilization of net
operating tax loss carryforwards. The projected effective tax rate of 35% in
fiscal 1995 (before merger costs) is expected to be favorably impacted by the
benefits associated with increased use of the foreign sales corporation and
research and development credits.
NET INCOME PER SHARE
Lazer-Tron's net income per share was calculated at June 30, 1992, 1993 and
1994 using a weighted average number of shares outstanding of 2,648,000,
2,670,000 and 2,888,000, respectively. Lazer-Tron's net income per share for the
first nine months of fiscal 1994 and 1995 was calculated using a weighted
average number of shares outstanding of 2,785,000 and 4,036,000, respectively,
reflecting an increase of 45% for the first nine months of fiscal 1995 compared
with the first nine months of 1994; this increase is due to the May 26, 1994
initial public offering and exercise of the overallotment option in July 1994.
Subsequent net income per share calculations, as compared to fiscal 1994, will
continue to be impacted by the shares issued in the initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
Lazer-Tron had total assets of $13,291,000 at June 30, 1994 and $13,844,000
at March 31, 1995. In connection with Lazer-Tron's initial public offering in
May 1994, it received $859,000 in July 1994 representing the proceeds (net of
expenses) from the underwriter's exercise of the over-allotment option of
119,430 shares of its Common Stock. As of March 31, 1995, Lazer-Tron s unused
sources of funds included $7,893,000 in cash and cash equivalents. Lazer-Tron
has its cash equivalent balance invested primarily in 90-day U.S. Treasury
Bills. In addition, Lazer-Tron has a $2,000,000 unsecured working capital
revolving credit facility calculated as a percentage of eligible accounts
receivable. Borrowings under the credit facility bear interest at prime plus 1%.
Lazer-Tron had no outstanding borrowings under this line of credit as of March
31, 1995.
As compared to June 30, 1994, Lazer-Tron's cash position improved by
$840,000 during the first nine months of fiscal 1995. This is a result of
proceeds from the sale of Lazer-Tron stock of $1,146,000 and the maturity of a
short-term investment of $202,000, offset by $269,000 expended for working
capital requirements and $239,000 expended for equipment acquisitions (primarily
R&D).
Cash requirements are expected to continue to increase in order to fund:
(i) personnel and salary costs; (ii) research and development costs; (iii)
investment in additional technical equipment; and (iv) working capital
requirements.
Lazer-Tron believes that the cash generated from operations, cash presently
on hand, and the availability of the credit facility, will be sufficient to meet
Lazer-Tron's cash needs through the third quarter of fiscal 1996. Beyond that,
Lazer-Tron may require additional equity or debt financing to address its
working capital or capital equipment needs.
49
BUSINESS OF LAZER-TRON
GENERAL
Lazer-Tron, which was incorporated in 1988, designs, develops, manufactures
and markets coin- and token-operated redemption games for use by family
entertainment centers and other entertainment venues, including shopping malls
and free-standing arcades and amusement and theme parks. The coin-operated
amusement industry includes video games, pinball games, table and sports games
and redemption games. Redemption games typically award a player tickets based on
the player's skill level in playing the game. The tickets may be redeemed for
prizes or merchandise.
The redemption game market has experienced increased popularity in recent
years as families sought out-of-the-home entertainment for the entire family,
such as that offered at family entertainment centers and other entertainment
venues. Lazer-Tron believes that the increased popularity of redemption games
has been affected by the growth in the number of family entertainment centers
and other entertainment venues, advances in the technology used in the games,
the increased demand for wholesome family-oriented entertainment and the marked
improvement in quality of redemption merchandise and merchandising techniques.
Lazer-Tron believes that families have been drawn to family entertainment
centers and other entertainment venues that offer redemption games because the
customers are offered an attraction not available in the home and they can
acquire quality merchandise with the tickets earned from playing the games. From
the viewpoint of the Operator, redemption games can provide an attractive rate
of return and tend to promote repeat business, as players try to win more
tickets for bigger and better prizes.
However, during recent periods, the coin-operated game market has
experienced a general softness in demand due in part to a slowing of expansion
in the number of new arcade/family entertainment center locations, consolidation
of business at the Operator and distributor levels, increased competition from
existing game manufacturers and new entrants and the absence of 'hit' video
games which draw traffic into arcades and entertainment center locations,
thereby increasing demand for redemption games. See 'Risk Factors.'
PRODUCTS
Lazer-Tron's goal is to offer games that appeal to a wide age group, are
simple, fun, durable and well 'themed.' Lazer-Tron's games utilize advanced
technologies, including microprocessors, opto-electronic and electro-mechanical
devices to enhance the look, feel, sound and play of its games. For example,
Lazer-Tron was among the first in the redemption game market to combine digital
sound effects, sensing technologies, lighting and mechanical events to provide
interaction with each event occurring during the game. By synchronizing sound
effects to actions of a player, such as by 'announcing' that a player tossed the
wrong colored ball into a target in Awesome Toss 'Em, Lazer-Tron strives to
provide a high level of player interaction. To add to the enjoyment of a game,
Lazer-Tron seeks to develop games that are highly visual through the use of
appealing themes, artwork, decals and cabinetry, in addition to lights and
sound.
Lazer-Tron currently offers 21 games, in addition to the Bonus Jackpot
Display, a programmable feature which links multiple games in order to provide
an increasing ticket jackpot that can be won by the players of any of the linked
games. Lazer-Tron's best selling games in fiscal 1994 were the Spin-to-Win
series, Ribbit Racin, and Aftershock, and for the first nine months of fiscal
1995 were the Spin-to-Win series (includes Spin-to-Win, Jungle Rama and Spin
A21), Ribbit Racin, Aftershock, Pirate's Gold and Pogger. In order to expand
into new markets, Lazer-Tron has introduced games such as the Pogger series and
Ring Toss which can be placed in non-redemption venues, such as bowling alleys,
malls, pizza parlors and movie theaters.
A representative example of the Company's games is Aftershock, an exciting
interactive coin-sliding game that includes a colorful, high-quality graphic
depiction of San Francisco, complete with flashing lights and digital sound.
Upon depositing a coin or arcade token (generally 25 cents, or a multiple
thereof) into the game, the game's playfield vibrates, in a whimsical emulation
of an earthquake, and a mock 'Richter Scale' displays a 'magnitude one' tremor.
The player, verbally encouraged by the game, tips the downward sloping playfield
to the left or right through physical movement of a large T-bar to guide the
coin (including, for example, guiding the coin across the Golden Gate Bridge)
into the high point target holes worth up to 60 tickets. The game is designed so
that every coin will result in at least a one-ticket win. The average per-coin
play time is approximately 8
50
seconds. Dropping successive coins in the game increases the Richter Scale, as
well as the level of tickets awarded; when the Richter Scale registers
'magnitude five' the player is afforded the opportunity to win a bonus jackpot.
Multiple Aftershock games may also be interconnected by adding a progressive
Bonus Jackpot Display feature.
Typically if a game achieves market acceptance it generates the majority of
its revenue in the first few years of sales, but may continue to generate
revenue over a number of years. However, the pace of new game introductions has
increased, which could result in shorter product life cycles. Lazer-Tron's pace
of new product introductions has increased, with nine games initially shipped
during the first nine months of fiscal 1995, as compared to six in fiscal 1994
and five in fiscal 1993. As a result of the variety of its product offerings,
Lazer-Tron believes it is now less dependent upon sales of any one game during a
fiscal period. For example, Spin-To-Win, which was initially shipped in August
1992, generated the most revenue for fiscal 1993, while in fiscal 1994, the
Spin-To-Win series and two games initially shipped in fiscal 1994, Ribbit Racin
and After Shock, represented approximately 70% of total game sales. For the
first nine months of fiscal 1995, the Spin-To-Win series, Ribbit Racin,
Aftershock, and three games initially shipped in fiscal 1995, Pirate's Gold and
Pogger (single and four players), represented approximately 70% of total game
sales.
The following is a list of all of the products which are currently being
offered by Lazer-Tron:
INITIAL
PRODUCT NAME SHIPMENT DATE TYPE OF GAME
---------------------- --------------- --------------------------------------------------------------------
Haunted House* November 1988 A coin or operator controlled six, nine or twelve player 'laser' gun
shooting gallery that allows players to compete in a high-speed
shooting contest.
Shuttle Launch February 1990/ A two player or larger carnival style 'laser' gun race competition.
/Vine Climb* February 1993
Bank-It**/Super December 1991/ The player flips coins or tokens into varying-prize stationary and
Bank-It**/Super September 1992/ moving baskets. The player can also win tickets if the coin falls
Bank-It II September 1994 off the pusher play field.
Spin-to-Win August 1992 By rolling balls into slots, the player moves or 'spins' a fortune-
type wheel to attempt to win tickets.
Jungle Rama December 1992 A children's jungle-themed version of the Spin-to-Win game.
Slugger's Alley May 1993 An interactive baseball batting simulator which announces the
outcome of the players' hits.
Aftershock July 1993 A coin sliding game with a tilting, vibrating play field themed
after a San Francisco earthquake.
Spin A 21 September 1993 A blackjack-themed version of the Spin-to-Win game.
Ribbit Racin October 1993 A two player or larger whack-em and smack-em mallet game where
players smack randomly flashing frog faces to race their frogs
toward the finish.
Awesome Toss 'Em October 1993 A ball toss game featuring Lazer-Tron's color recognition
technology. Tickets are awarded based on the number of balls
thrown into matching color baskets.
Shake, Rattle & Roll May 1994 A ball accelerates on a rapidly-spinning turntable until released by
the player, who can further direct the ball toward targets by
tilting the play field.
Wild Thing May 1994 A multi-featured baseball-themed pinball shooting game, where
tickets are won based in part upon the speed with which the player
can complete the game.
Bonus Jackpot Display August 1992 A progressive jackpot feature used with multiple Spin-to-Win, Jungle
Rama, Spin A 21, Aftershock, Shake, Rattle & Roll, The Wave,
Pirate's Gold and Wheelin-N-Dealin games.
51
INITIAL
PRODUCT NAME SHIPMENT DATE TYPE OF GAME
---------------------- --------------- --------------------------------------------------------------------
The Flintstones September 1994 A colored ball toss game that makes Fred and Barney race, with the
winner declared as the first player to the top.
Pogger--(4 player) September 1994 A 4 player rotary merchandiser in which players attempt to win
POGs(Trademark), milkcaps or slammers.
The Wave September 1994 An exciting baseball themed coin-sliding game that allows a player
to guide their coin down the baseball playfield into target holes.
Pirate's Gold September 1994 A fast paced coin drop game where players navigate their coin
through the pins into the target holes or the treasure chest.
Wheelin-N-Dealin January 1995 Players attempt to stop the dual spinning hands on the desires slots
while avoiding the bankrupt slots.
Pogger--(single February 1995 Depending on the configuration, a player) rotary merchandiser that
player) allows the player to win POGs(Trademark), milkcaps, slammers or
candy.
Swamp Stomp March 1995 A two player foot stomping game where players race their characters
across the tricky alligator's back to reach the treasure.
Ring Toss March 1995 A fully automated midway ring-toss version of the all-time classic
as players try to toss the rings onto soda bottles. Lazer-Tron's
new patent pending object version systems will detect if the rings
are on the bottles.
------------------
* To be discontinued in 1995, except for special orders.
** No longer offered, however the Company provides conversion kits to upgrade to
Super Bank-It II.
In developing its games, Lazer-Tron recognizes the need to balance skill
and fun of the player with the revenue generating objectives of the Operator. To
address an Operator's need to appeal to a variety of players, Lazer-Tron
develops games targeted for different age groups. For example, games such as
Ribbit Racin, Jungle Rama, Swamp Stomp, Pogger and Flintstones are designed to
appeal to children, while Spin-To-Win, Spin A 21, Wheelin-N-Dealin and Pirate's
Gold are more adult-oriented. Redemption game arcades are a combination of fun
game offerings and merchandising. Successful Operators recognize the need to
tailor the skill level of their games and the ticket payback rate to their
customers. Lazer-Tron's games include features which enable the Operator to
change play dynamics to fit his customer base. Certain games, such as
Aftershock, can be adjusted for different skill levels by changing the vibration
of the play field. All games allow the Operator to vary the number of tickets
that are awarded to the player.
PRODUCT DEVELOPMENT
Lazer-Tron has historically focused on new redemption games. Lazer-Tron
utilizes advanced technologies which may have been developed for other markets
(such as its use of color recognition chips in Awesome Toss 'Em and the use of
high speed charged coupled scanning devices and digital signal processors in
Ring Toss) and seeks to apply these technologies to redemption games. In
addition, Lazer-Tron seeks to utilize its experience in the development of
redemption games to (i) develop other coin-operated games, such as table and
sports games, and (ii) develop games that utilize video technology for
redemption arcade games.
Lazer-Tron conceptualizes games internally, and, when appropriate, licenses
game concepts from third parties. Once a concept for a game is formalized into a
design, the development of a product consists of implementing the design through
development of required electronics, artwork, sound/voice effects and product
cabinets. Most of the development work is done by Lazer-Tron or by outside
contractors at Lazer-Tron's direction. In certain instances, Lazer-Tron engages
independent artists or designers to assist with artwork. Lazer-Tron recently
constructed its own sound studio in order to provide sound and sound effects for
its games. Lazer-Tron's products require varying degrees of development time
depending upon game design, type of game activities and general complexity of
the product. The typical length of development has historically ranged from
52
eight to twelve months after the initial creation of a product idea. As games
become more complex, development time and cost have increased.
Lazer-Tron licensed the initial concepts for Bank-It series, Spin-to-Win
series, Aftershock, The Wave and Pogger from third parties. In each case, based
upon the licensed concept, Lazer-Tron designed and developed the final product.
Lazer-Tron owns all intellectual property and product rights to all other
licensed product concepts. Lazer-Tron pays royalties calculated as a percentage
of sales at rates generally ranging from 3% to 8%, depending on the nature of
the product, the volume of sales and the extent of development performed by the
licensor and other factors. In addition, Lazer-Tron has licensed the Flintstone
name, characters and music for its Flintstones game and music for its Wild Thing
game. The license for Wild Thing is an exclusive license which terminates in
1997.
In fiscal 1993 and 1994 and the first nine months of fiscal 1995,
Lazer-Tron's research and development expenditures were approximately $181,000,
$452,000 and $1,005,000, respectively. Lazer-Tron's engineering staff currently
consists of its Vice President of Engineering, fifteen permanent engineers (most
of whom have been hired within the last 12 months) and one temporary engineer.
Lazer-Tron also uses several consultants and outside graphic design groups.
Lazer-Tron has substantially increased its engineering and development staff
during the last twelve months (including engineers with video experience) in
order to devote additional resources to developing new products. However, there
can be no assurance that Lazer-Tron will be able to develop and introduce new
games on schedule or that such new games will achieve market acceptance.
MARKETING AND DISTRIBUTION
Lazer-Tron's products are sold predominantly on a non-exclusive basis to
distributors. Lazer-Tron utilizes approximately 30 distributors in the United
States, in addition to 19 international distributors in countries such as
Argentina, Australia, Brazil, Canada, England (covering the European Economic
Community, as well as all of Eastern Europe), Taiwan, Singapore, Hong Kong and
Mexico. Sales to distributors accounted for a substantial majority of
Lazer-Tron's net sales in fiscal 1993 and 1994 and the first nine months of
1995. As is customary in the industry, Lazer-Tron does not have contracts with
the majority of its distributors. Typically, a distributor will order five or
fewer units of a new game in order to sample and test the games. Future orders
are based upon game test results and expected demand. Although distributors are
generally not offered price protection or return privileges and revenue is
recognized by Lazer-Tron upon shipment, Lazer-Tron maintains reserves for
potential credit losses and returns. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations of Lazer-Tron.'
The primary method for marketing Lazer-Tron's products to Operators and
distributors is at industry trade shows and through advertisements in industry
trade magazines. Lazer-Tron generally has a booth at each trade show to
demonstrate its products. In addition, many of Lazer-Tron's distributors
actively market Lazer-Tron's games to Operators through their own sales forces
and distributor open house events.
CUSTOMERS AND BACKLOG
For the first nine months of fiscal 1995 and fiscal 1994, no customer
accounted for 10% or more of net sales. For fiscal 1993, Nickels and Dimes,
Incorporated was the largest customer, accounting for approximately 11% of net
sales.
International sales, principally to distributors in the Far East, were
approximately $1,765,000 and $3,240,000 for fiscal 1993 and 1994, respectively,
and $2,250,000 and $3,100,000 for the first nine months of fiscal 1994 and 1995,
respectively. To sell its games internationally, it is sometimes necessary to
customize the game to the particular country, including changes to artwork,
targets, language or music to fit the target region's culture. Lazer-Tron
believes these changes can generally be implemented relatively inexpensively and
quickly.
As of March 31, 1995, backlog, consisting of orders accepted by Lazer-Tron
for shipment typically within 90 days, was approximately $1,300,000 as compared
to approximately $1,700,000 as of March 31, 1994. Approximately 33% of the March
31, 1995 backlog consists of orders for Ring Toss. While orders are not
typically subject to cancellation, there can be no assurance that all orders in
backlog will be shipped. Backlog may not be indicative of future expected sales.
53
PRODUCTION AND MANUFACTURING
Lazer-Tron's products are manufactured at its facilities in Pleasanton,
California. The manufacturing process consists principally of the purchasing,
assembly, testing and system integration of component parts and subassemblies
manufactured by others into a finished game. Lazer-Tron subcontracts the
production of printed circuit boards to its specifications. Electronic
components, many of which are common to several of Lazer-Tron's games, are
purchased and kitted by Lazer-Tron and sent to an outside vendor for board
stuffing and soldering. Lazer-Tron conducts testing of component parts, printed
circuit boards, subassemblies and final products prior to shipment.
To date, Lazer-Tron has not encountered any material difficulties or delays
in manufacture or assembly of its products. All of Lazer-Tron's material
components are available from multiple sources. During fiscal 1995, Lazer-Tron
developed second sources for finished game cabinets, artwork and decals and
certain electronic components that were previously sole-sourced. Any disruption
of Lazer-Tron's relationships with its key sole source suppliers or
manufacturers or other limitations on the availability of these parts could have
an adverse effect on Lazer-Tron's business and operating results.
Lazer-Tron generally offers a limited three month warranty on products
sold. Lazer-Tron's games have certain self diagnostic capabilities that allow
distributors and Operators to troubleshoot and repair the games in the field.
Lazer-Tron believes in strong customer support and provides free over-the-phone
troubleshooting advice, in addition to a parts swap program where Lazer-Tron
will, for a fixed fee, send new printed circuit boards or other parts to an
Operator in advance of receipt of the exchanged defective part.
COMPETITION
Competition in the coin-operated amusement games market is intense and is
based primarily on an evaluation by the Operator as to the earnings potential,
profitability, quality and longevity of the game. The strength of a company's
product offerings, product quality and reliability, customer support, reputation
and its sales and distribution network are also factors impacting competition.
Lazer-Tron believes it competes favorably in each of these areas and, in
particular, believes it has achieved a good reputation for developing quality
and innovative games. However, as consumers' tastes for higher technology
interactive products increase, there can be no assurance that Lazer-Tron's
current or future products will remain competitive.
Competition for Lazer-Tron's games comes from other manufacturers of arcade
redemption games and from manufacturers of other electronic or video games.
Lazer-Tron's current competitors for arcade and amusement park redemption games
are both domestic and foreign businesses. Lazer-Tron's games also compete with
video games, which offer greater sophistication of graphics, animation and other
features than Lazer-Tron's games. Video game manufacturers include large public
domestic and international companies, which have significantly greater financial
resources, technical capabilities, distribution channels and broader recognition
than Lazer-Tron. Each of the coin-operated game manufacturers competes for
player acceptance of the games and for floor space in the arcades and other
family entertainment venues. A key factor in the industry is to be able to
create products which attract the player and generate repeat plays. Player
appeal of a game is a highly subjective quality related to the interaction of
the player and the game and is a function of design, hardware, software and play
features, in addition to the visual and sound effects.
According to industry-trade magazines, Operators are experiencing a decline
in revenue due in part to the absence of a recent 'hit' video game which helps
draw customers to the arcade. In addition, during recent periods, the redemption
game segment of the coin-operated game market has experienced slower expansion
of the number of new family entertainment center and arcade locations, an
increasing consolidation of business at the Operator and distributor levels, as
well as increased competition among existing and new game manufacturers.
Lazer-Tron believes the distribution business for the coin-operated game
industry is undergoing consolidation, resulting in fewer distributors which may
have the effect of increasing pricing pressure on game manufacturers. Further,
large companies such as Sega, Namco, Sony, Block Buster and Cineplex Odeon movie
theaters have announced plans to enter, or to expand their presence within, the
location-based entertainment business. Certain of these companies offer their
own games which may create greater competition among game suppliers, as well as
affecting the ability of small Operators to compete. The historical growth in
the redemption game market has attracted new competitors (generally small
closely held companies) to the market. However,
54
large companies, such as Time Warner Interactive (which includes Atari), Sega,
Data East, Konami, Sammy, Electronic Arts and Mattel have recently entered or
announced their intention to enter, or to expand their presence within, the
coin-operated redemption game market.
Lazer-Tron's games also face competition from other forms of entertainment,
both within and outside of the home. There can be no assurance that Lazer-Tron's
games or the redemption industry will be able to compete effectively in the
future with new forms of in-the-home and out-of-the home entertainment.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
Lazer-Tron has actively sought patent protection in the United States on
its products where available. Games that are 'hits' are often emulated and
Lazer-Tron believes by patenting its games it may be able to better protect its
competitive position. Lazer-Tron has received five United States patents with
lives of 17 years. Lazer-Tron's first patent covers the use of optical encoded
multiple frequencies of light in interactive game products. This technology is
utilized in the Haunted House game. Lazer-Tron received a United States patent
in 1994 relating to the combination of games and a progressive bonus apparatus
used with multiple games, such as the Bonus Jackpot Display. Other Lazer-Tron
patents include a patent relating to a ball roll-down game with a spinning wheel
and a patent relating to the velocity and direction of a ball used in Slugger's
Alley. Lazer-Tron has eight United States patent applications pending, including
applications with respect to the vibrating playfield of Aftershock and the color
recognition of Awesome Toss 'Em. To date, due in part to cost considerations,
Lazer-Tron has not pursued obtaining patents outside of the United States and
currently has one foreign pending patent application. Lazer-Tron also has
registered trademarks on its Bank-It, Super Bank-It, Aftershock and Slugger's
Alley games. Where appropriate, Lazer-Tron also may seek copyright protection on
its software, game play, graphics design, technical manuals and schematics.
Lazer-Tron has obtained from a privately-held arcade Operator certain
product concept rights in connection with the development of its Bank-It series,
Spin-to-Win series, Aftershock and The Wave products, and obtained product
concept rights to develop Pogger from another third party. Lazer-Tron is the
exclusive owner of all the products it develops based upon the product concept
and pays royalties generally ranging from 3% to 8% of revenue generated from the
products. In addition, Lazer-Tron has licensed the Flintstone name, characters
and music for the Flintstones game and the music for its Wild Thing game. For
fiscal 1993 and 1994 and the first nine months of fiscal 1995, Lazer-Tron
incurred royalty expense of approximately $358,000, $450,000 and $279,000,
respectively.
Lazer-Tron believes that factors such as the creative abilities and
experience of its engineering personnel will be more significant to its future
success than its current proprietary rights and patents. Lazer-Tron has from
time to time been notified that it may be infringing certain intellectual
property rights of others. Further, there can be no assurance that in the future
Lazer-Tron's products will not be claimed to violate or infringe patents,
trademarks or marks or other proprietary rights held by other parties, which
claims could adversely affect Lazer-Tron. See '--Legal Proceedings' for a
discussion of a complaint recently filed against Lazer-Tron alleging trademark
infringement.
GOVERNMENT REGULATION
The games produced by Lazer-Tron are intended to be games of skill or
predominantly of skill, as opposed to games of chance. Games of skill or
predominantly of skill are generally not subject to any special laws or
regulatory controls. On the other hand, the manufacture, shipping, installation
and operation of gambling devices and other games which are intended to be used
primarily in connection with gambling are subject to regulation under federal,
state and local laws. For example, California law generally prohibits the
manufacture or sale of games of chance. In addition, local municipalities and
governments often regulate the types of games that can be played and the
location of arcades within their jurisdictions. The determination of whether a
particular game is a game of skill or a game of chance is somewhat subjective,
and on occasion local authorities have prohibited the installation of certain of
Lazer-Tron's games, or have required that Lazer-Tron modify certain features of
one or more of its games. In those cases where Lazer-Tron has considered it to
be appropriate, Lazer-Tron has sought, and may in the future seek, an opinion
that a game is a game of skill. While to date Lazer-Tron believes that these
55
laws have not materially impacted its business, there can be no assurance that
the application of these laws will not have an adverse effect in the future on
Lazer-Tron's business or operating results.
EMPLOYEES
As of March 31, 1995, Lazer-Tron had 78 full-time employees, of whom 10
were in administration, 16 were in engineering and development, 5 were in
marketing and sales, and 47 were in manufacturing and testing. Lazer-Tron also
utilizes the services of several consultants, in addition to temporary employees
(approximately 55 as of March 31, 1994), principally in manufacturing and
testing. Lazer-Tron believes that its success depends in part on its ability to
attract and retain qualified employees. Lazer-Tron believes that its relations
with its employees are good. The employees and Lazer-Tron are not parties to any
collective bargaining agreements.
PROPERTY
Lazer-Tron maintains its principal facilities at 4430 Willow Road,
Pleasanton, California 94588, where it leases approximately 33,440 square feet
of office, engineering and manufacturing space. The lease expires in May 2001
and contains one five-year option to renew at fair market value rentals.
Lazer-Tron leases the space for an aggregate lease payment (including common
area maintenance, property tax and insurance costs) of approximately $26,000 per
month in 1994, with escalations in subsequent years. Lazer-Tron also leases a
sales office near Chicago, Illinois for $925 per month. See Note 4 of Notes to
Financial Statements.
LEGAL PROCEEDINGS
In December 1994, Lasertron, Inc., a Massachusetts corporation, filed a
complaint in the United States District Court, District of Massachusetts,
alleging Lazer-Tron's infringing use of the mark 'Lazer-Tron' under federal and
state laws. Lasertron, Inc., a manufacturer and seller of fiberoptic components
for telecommunications systems, is claiming that the use of the mark
'Lazer-Tron' is confusingly similar to its federally registered trademark
Lasertron. Lasertron, Inc. sought injunctive relief to, among other things,
prevent Lazer-Tron from using the designation 'Lazer-Tron' or the corporate name
'Lazer-Tron, Inc.' and an unspecified amount in damages. Lazer-Tron answered the
complaint denying the allegations in late December 1994. Laser-Tron, Inc. filed
a motion for preliminary injunction in early March 1995, which motion was not
heard due to the parties entering into settlement negotiations. As of May 31,
1995, the parties were engaged in settlement negotiations and are negotiating
the terms of a settlement agreement.
For information concerning a lawsuit relating to the Merger naming
Lazer-Tron and certain of its officers and directors as defendants, see 'The
Merger--Legal proceedings Relating to the Merger.
DESCRIPTION OF LAZER-TRON CAPITAL STOCK
The authorized capital stock of Lazer-Tron consists of 10,000,000 shares of
Lazer-Tron Common Stock and 1,000,000 shares of Lazer-Tron Preferred Stock, in
each case without par value. As of May 31, 1995, there were 3,563,832
outstanding shares of Lazer-Tron Common Stock held of record by approximately
212 shareholders, outstanding warrants to purchase 581,233 shares of Lazer-Tron
Common Stock and outstanding options to purchase 440,442 shares of Lazer-Tron
Common Stock.
LAZER-TRON COMMON STOCK
Each shareholder is entitled to one vote for each share of Lazer-Tron
Common Stock held on all matters. Cumulative voting is currently not permitted
by Lazer-Tron's Articles of Incorporation, which means that the holders of a
majority of the shares voted can elect all of the directors then standing for
election. The holders of Lazer-Tron Common Stock have no preemptive or other
rights to subscribe for additional shares. All outstanding shares of Lazer-Tron
Common Stock are validly issued, fully paid and nonassessable. Subject to
preferences that may be applicable to holders of any Lazer-Tron Preferred Stock
then outstanding, holders of Lazer-Tron Common Stock are entitled to such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. Upon liquidation, dissolution or winding up of Lazer-Tron,
the assets legally available for distribution to shareholders are distributable
ratably among the holders of the Lazer-Tron Common Stock at that
56
time outstanding, subject to prior distribution rights of creditors of
Lazer-Tron and to the preferential rights of any shares of Lazer-Tron Preferred
Stock then outstanding.
LAZER-TRON PREFERRED STOCK
Lazer-Tron's Board of Directors has the authority, without further action
by Lazer-Tron's shareholders, to issue up to 1,000,000 shares of Lazer-Tron
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series. The issuance of Lazer-Tron Preferred Stock could adversely
affect the voting power of holders of Lazer-Tron Common Stock and the likelihood
that such holders will receive dividend payments and payments upon liquidation
and could have the effect of delaying, deferring or preventing a change in
control of Lazer-Tron. Lazer-Tron has no present plan to issue any shares of
Lazer-Tron Preferred Stock.
LAZER-TRON WARRANTS
As of May 31, 1995, 667,166 warrants to purchase an aggregate of 333,583
shares of Lazer-Tron Common Stock (the 'Lazer-Tron Private Placement Warrants')
were outstanding. Two Lazer-Tron Private Placement Warrants entitle the holder
thereof to purchase one share of Lazer-Tron Common Stock for $5.00 per share, as
adjusted for certain events. Lazer-Tron Private Placement Warrants are only
exercisable during specified periods, during which time Lazer-Tron must
undertake efforts to register or qualify the sale of the underlying Lazer-Tron
Common Stock pursuant to federal and state securities laws, or to obtain an
exemption therefrom. The Lazer-Tron Private Placement Warrants expire on April
30, 1996, subject to certain rights of Lazer-Tron to accelerate or delay such
expiration. The exercise period of the Lazer-Tron Private Placement Warrants may
be shortened in connection with certain mergers or after the exercise of fifty
percent (50%) of the Lazer-Tron Private Placement Warrants upon notice by
Lazer-Tron to the Lazer-Tron Private Placement Warrant holders. Lazer-Tron also
has the right to call the Lazer-Tron Private Placement Warrants for redemption
at any time on 45 days prior written notice (the 'Notice of Redemption') at a
redemption price of $0.05 per Lazer-Tron Private Placement Warrant if: (i) the
closing bid price of Lazer-Tron Common Stock exceeds the Lazer-Tron Private
Placement Warrant exercise price by at least 20% during a period of at least 20
of the 30 trading days immediately preceding the Notice of Redemption; (ii)
Lazer-Tron has in effect a current registration statement covering the
Lazer-Tron Common Stock issuable upon exercise of the Lazer-Tron Private
Placement Warrants; and (iii) the expiration of the forty-five (45) day notice
period is within a window period.
As of May 31, 1995, 128,433 Sales Agent Warrants to purchase an aggregate
of 192,650 shares (after giving effect to exercise of the Private Placement
Warrants, as described below) of Lazer-Tron Common Stock were outstanding. The
Sales Agent Warrants were originally issued to an investment banking firm and
its affiliates in connection with their services as a placement agent for an
offering of Lazer-Tron Common Stock and Lazer-Tron Private Placement Warrants by
Lazer-Tron in 1993. Each Sales Agent Warrant is exercisable at any time and
entitles the holder to purchase a Unit at an exercise price of $3.00 per Unit.
Each Unit consists of one share of Lazer-Tron Common Stock and one Private
Placement Warrant. Two Private Placement Warrants entitle the holder to purchase
one share of Lazer-Tron Common Stock at an exercise price of $5.00 per share.
The Sales Agent Warrants expire on June 25, 1998.
In connection with its initial public offering of Common Stock in May 1994,
Lazer-Tron issued to Van Kasper, the underwriter of the offering, a warrant to
purchase 55,000 shares of Lazer-Tron Common Stock at an exercise price of $9.60
per share (the 'Underwriter's Warrant'). The Underwriter's Warrant has certain
antidilution provisions and expires in May 1999.
On March 22, 1995, pursuant to the terms of the Merger Agreement,
Lazer-Tron and Acclaim entered into the Stock Option Agreement. Pursuant to the
Stock Option Agreement, Lazer-Tron granted to Acclaim an option to purchase up
to 250,000 shares of Lazer-Tron Common Stock at an exercise price of $8.00 per
share, which option may only be exercised in certain events. See 'The
Merger--Stock Option Agreement.'
57
REGISTRATION RIGHTS
Certain holders of shares of Lazer-Tron Common Stock originally issued in
1993 along with the Private Placement Warrants, as well as all Private Placement
Warrant holders, are entitled to certain rights with respect to the registration
of such securities, as well as shares of Lazer-Tron Common Stock underlying the
Private Placement Warrants, under the Securities Act. Under the terms of the
Registration Rights Agreement between Lazer-Tron and such holders, holders of
registration rights are entitled to one demand registration of the Lazer-Tron
Common Stock and Private Placement Warrants and/or Lazer-Tron Common Stock
underlying outstanding Private Placement Warrants at any time commencing 90 days
after Lazer-Tron's first registered offering to the general public of its
securities for its own account. Such demand must be initiated by holders of at
least 50% of the securities and is subject to certain limitations relating to,
among other things, the size of the offering due to marketing limitations, as
determined by the managing underwriter of such offering. Additionally, if
Lazer-Tron proposes to register any of its securities under the Securities Act
subsequent to that offering, these holders are entitled to notice of such
registration and are entitled to include shares of their Lazer-Tron Common Stock
therein, provided, among other conditions, that the underwriters of any offering
have the right to limit the number of shares included in such registration.
Lazer-Tron has also granted certain registration rights to the holders of the
Underwriter's Warrants.
As a result of the Merger, all of the shares of Acclaim Common Stock into
which the Lazer-Tron Warrants are exercisable have been registered under the
Registration Statement of which this Prospectus/Proxy Statement forms a part.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Lazer-Tron Common Stock is First
Interstate Bank of California, San Francisco, California. Its telephone number
is (415) 773-7801.
LISTING
Lazer-Tron Common Stock is listed on The Nasdaq National Market under the
symbol LZTN.
58
INFORMATION CONCERNING ACCLAIM
GENERAL
The Company is an entertainment publisher which engages in or plans to
engage in (i) the publication of interactive entertainment software ('Software')
for use with interactive entertainment hardware platforms; (ii) the development
and publication of comic books, which commenced in July 1994 through the
acquisition of Acclaim Comics, Inc. ('Acclaim Comics'), formerly Voyager
Communications Inc.; (iii) the marketing of its motion capture technology and
studio services, which commenced in the first quarter of fiscal 1995; (iv) the
distribution of coin-operated arcade games, which is anticipated to commence in
fiscal 1996 (and, with respect to redemption games, will commence upon the
consummation of the Merger); (v) the distribution of Software for affiliated
labels, which commenced in the first quarter of fiscal 1995; and (vi) the
electronic distribution of interactive entertainment through the partnership
established in October 1994 between a subsidiary of Acclaim and a subsidiary of
Tele-Communications, Inc. ('TCI'). To date, the Company's principal business has
been as a leading publisher of Software for dedicated interactive entertainment
hardware platforms ('Entertainment Platforms').
The Company had net revenues of $214.6 million, $327.1 million, $480.8
million and $318.4 million for the fiscal years ended August 31, 1992, 1993 and
1994, and for the six months ended February 28, 1995, respectively, and net
income of $13.8 million, $28.1 million, $45.1 million and $29.2 million for the
fiscal years ended August 31, 1992, 1993 and 1994 and for the six months ended
February 28, 1995, respectively.
PRODUCTS
The Company attempts to produce families of high quality products and
address a wide range of interactive entertainment categories, such as puzzle,
sports, action/adventure and fantasy, based on the Company's intellectual
properties (the 'Properties'). The Company intends to continue its strategy for
maximizing the revenue generated from each of its Properties by publishing
Software titles for use on multiple hardware platforms and creating successive
Software products using the same Properties in order to form the basis for
families of products which can capitalize upon the exposure and name recognition
associated with the Properties. For example, the Company has released at least
one product each year based on World Wrestling Federation ('WWF') characters
since 1988 resulting in a total of 17 products to date. A similar strategy has
been utilized with The Simpsons and NBA Properties. The Company's strategy is to
continue to use recognizable personalties and icons, generally obtained through
licenses from the owners of these intellectual properties, to market its
Software. To date, the Company has obtained licenses from a variety of sources
for properties such as The Simpsons (television), Batman Forever (motion
picture), NFL Quarterback Club, World Wrestling Federation (sports), Mortal
Kombat (arcade games), and Spiderman (comics).
MARKETING
The Company attempts to release Software simultaneously across a series of
hardware platforms. As the Company releases families of titles for multiple
platforms, it is able to take advantage of cross-merchandising opportunities and
benefit from marketing economies of scale. Promotional activities can become
more efficiently focused on the particular intellectual property theme available
in several configurations for multiple hardware systems. The Company markets its
Software primarily to mass merchandise companies, large retail toy store chains,
department stores and specialty stores. The Software is also sold, to a lesser
extent, to wholesale distributors. The target customers for the Company's
products are primarily males aged 11 to 21. In selecting an existing game or a
new concept for development and distribution, the Company's management seeks
products it believes will appeal to the imagination of its target customers and
develops a packaging concept and advertising strategy consistent with the
product's theme to attract that customer. The Company supports its products with
advertisements, both on television and in print, promotions and public
relations. For its major multi-platform releases, the Company creates marketing
events through pre-release promotions and point-of-sale materials. These events
are similar to promotional concepts utilized in the film and record industries.
Acclaim Comics has created a superhero and action/adventure comic book
series based on characters who co-exist in the 'VALIANT' Universe. The 'VALIANT'
Universe concept permits Acclaim Comics to use the
59
popularity of its characters to introduce a new character in an existing comic
or to develop more fully an existing but relatively unknown character.
DISTRIBUTION AND OPERATIONS
The Company distributes its Software through independent sales
representatives in the United States to reach over 20,000 store locations. The
Company also distributes its Software products directly to retail in France,
Germany, Spain and the United Kingdom utilizing independent sales
representatives. For Software sales in the other European markets, the Company
uses national distributors. The Company also sells and distributes directly in
Japan and Canada. The Company's Software is available in over 50 countries and
in over 50,000 stores worldwide.
The Company's comic books are distributed through independent distributors
to the comic book direct market, which consists of comic book specialty stores
and mail order comic book dealers, in the United States.
The Company seeks to manage its operations to achieve a relatively low
fixed-cost structure and provide maximum operational flexibility. The Company's
strategic alliances with independent development teams for Software products,
its use of subcontractors to manufacture its Software products, its royalty
based compensation of comic book artists and its use of independent sales
representatives contribute to increasing the Company's variable costs and
minimizing its fixed overhead. Similarly, the Company utilizes the services of
outside warehouse and distribution facilities on a territory-by-territory basis.
However, as the Company continues to grow, it may become cost efficient or
strategically advantageous for the Company to perform some or all of these
functions itself. Accordingly, in January 1995, the Company completed the
acquisition of Iguana Entertainment, Incorporated ('Iguana'), a developer of
software products. The Company maintains a computer network, which allows for
the electronic transmission of information among its various offices and
utilizes electronic data interchange with its major domestic customers.
In June 1993, the Company launched Acclaim Distribution, Inc., a
wholly-owned subsidiary, to handle distribution of its labels as well as
affiliated labels. The Company commenced shipping products for its first
affiliated label, Digital Pictures, Inc., in the first quarter of fiscal 1995.
TECHNOLOGY
The engineering staff within the Company's Advanced Technologies Group
('ATG') provides technical support and programming tools to enhance game play
and product quality. With the advancement of CD-ROM technology, ATG's activities
have expanded to include the development of a new animation creation process and
designing tools for use in programming Software for CD-ROM or cartridge-based
platforms utilizing 32- or 64-bit processors. In September 1994, the Company
completed the construction of its 'motion capture' studio for the application of
its animation technology. In addition to the use of this technology in its own
Software, the Company is marketing its motion capture technology and selling its
studio services for use in other entertainment media. For example, in December
1994, Warner Bros. utilized the Company's motion capture technology and studio
services to create certain of the special effects for the motion picture Batman
Forever, which is expected to be released in the summer of 1995. No assurance
can be given that the Company will be successful in marketing its technology and
selling its studio services and, even if it were successful, that revenues
generated therefrom will be material.
In July 1994, the Company established Acclaim Coin-Operated Entertainment,
Inc., a wholly-owned subsidiary based in California, for the creation and
distribution of stand-alone coin-operated games. The subsidiary is currently in
the start-up phase and anticipates shipping its first game, Batman Forever, in
fiscal 1996. It is the Company's current intention to release, commencing in
fiscal 1996, between three to four coin-operated games per year. The successful
creation and marketing of such games will be dependent, in large part, on the
Company's ability to hire and retain developers for the creation of, and to
license or create properties for use in, coin-operated games which achieve
widespread market acceptance. There can be no assurance that the Company will be
successful in creating and marketing coin-operated games or that any revenues
derived by the Company from the sale of such games will be material.
60
On October 19, 1994, Acclaim Cable Holdings, Inc., a wholly-owned
subsidiary of Acclaim, entered into a Partnership Agreement (the 'Partnership
Agreement') with TCI GameCo Ventures, Inc., an indirect wholly-owned subsidiary
of TCI, for the creation of a Delaware limited partnership (the 'Joint
Venture'), the interests in which are indirectly held 65% by the Company and 35%
by TCI. The principal purposes of the Joint Venture are to develop and acquire
(including by purchase or license), entertainment software for interactive
networks, as well as to promote a standard for broadband network gaming to be
incorporated into advanced set-top boxes.
INTERACTIVE ENTERTAINMENT INDUSTRY
The interactive entertainment industry is characterized by rapid
technological change, resulting in hardware platform and related Software
product cycles. No single hardware platform or system has achieved long-term
dominance. The Company's strategy is to develop and/or publish Software for the
hardware platforms that currently dominate the market and to develop Software
for the hardware platforms that the Company perceives as having the potential to
achieve mass market acceptance in the future, rather than to be the first
Software publisher for an emerging hardware platform; in order to promote its
strategic relationships, however, the Company may from time to time publish
Software for a hardware platform before it attains mass market appeal. The
Company's revenues have traditionally been derived from sales of Software for
the then dominant platforms. Accordingly, the Company's revenues are subject to
fluctuation during transition periods when new hardware platforms have been
introduced but none has achieved mass market acceptance or become dominant.
From inception through fiscal 1991, substantially all of the Company's
revenues were derived from sales of Software for the 8-bit Nintendo
Entertainment System ('NES'). Although the Company commenced the publication of
Software for Game Boy, the portable system marketed by Nintendo Co., Ltd.
(Japan) (Nintendo along with its subsidiary, Nintendo of America, Inc., are
collectively hereinafter referred to as 'Nintendo'), in fiscal 1990, for the
Super Nintendo Entertainment System ('SNES') in fiscal 1991 and for Genesis and
Game Gear, the 16-bit dedicated and portable hardware systems, respectively,
marketed by Sega Enterprises Ltd. ('Sega') in fiscal 1992, the Company did not
derive significant revenues from the sale of portable or 16-bit Software until
fiscal 1992. The 16-bit systems are more sophisticated than the 8-bit systems,
producing faster and more complex images with more lifelike animation and better
sound effects and, by 1993, had replaced the 8-bit Entertainment Platform as the
dominant Entertainment Platform. In fiscal 1994, most of the Company's revenues
were derived from sales of Software for the 16-bit SNES and Genesis systems. The
Company anticipates that most of its revenues in fiscal 1995 will be derived
from sales of Software for the 16-bit Entertainment Platforms.
The Company anticipates that the interactive entertainment industry will
undergo significant changes in both the short- and long-term future due, in
large part, to the introduction of the next generation of Entertainment
Platforms incorporating 32- and 64-bit processors, as well as the success of
personal computer/compact disk systems ('PC-CD Systems'), the development of
remote and electronic delivery systems and the entry and participation of new
companies in the industry. The new hardware platforms may use read-only memory
('ROM') cartridges, compact disk ('CD'), flash memory and/or other technologies
as the dominant software storage device. Additional CD platforms, including
personal computer ('PC') systems for which Software products are published, are
currently marketed by Philips, Sega, Commodore, Apple, IBM, IBM-compatible
manufacturers and The 3DO Company. Atari launched Jaguar, its 64-bit
cartridge-based system, in November 1993 and Sega launched 32X, its 32-bit
cartridge-based attachment for its 16-bit Genesis system, in November 1994. Sega
and Sony launched their 32-bit CD-based systems in Japan in November 1994 and
Sega has shipped limited quantities of its system in the United States
commencing in May 1994. Sony Corporation has announced plans to release its new
32-bit CD-based system in the United States in September 1995 and Nintendo has
announced plans to release a new 64-bit ROM-cartridge based system in the United
States in 1996.
The Company believes that sales of new 16-bit hardware systems peaked in
calendar 1993. Based on historical industry cycles, management believes that
16-bit Software sales peaked in calendar 1994 (the year following the peak year
for hardware sales). The Company as well as industry analysts anticipate, based
on Software sales information for calendar year 1994 and the continuing decline
in 16-bit hardware sales, that the market for 16-bit Software will decline in
calendar 1995.
Although the Company believes that hardware incorporating 32- and 64-bit
processors will become the dominant Entertainment Platforms in the interactive
entertainment industry over the next few years, the Company
61
is unable to predict which, if any, of the newly introduced or announced
platforms will achieve commercial success or the timing thereof or their impact
on the industry. No assurance can be given that the Company will correctly
identify the systems with such potential or be successful in publishing Software
for such platforms and systems. The uncertainty associated with the transition
from 16-bit cartridge-based Entertainment Platforms to the next generation
Entertainment Platforms decreases the Company's ability to predict with any
certainty its results of operations and profitability during this transition
phase.
Historically, management believed that the floppy and personal computer
market was characterized by (i) numerous hardware and software
incompatibilities; (ii) high price points for multimedia PC hardware; (iii) a
large number of software titles; and (iv) technological limitations of the
hardware systems for gaming as compared to the Entertainment Platforms.
Accordingly, the Company participated in this category through distribution
agreements which, it believed provided the greatest return on the investment of
time and effort needed to service a fragmented market. However, based on the
Company's belief that this category now has sufficient mass market penetration
to warrant publishing Software directly, and due to technological advancements
incorporated in the newer PC CD Systems and the higher gross margins realized by
publishers of Software for this category, in the second quarter of fiscal 1995,
the Company commenced marketing Software for PC CD Systems.
The Company commenced the development and sale of Software for the Sega CD
system in fiscal 1994 and for Sega's 32X in the second quarter of fiscal 1995.
The Company has announced that it is developing Software for Sega's Saturn
system, Nintendo's Ultra 64 system and Sony's CD-based PSX, formerly known as
'Play Station'. However, the Company believes that the installed base of the new
generation of Entertainment Platforms will not rival the current installed base
of 16-bit Entertainment Platforms in the near-term. As a result, the sales
growth of Software for these new Entertainment Platforms and PC CD Systems may
not offset the decline in sales of Software for the 16-bit Entertainment
Platforms in this calendar year and, as a result, overall industry growth rates
may decline in the near-term.
Based on the decline of the 16-bit hardware market and the related slowdown
in retail sell-through of 16-bit Software on an industry-wide basis, the Company
believes that retailers, in order to reduce inventory levels, may reduce
purchases of the Company's 16-bit Software in the next several fiscal quarters
as compared to prior fiscal quarters. Any such reduction in retail purchasing,
to the extent not offset by growth in Software sales for the new Entertainment
Platforms and PC CD Systems, would decrease the Company's rate of growth as
discussed below. As retail sell-through of 16-bit Software continues to slow
down, this may result in a build up of retail inventory which, in turn, may
force the Company to liquidate excess inventory levels at retail by offering
price protection and other concessions to its customers in future periods. As
the transition to the next generation of Entertainment Platforms continues and
as new Entertainment Platforms achieve market acceptance, the risk of returns of
the Company's 16-bit Software titles has increased and will continue to
increase. Although the Company believes that it has adequate reserves for such
concessions and returns, no assurance can be given that future price protection,
returns and other similar concessions will not exceed such reserves. In
addition, the Company has incurred and expects to continue to incur higher
marketing expenses in connection with the sale of 16-bit Software, which higher
expenses may adversely affect the Company's profitability.
Due in part to the decline of the market for Software for 16-bit
Entertainment Platforms in 1995 and the related transition to the next
generation of Entertainment Platforms, the Company believes that it will
experience a lower rate of growth in fiscal 1995 and fiscal 1996 as compared to
fiscal 1994, and a materially lower rate of growth, if any, in the third and
fourth quarters of fiscal 1995 as compared to the first and second quarters of
fiscal 1995.
The release of individual 'hit' Software titles or families of titles can
significantly affect revenues. Historically, 'hit' titles or families of titles
have accounted for significant portions of the Company's gross revenues during
particular periods. In prior periods, the Simpsons family of titles and the WWF
family of titles have accounted for significant portions of the Company's gross
revenues. Continuing this historic pattern, in the quarter ended February 28,
1994, the NBA Jam family of titles accounted for a significant portion of the
Company's gross revenues and in the quarter ended February 28, 1995, the NBA Jam
Tournament Edition family of titles accounted for a significant portion of the
Company's gross revenues. In the six months ended February 28, 1994, each of the
Mortal Kombat and NBA Jam family of titles accounted for a significant portion
of the
62
Company's gross revenues and in the six months ended February 28, 1995, each of
the Mortal Kombat II and NBA Jam Tournament Edition family of titles accounted
for a significant portion of the Company's gross revenues.
The timing of the release of Software titles can cause quarterly revenue
and earnings fluctuations. A significant portion of the Company's revenues in
any quarter is generally derived from Software titles or families of titles
first shipped in that quarter. Product development schedules are difficult to
predict due in large part to the difficulty of scheduling accurately the
creative process and, with respect to Software for new hardware platforms, the
use of new development tools for new platforms and the learning process
associated with development for new technologies, including the Company's own
motion capture and related technologies. As the industry trend toward more
sophisticated Entertainment Platforms continues, the related Software products
frequently include more original, creative content and are more complex to
develop and, accordingly, cause additional development and scheduling risk. As a
result, the Company's quarterly results of operations are difficult to predict
and the failure to meet product development schedules or even minor delays in
product deliveries could cause a shortfall in shipments in any given quarter,
which could cause the results of operations and net income for such quarter to
fall significantly below anticipated levels.
The Company's ability to sustain its current results of operations and
profitability and to generate sales growth in the future will be dependent in
large part on (i) the Company's ability to identify, develop and publish 'hit'
Software titles for the hardware platforms that are viable in the mass market,
(ii) the growth of the interactive entertainment Software market and (iii) the
Company's ability to develop and generate revenues from its other entertainment
operations. In addition, the Company has incurred and expects to continue to
incur increased research and development as well as general and administrative
expenses in connection with the start-up of its new business operations (e.g.,
coin-operated games). If the Company is not successful in generating revenues
from these new businesses, its profitability will be adversely affected.
63
COMPARISON OF RIGHTS OF HOLDERS OF ACCLAIM
COMMON STOCK AND HOLDERS OF CAPITAL STOCK OF LAZER-TRON
Upon consummation of the Merger, the former shareholders of Lazer-Tron,
which is a corporation organized under the CGCL, will become stockholders of
Acclaim, a corporation governed by the DGCL. The rights of Acclaim's
stockholders are governed by its Certificate of Incorporation (the 'Acclaim
Certificate'), its Bylaws (the 'Acclaim Bylaws') and the DGCL. The rights of
Lazer-Tron's shareholders are governed by its Amended and Restated Articles of
Incorporation (the 'Lazer-Tron Articles'), its Amended and Restated Bylaws (the
'Lazer-Tron Bylaws') and the CGCL. After the Effective Time, the rights of the
Lazer-Tron shareholders who become Acclaim stockholders will be governed by the
Acclaim Certificate, Acclaim Bylaws and DGCL. The following is a summary
comparison of certain differences between the rights of Lazer-Tron shareholders
under the CGCL, the Lazer-Tron Articles and the Lazer-Tron Bylaws and the rights
of Acclaim stockholders under the DGCL, the Acclaim Certificate and the Acclaim
Bylaws. This summary does not purport to be complete and is qualified in its
entirety by reference to the corporate statutes of California and Delaware and
the corporate charters and bylaws of Lazer-Tron and Acclaim.
Size of the Board of Directors. The Acclaim Bylaws provide for a Board of
Directors of from three to eight members, with the exact number to be determined
by resolution of the Board of Directors. The exact number of directors is
currently set at eight members. The Acclaim Certificate authorizes the Board of
Directors to make, alter, or repeal the Acclaim Bylaws. The Lazer-Tron Bylaws
provide for a Board of Directors of from four to seven members, with the exact
number to be determined by resolution of the Board of Directors. The exact
number of directors is currently set at six members. Until the Lazer-Tron
shareholders amend the Lazer-Tron Bylaws to provide otherwise, the Lazer-Tron
Bylaws permit the Board of Directors to vary the number of directors within the
minimum and maximum authorized numbers of directors specified above. Under the
CGCL, although changes in the number of directors must in general be approved by
a majority of the outstanding shares, the Board of Directors may fix the exact
number of directors within a stated range set forth in the articles of
incorporation or bylaws, if that stated range has been approved by the
shareholders. The DGCL law permits the Board of Directors alone to change the
authorized number, or the range, of directors by amendment to the bylaws, unless
the directors are not authorized to amend the bylaws or the number of directors
is fixed in the certificate of incorporation (in which case a change in the
number of directors may be made only by amendment to the certificate of
incorporation following approval of such change by the stockholders).
Cumulative Voting. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A shareholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the shareholder may choose. Without cumulative voting, the holders of a
majority of the shares present at an annual meeting or any special meeting held
to elect directors would have the power to elect all the directors to be elected
at that meeting, and no person could be elected without the support of holders
of a majority of the shares voting at such meeting.
Under the DGCL, cumulative voting in the election of directors is not
mandatory. The Acclaim Certificate does not provide for cumulative voting. Under
the CGCL, cumulative voting in the election of directors is a right available to
all shareholders of California corporations unless (i) (A) shares of the
corporation are listed on the New York or American Stock Exchanges or (B) the
corporation has at least 800 holders of its equity securities as of the record
date of the corporation's most recent annual shareholders' meeting and the
corporation has outstanding securities designated as qualified for trading on
the Nasdaq National Market System and (ii) that corporation's articles of
incorporation or bylaws specifically eliminate cumulative voting. The Lazer-Tron
Articles provide that cumulative voting is eliminated if the other conditions to
the elimination of cumulative voting described above are satisfied.
Classified Board of Directors. A classified board is one in which a
certain number, but not all, of the directors are elected on a rotating basis
each year. The CGCL permits a classified board only for corporations with shares
listed on the New York or American Stock Exchanges or qualified for trading on
the Nasdaq National Market System. The DGCL permits, but does not require, a
classified board of directors, with staggered terms under which the directors
are elected for terms of two or three years. As discussed above, this method of
electing directors makes a change in the composition of the board of directors,
and a potential change in control of a
64
corporation, a lengthier and more difficult process. Neither the Lazer-Tron
Articles and Bylaws nor the Acclaim Certificate and Bylaws currently provide for
a classified board of directors.
Power to Call Special Shareholders' Meetings. Under the CGCL, a special
meeting of shareholders may be called by the board of directors, the chairman of
the board, the president, the holders of shares entitled to cast not less than
ten percent of the votes at such meeting or such additional persons as are
authorized by the articles of incorporation or the bylaws. Under the DGCL, a
special meeting of stockholders may be called by the board of directors or by
any other person authorized to do so in the certificate of incorporation or the
bylaws. The Acclaim Bylaws provide that a majority of the board of directors,
the president or holders of a majority of the outstanding capital stock entitled
to vote may call a special meeting of stockholders. Therefore, a substantially
greater number of Acclaim stockholders must consent to the call of a special
meeting of stockholders.
Shareholder Approval of Certain Business Combinations. Section 203
('Section 203') of the DGCL prohibits a Delaware corporation from engaging in a
'business combination' with an 'interested stockholder' for three years
following the date that such person becomes an interested stockholder. With
certain exceptions, an interested stockholder is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an option, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term 'business combination' is defined
broadly to include mergers with or caused by the interested stockholder; sales
or other dispositions to the interested stockholder (except proportionately with
the corporation's other stockholders) of assets of the corporation or a
subsidiary equal to ten percent or more of the aggregate market value of the
corporation's consolidated assets or its outstanding stock; the issuance or
transfer by the corporation or a subsidiary of stock of the corporation or such
subsidiary to the interested stockholder (except for transfers in a conversion
or exchange or a pro rata distribution or certain other transactions, none of
which increase the interested stockholder's proportionate ownership of any class
or series of the corporation's or such subsidiary's stock); or receipt by the
interested stockholder (except proportionately as a stockholder), directly or
indirectly, of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (a) prior to the date on which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested stockholder; (b) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested stockholder (excluding from the 85% calculation shares owned by
directors who are also officers of the target corporation and shares held by
employee stock plans which do not permit employees to decide confidentially
whether to accept a tender or exchange offer); or (c) on or after the date such
person becomes an interested stockholder, the board approves the business
combination and it is also approved at a stockholder meeting by sixty-six and
two-thirds percent (66 2/3%) of the voting stock not owned by the interested
stockholder.
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, are quoted on an
interdealer quotation system such as The Nasdaq Stock Market (as is Acclaim) or
are held of record by more than 2,000 stockholders. A Delaware corporation may
elect not to be governed by Section 203 by a provision in its original
certificate of incorporation or an amendment thereto or to the bylaws, which
amendment must be approved by majority stockholder vote and may not be further
amended by the board of directors. Acclaim has not elected, and does not intend
to elect, not to be governed by Section 203.
Acclaim believes that so long as the constitutionality of Section 203 is
upheld, Section 203 will encourage any potential acquiror to negotiate with
Acclaim's Board of Directors. Section 203 also has the effect of limiting the
ability of a potential acquiror to make a two-tiered bid for Acclaim in which
all stockholders would not be treated equally. Section 203 should also
discourage certain potential acquirors unwilling to comply with its provisions.
65
The CGCL does not contain a comparable business combinations provision.
However, the CGCL does provide that, with respect to a merger, except (i) where
the terms and conditions and the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations,
(ii) in a 'short-form' merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), or (iii) where all of the shareholders of
the applicable class of the target corporation consent, if the surviving
corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50% of the voting power of the
target corporation prior to the merger, then the nonredeemable common stock of
the target corporation may be converted only into nonredeemable common stock of
the surviving corporation or its parent corporation. The effect of this
provision is to prohibit a cash-out merger of minority shareholders, except
where the majority shareholder already owns 90% or more of the voting power of
the target corporation and could, therefore, effect a short-form merger to
accomplish such a cash-out of minority shareholders.
In addition, the CGCL requires that, in connection with certain
transactions between a corporation whose shares are held of record by 100 or
more persons and an 'interested party,' such interested party must deliver a
written opinion as to the fairness of the consideration to the shareholders of
the corporation. An 'interested party' for purposes of this CGCL provision means
a person who is a party to the transaction and (i) directly or indirectly
controls the corporation, (ii) is an officer or director of the corporation or
(iii) is an entity in which a material financial interest is held by any
director or executive officer of the corporation.
Removal of Directors. Under the CGCL, any director or the entire board of
directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, no individual director may
be removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting. Under the DGCL, in the case of a Delaware corporation having cumulative
voting, if less than the entire board is to be removed, a director may not be
removed without cause unless the number of shares voted against such removal
would not be sufficient to elect the director under cumulative voting. In
addition, a director of a corporation with a classified board of directors may
be removed only for cause, unless the certificate of incorporation otherwise
provides. However, under the DGCL, a director of a corporation that does not
have a classified board of directors or cumulative voting, such as Acclaim, may
be removed with or without cause with the approval of a majority of the
outstanding shares entitled to vote.
Filling Vacancies on the Board of Directors. Under the CGCL, unless
provided otherwise in the articles or bylaws (the Lazer-Tron Articles and ByLaws
do not provide otherwise), any vacancy on the board of directors other than one
created by removal of a director may be filled (i) by the board or (ii) if the
number of directors is less than a quorum, (a) by the unanimous written consent
of the directors then in office, (b) by the affirmative vote of a majority of
the directors at a meeting held pursuant to notice or waivers of notice or (c)
by a sole remaining director. A vacancy created by removal of a director may be
filled by the board only if so authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. The
Lazer-Tron Articles and Bylaws do not provide such authority to Lazer-Tron's
Board of Directors. Under the DGCL, vacancies and newly created directorships
may be filled by a majority of the directors then in office (even though less
than a quorum) unless (i) otherwise provided in the certificate of incorporation
or bylaws of the corporation (the Acclaim Certificate and Bylaws do not provide
otherwise) or (ii) the certificate of incorporation directs that a particular
class is to elect such director, in which case any other directors elected by
such class, or a sole remaining director, may fill such vacancy.
Loans to Directors, Officers and Employees. Under the CGCL, any loan or
guaranty by a corporation to or for the benefit of a director or officer of the
corporation or its parent requires approval of the shareholders owning a
majority of the outstanding shares of the corporation (excluding shares owned by
the interested person). In addition, under the CGCL, shareholders of any
corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone (excluding any interested director) to
approve loans or guaranties to or on behalf of officers (whether or not such
officers are directors) if the board determines that any such loan or guaranty
may reasonably be expected to benefit the corporation. The Lazer-Tron Bylaws do
contain this provision. Under the DGCL, a corporation may make loans to,
guarantee the obligations of or otherwise assist its
66
officers or other employees and those of its subsidiaries (including directors
who are also officers or employees) when such action, in the judgment of the
directors, may reasonably be expected to benefit the corporation.
Indemnification and Limitation of Liability. There are certain differences
between the laws of California and Delaware respecting indemnification and
limitation of liability. The laws of both states permit corporations to adopt a
provision in their articles of incorporation eliminating the liability of a
director to the corporation or its shareholders for monetary damages for breach
of the director's fiduciary duty of care. The Lazer-Tron Articles eliminate the
liability of directors for monetary damages to the corporation to the fullest
extent permissible under California law. The CGCL does not permit the
elimination of monetary liability where such liability is based on: (a)
intentional misconduct or knowing and culpable violation of law; (b) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders, or that involve the absence of good faith on
the part of the director; (c) receipt of an improper personal benefit; (d) acts
or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders; (e) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders; (f) interested transactions between
the corporation and a director in which a director has a material financial
interest; and (g) liability for improper distributions, loans or guarantees.
The Acclaim Certificate eliminates the personal liability of directors for
monetary damages to the corporation for breach of fiduciary duty, except for
liability for (a) breaches of the director's duty of loyalty to the corporation
or its stockholders; (b) acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law; (c) the payment of unlawful
dividends or unlawful stock repurchases or redemptions; or (d) transactions from
which the director received an improper personal benefit. These exceptions
mirror current provisions of the DGCL. Such limitation of liability provision
may also not limit a director's liability for violation of, or otherwise relieve
Acclaim or its directors from the necessity of complying with, federal or state
securities laws, or affect the availability of non-monetary remedies such as
injunctive relief or rescission.
The CGCL permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine, and (b) no indemnification
may be made without court approval in respect of amounts paid in settling or
otherwise disposing of a pending action or expenses incurred in defending a
pending action which is settled or otherwise disposed of without court approval.
Indemnification is permitted by the CGCL only for acts taken in good faith
and believed to be in the best interest of the corporation and its shareholders,
as determined by a majority vote of a disinterested quorum of the directors,
independent legal counsel (if a quorum of independent directors is not
obtainable), a majority vote of a quorum of the shareholders (excluding shares
owned by the indemnified party) or the court handling the action.
The CGCL requires indemnification when the individual has successfully
defended the action on the merits (as opposed to the DGCL which requires
indemnification relating to a successful defense on the merits or otherwise).
The DGCL generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by court order, by a majority vote of the disinterested directors
even though less than a quorum, by independent legal counsel or by a majority
vote of a quorum of the stockholders that the person seeking indemnification
acted in good faith and in a manner reasonably believed to be in or (in contrast
to California law) not opposed to the best interests of the corporation. Without
such court approval, however, no indemnification may be made in respect of any
derivative action in which such person is adjudged liable for negligence or
misconduct in the performance of his duty to the corporation. The DGCL requires
indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
67
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action in excess of that specifically authorized by statute.
The Lazer-Tron Articles authorize Lazer-Tron to provide indemnification of
agents, which include directors and officers, through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by the CGCL,
subject only to the applicable limits set forth in the CGCL described above with
respect to actions for breach of duty to Lazer-Tron and its shareholders.
Lazer-Tron provides indemnification to the fullest extent permitted by the CGCL
pursuant to its Bylaws to all officers and directors of Lazer-Tron and pursuant
to Indemnification Agreements with all executive officers and directors of
Lazer-Tron.
The DGCL provides that the indemnification provided by statute shall not be
deemed exclusive of any other rights under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Inspection of Shareholders List. Both the CGCL and the DGCL allow any
shareholder to inspect the shareholders' list for a purpose reasonably related
to such person's interest as a shareholder. The CGCL provides, in addition, for
an absolute right to inspect and copy the corporation's shareholder list by
persons holding an aggregate of 5% or more of a corporation's voting shares or
shareholders holding an aggregate of 1% or more of such shares who have filed a
Schedule 14B with the Commission relating to the election of directors. Delaware
law does not provide for any such absolute right of inspection, and no such
right is granted under the Acclaim Certificate or Bylaws. Lack of access to
shareholder records, even though unrelated to the shareholder's interest as a
shareholder, could result in impairment of the shareholder's ability to
coordinate opposition to management proposals, including proposals with respect
to a change in control of the corporation.
Shareholder Voting. Both the CGCL and the DGCL generally require that a
majority of the shareholders of both acquiring and target corporations approve
statutory mergers. Delaware law does not require a stockholder vote of the
surviving corporation in a merger (unless the corporation provides otherwise in
its certificate of incorporation) if (a) the merger agreement does not amend the
existing certificate of incorporation, (b) each share of the corporation
outstanding before the merger is an identical outstanding or treasury share of
the surviving corporation after the merger and (c) the number of shares to be
issued by the surviving corporation in the merger does not exceed 20% of the
shares of the corporation outstanding immediately prior to the merger. The CGCL
contains a similar exception to its voting requirements for reorganizations
where shareholders or the corporation itself, or both, immediately prior to the
reorganization will own immediately after the reorganization equity securities
constituting more than five-sixths of the voting power of the surviving or
acquiring corporation or its parent entity.
Both the CGCL and the DGCL also require that a sale of all or substantially
all of the assets of a corporation be approved by a majority of the voting
shares of the corporation transferring such assets.
With certain exceptions, the CGCL requires that mergers, reorganizations,
certain sales of assets and similar transactions be approved by a majority vote
of each class of shares outstanding. In contrast, the DGCL generally does not
require class voting, except in certain transactions involving an amendment to
the certificate of incorporation which adversely affects a specific class of
shares. Should Acclaim authorize and issue shares of a new class of capital
stock, the holders thereof would vote with the holders of the Common Stock on
proposals not adversely affecting the Common Stock or unless otherwise provided
in its Certificate of Incorporation. In such event the holders of Common Stock
if in the minority, would be unable to control the outcome of a vote, and, if in
the majority, would be able to control the outcome of such a vote.
The CGCL also provides that, except in certain circumstances, when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party (generally a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares. The DGCL
68
has no comparable provision, and the stockholders of Acclaim might, therefore,
be deprived of an opportunity to consider such other proposal.
Shareholder Derivative Suits. The CGCL provides that a shareholder
bringing a derivative action on behalf of the corporation need not have been a
shareholder at the time of the transaction in question, provided that certain
tests are met. Under the DGCL, a stockholder may only bring a derivative action
on behalf of the corporation if the stockholder was a stockholder of the
corporation at the time of the transaction in question or his or her stock
thereafter devolved upon him or her by operation of law. The CGCL also provides
that the corporation or the defendant in a derivative suit may make a motion to
the court for an order requiring the plaintiff shareholder to furnish a security
bond. Delaware does not have a similar bonding requirement.
Appraisal Rights. Under both the CGCL and the DGCL, a shareholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under Delaware law, such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such stockholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held of
record by more than 2,000 holders, plus cash in lieu of fractional shares, or
(c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger.
The CGCL does in general afford appraisal rights in sale of assets
reorganizations. Shareholders of a California corporation with shares listed on
a national securities exchange or on a list of over-the-counter margin stocks
issued by the Board of Governors of the Federal Reserve System generally do not
have such appraisal rights.
Stockholder Action by Written Consent. Unless otherwise provided in the
certificate of incorporation, stockholders of a Delaware corporation may take
action without a meeting, without prior notice, and without a vote, upon the
written consent of stockholders having not less than the minimum number of votes
that would be necessary to authorize the proposed action at a meeting at which
all shares entitled to vote were present and voted. Acclaim's Certificate of
Incorporation does not prohibit the stockholders from taking action by written
consent. The Lazer-Tron Bylaws also permit shareholder action by written
consent. However, the CGCL provides that certain actions by written consent may
only be taken upon notice of the action to all shareholders prior to the
consummation of the action authorized by such approval, and directors may be
elected by written consent only if the consent is unanimous.
Amendment or Repeal of the Certificate of Incorporation and Bylaws. Under
the DGCL, unless the certificate of incorporation or bylaws otherwise provide,
amendments of the certificate of incorporation generally require the approval of
the holders of a majority of the outstanding shares entitled to vote thereon. If
such amendment would increase or decrease the number of authorized shares of any
class or series or the par value of such shares or would adversely affect the
shares of such class or series, a majority of the outstanding shares of such
class or series would have to approve the amendment. Acclaim's certificate of
incorporation may be amended, altered, changed, or repealed as permitted by
statute. Acclaim's Bylaws provide that they may be amended, altered, or repealed
by the Board of Directors or the stockholders.
The CGCL provides that generally articles of incorporation may be amended
by a majority of the outstanding shares; provided, that a majority of the
outstanding shares of a class generally must approve that amendment if it would
(i) increase or decrease the number of authorized shares of that class, (ii)
effect an exchange, reclassification or cancellation of any part of the shares
of that class, (iii) effect an exchange of any part of the shares of another
class into shares of that class, (iv) change the rights, preferences, privileges
or restrictions of the shares of that class, (v) create a new class having
rights, preferences or privileges prior to the shares of that class or increase
the rights, preferences or privileges or the number of authorized shares of any
class having rights, preferences or privileges prior to the shares of that class
or (vi) cancel accrued but unpaid dividends on the shares of that class.
Consistent with the provisions of the CGCL, the Lazer-Tron Bylaws provide
69
that they may be amended by a majority of the outstanding shares or, except for
provisions regarding the number of directors, by the Board of Directors.
Dissolution. Under the DGCL, a dissolution must be approved by
stockholders holding 100% of the total voting power or the dissolution must be
initiated by the board of directors and approved by the holders of a majority of
the outstanding voting shares of the corporation. Under the CGCL, shareholders
holding 50% or more of the total voting power may authorize a corporation's
dissolution, and this right may not be modified by its articles of
incorporation.
Dividends. Subject to any restrictions contained in a corporation's
certificate of incorporation, the DGCL generally provides that a corporation may
declare and pay dividends out of surplus (defined as net assets minus stated
capital) or, when no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year. Dividends
may not be paid out of net profits if the capital of the corporation is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The Acclaim
Certificate contains no restrictions on the declaration or payment of dividends.
The CGCL provides that a corporation may make a distribution to its
shareholders if: (i) the retained earnings of the corporation immediately prior
to the distribution equals or exceeds the amount of the proposed distribution;
(ii) immediately after giving effect to the distribution, (a) the sum of the
assets of the corporation (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1 1/4
times its liabilities (not including deferred taxes, deferred income and other
deferred credits), and (b) the current assets of the corporation would be at
least equal to its current liabilities or, if the average of the earnings of the
corporation before taxes on income and before interest expense for the two
preceding fiscal years was less than the average of the interest expense of the
corporation for such fiscal years, at least equal to 1 1/4 times its current
liabilities; and (iii) the corporation making the distribution is not, or as a
result of the distribution would not be, likely to be unable to meet its
liabilities (except those whose payment is otherwise adequately provided for) as
they mature. Neither the Lazer-Tron Articles nor the Lazer-Tron Bylaws contain
any presently applicable restrictions on the declaration or payment of
dividends.
Preemptive Rights. Stockholders of a Delaware corporation have only such
preemptive rights as may be provided in its certificate of incorporation. The
Acclaim Certificate does not grant any preemptive rights to its stockholders.
Shareholders of a California corporation have such preemptive rights as may be
provided in the corporation's articles of incorporation. The Lazer-Tron Articles
do not grant any preemptive rights to the Lazer-Tron Shareholders.
LEGAL OPINIONS
The validity of the securities offered hereby will be passed upon by
Rosenman & Colin, New York, New York. Certain legal matters relating to the
Merger, including certain federal income tax matters, will be passed upon for
Lazer-Tron by Fenwick & West, Palo Alto, California.
EXPERTS
The financial statements and schedules of Acclaim for the years ended
August 31, 1994, 1993 and 1992 incorporated in this Prospectus/Proxy Statement
by reference to the Form 10-K have been so incorporated in reliance on the
report of Grant Thornton LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing.
The financial statements of Lazer-Tron at June 30, 1994, and for each of
the two years in the period ended June 30, 1994 appearing in this
Prospectus/Proxy Statement and Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
70
Van Kasper has rendered to Lazer-Tron's Board of Directors its written
opinion dated March 14, 1995 that, as of such date, the Merger was fair from a
financial point of view to the shareholders of Lazer-Tron. The full text of the
opinion of Van Kasper, which sets forth assumptions made, matters considered and
limitations on the review undertaken, is attached as Exhibit C to this
Prospectus/Proxy Statement.
MISCELLANEOUS
The Board of Directors of Lazer-Tron does not intend to present and knows
of no others who intend to present at the Special Meeting any matter or business
other than that set forth in the accompanying Notice of Special Meeting of
Shareholders. If other matters are properly brought before the Special Meeting,
it is the intention of the persons named in the accompanying form of proxy to
vote any proxies on such matters in accordance with their judgment.
Acclaim and Lazer-Tron will equally bear the cost of printing, filing and
mailing the enclosed form of proxy, this Prospectus/Proxy Statement, the related
Registration Statement on Form S-4 and the registration fee for such
Registration Statement. Acclaim and Lazer-Tron will bear their own costs with
respect to preparing and assembling the enclosed form of proxy, this
Prospectus/Proxy Statement and other material which may be sent to Lazer-Tron's
shareholders in connection with this solicitation. Officers and regular
employees of Lazer-Tron may solicit proxies by mail, telephone, telegraph and
personal interview, for which no additional compensation will be paid.
Lazer-Tron may reimburse persons holding shares in their names or in the names
of nominees for their reasonable expenses in sending proxies and proxy material
to their principals.
By order of the Board of Directors of Lazer-Tron,
/s/ Matthew F. Kelly
Matthew F. Kelly
Secretary
Pleasanton, California
June 21, 1995
71
LAZER-TRON CORPORATION
INDEX TO FINANCIAL STATEMENTS
CONTENTS
PAGE
----
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2
Balance Sheets -- June 30, 1994 and (unaudited) March 31, 1995............................................. F-3
Statements of Income -- Years ended June 30, 1993 and 1994 and (unaudited) the nine months ended March 31,
1994 and 1995............................................................................................ F-4
Statements of Shareholders' Equity -- Years ended June 30, 1993 and 1994 and (unaudited) the nine months
ended March 31, 1995..................................................................................... F-5
Statements of Cash Flows -- Years ended June 30, 1993 and 1994 and (unaudited) the nine months ended March
31, 1994 and 1995........................................................................................ F-6
Notes to Financial Statements.............................................................................. F-7
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Lazer-Tron Corporation
We have audited the accompanying balance sheet of Lazer-Tron Corporation as
of June 30, 1994, and the related statements of income, shareholders equity, and
cash flows for each of the two years in the period ended June 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lazer-Tron Corporation at
June 30, 1994, and the results of its operations and its cash flows for each of
the two years in the period ended June 30, 1994, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
July 27, 1994
F-2
LAZER-TRON CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, MARCH 31,
-------- -----------
1994 1995
-------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 7,053 $ 7,893
Short-term investments.................................................................. 202 --
Accounts receivable, net of allowance for doubtful accounts of $30 at June 30, 1994 and
$62 at March 31, 1995................................................................ 3,595 3,025
Inventories............................................................................. 1,824 2,082
Prepaid expenses and other current assets............................................... 68 136
Deferred tax assets..................................................................... 243 240
-------- ---------
Total current assets............................................................... 12,985 13,376
Property and equipment:
Machinery and equipment................................................................. 310 538
Furniture and fixtures.................................................................. 67 78
Leasehold improvements.................................................................. 35 35
-------- ---------
412 651
Less accumulated depreciation and amortization.......................................... 150 224
-------- ---------
262 427
Other assets.............................................................................. 44 41
-------- ---------
$ 13,291 $13,844
======== =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable........................................................................ $ 1,649 $ 759
Accrued compensation and related costs.................................................. 114 171
Accrued royalties.................................................................... 124 136
Income taxes payable.................................................................... 135 --
Other accrued liabilities............................................................... 226 142
Customer deposits....................................................................... 10 56
-------- ---------
Total current liabilities.......................................................... 2,258 1,264
Commitments
Shareholders equity:
Preferred Stock, no par value:
Authorized shares--1,000,000
Issued and outstanding shares--none
Common Stock, no par value:
Authorized shares--10,000,000
Issued and outstanding shares--3,323,583 at June 30, 1994
and 3,563,341 at March 31, 1995.................................................... 9,234 10,380
Retained earnings....................................................................... 1,799 2,200
-------- ---------
Total shareholders equity.......................................................... 11,033 12,580
-------- ---------
$ 13,291 $13,844
======== =========
See accompanying Notes.
F-3
LAZER-TRON CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
----------------- -----------------
1993 1994 1994 1995
------ ------- ------- ------
(UNAUDITED)
Net sales............................................................... $7,215 $15,377 $10,288 $9,900
Cost of sales........................................................... 5,099 10,208 6,917 6,631
------ ------- ------- ------
Gross profit....................................................... 2,116 5,169 3,371 3,269
Operating expenses:
Research and development.............................................. 181 452 330 1,005
Selling, general and administrative................................... 982 1,947 1,297 1,582
------ ------- ------- ------
Total operating expenses........................................... 1,163 2,399 1,627 2,587
------ ------- ------- ------
Operating income........................................................ 953 2,770 1,744 682
Merger costs............................................................ -- -- -- (249)
Interest income (expense), net.......................................... (33) 51 15 288
------ ------- ------- ------
Income before income taxes.............................................. 920 2,821 1,759 721
Provision for income taxes.............................................. 252 1,128 705 320
------ ------- ------- ------
Net income.............................................................. $ 668 $ 1,693 $ 1,054 $ 401
====== ======= ======= ======
Net income per share.................................................... $ 0.25 $ 0.59 $ 0.38 $ 0.10
======= ======= ======= ======
Number of shares used in computing per share amounts.................... 2,670 2,888 2,785 4,036
====== ======= ======= ======
See accompanying Notes.
F-4
LAZER-TRON CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
RETAINED
COMMON STOCK EARNINGS TOTAL
------------------------ (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
------ ------- ------ ------------
Balance at June 30, 1992.................................... 1,621 $ 770 $ (562) $ 208
Sale of Common Stock
(net offering costs of $360)........................... 645 1,574 -- 1,574
Shares issued in exchange for note payable................ 22 66 -- 66
Net income................................................ -- -- 668 668
------ ------- ------ -------
Balance at June 30, 1993.................................... 2,288 2,410 106 2,516
Sale of Common Stock
(net of offering costs of $795)........................ 1,035 6,822 -- 6,822
Exercise of stock options................................. 1 2 -- 2
Net income................................................ -- -- 1,693 1,693
------ ------- ------ -------
Balance at June 30, 1994.................................... 3,324 9,234 1,799 11,033
Sale of Common Stock
(net of offering costs of $20) (unaudited)............. 119 859 -- 859
Sale of Common Stock under Employee Stock Purchase Plan
(unaudited)............................................ 5 34 -- 34
Exercise of stock options and warrants (unaudited)........ 115 253 -- 253
Net income (unaudited).................................... -- -- 401 401
------ ------- ------ -------
Balance at March 31, 1995 (unaudited)....................... 3,563 $10,380 $2,200 $12,580
====== ======= ====== =======
See accompanying Notes.
F-5
LAZER-TRON CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED NINE MONTHS
JUNE 30, ENDED MARCH 31,
----------------- -----------------
1993 1994 1994 1995
------ ------- ------- ------
(UNAUDITED)
OPERATING ACTIVITIES
Net income............................................................... $ 668 $ 1,693 $ 1,054 $ 401
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 42 48 41 74
Provision for doubtful accounts..................................... 27 (7) 43 32
Deferred taxes...................................................... (128) (131) (3) 3
Loss on disposal of equipment....................................... 1 -- -- --
Changes in operating assets and liabilities:
Accounts receivable............................................... (676) (2,565) (1,409) 538
Inventories....................................................... (363) (1,062) (904) (258)
Prepaid expenses and other current assets......................... (53) (15) (192) (68)
Other assets...................................................... (23) -- 4 3
Accounts payable and accrued liabilities.......................... 434 1,168 622 (905)
Income taxes payable.............................................. 368 (254) (389) (135)
Customer deposits................................................. 91 (81) (80) 46
------ ------- ------- ------
Net cash provided by (used in) operating activities...................... 388 (1,206) (1,213) (269)
------ ------- ------- ------
INVESTING ACTIVITIES
Purchases of short-term investments...................................... -- (800) (800) --
Maturities of short-term investments..................................... -- 598 598 202
Acquisition of property and equipment.................................... (103) (185) (103) (239)
------ ------- ------- ------
Net cash used in investing activities.................................... (103) (387) (305) (37)
------ ------- ------- ------
FINANCING ACTIVITIES
Proceeds from borrowings under line of credit............................ 200 -- -- --
Payments on line of credit............................................... (200) -- -- --
Payments on notes payable................................................ (79) -- -- --
Proceeds from issuance of Common Stock, net of offering costs............ 1,574 6,822 -- 859
Proceeds from exercise of stock options and warrants..................... -- 2 -- 253
Proceeds from issuance of Common Stock under Employee Stock Purchase
Plan................................................................... -- -- -- 34
------ ------- ------- ------
Net cash provided by financing activities................................ 1,495 6,824 -- 1,146
------ ------- ------- ------
Net increase (decrease) in cash and cash equivalents..................... 1,780 5,231 (1,518) 840
Cash and cash equivalents at beginning of period......................... 42 1,822 1,822 7,053
------ ------- ------- ------
Cash and cash equivalents at end of period............................... $1,822 $ 7,053 $ 304 $7,893
====== ======= ======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid............................................................ $ 25 $ -- $ -- $ --
Income taxes paid........................................................ $ 22 $ 1,513 $ 1,193 $ 452
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Conversion of accrued royalties into a note payable for $60.............. $ 60 $ -- $ -- $ --
Conversion of $66 note payable into 22 shares of Common Stock
and warrants........................................................... $ 66 $ -- $ -- $ --
See accompanying Notes
F-6
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Lazer-Tron Corporation (the 'Company') was incorporated under the laws of
the state of California on July 19, 1988. The principal business activity of the
Company is the design, development, manufacture, and sale of
technologically-advanced coin- or token-operated redemption games for use by
family entertainment centers and other entertainment venues, including shopping
malls and free-standing arcades and amusement and theme parks.
Basis of Presentation
On January 12, 1994, the Company established a foreign sales corporation,
Lazer-Tron Limited. The financial statements include the accounts of the Company
and Lazer-Tron Limited. No significant intercompany transactions occurred
through March 31, 1995.
Interim Financial Information
The financial statements and related notes as of March 31, 1995 and for the
nine months ended March 31, 1994 and 1995 are unaudited but include all
adjustments (consisting solely of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the interim period. The results of
operations for the nine-month period ended March 31, 1995 are not necessarily
indicative of the operating results to be expected for the full fiscal year.
Revenue Recognition
Revenues are recognized upon product shipment. Net sales consist of product
sales, less discounts and estimated allowances for returns.
Cash Equivalents and Short-Term Investments
Cash equivalents are highly liquid investments with maturities of three
months or less at the date of purchase. The majority of cash equivalents
represent 30-day Treasury Bills. Short-term investments consist of commercial
paper with maturities of more than three months. All cash investments are
carried at amortized cost, which approximates market.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, (FAS 115) 'Accounting for Certain
Investments in Debt and Equity Securities,' effective for fiscal years beginning
after December 15, 1993. Under the new rules, debt securities that the Company
has both positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that the Company does not have the positive
intent and ability to hold to maturity and all marketable equity securities are
classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as
available-for-sale are reported as part of equity, while unrealized holding
gains and losses on securities classified as trading are reported in earnings.
The Company adopted FAS 115 on July 1, 1994, and all debt securities are
classified as held-to-maturity. The adoption of FAS 115 had no material impact
on the Company's financial position or its operating results during fiscal 1995.
F-7
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual cost (first-in, first-out method), or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of two to five years.
Leasehold improvements are amortized over the lesser of the remaining lease term
or their estimated useful lives.
Income Taxes
Effective July 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109 (FAS 109), 'Accounting for
Income Taxes.' Under the liability method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. As
permitted under the new rules, the Company has elected to apply the new standard
retroactively to all years. There was no material impact resulting from the
adoption of FAS 109 in any year.
Net Income Per Share
Net income per share is based upon the weighted average number of
outstanding shares of Common Stock and dilutive common equivalent shares from
the exercise of stock options and warrants (using the treasury stock method).
Prior to the Company's initial public offering, the weighted average common
shares outstanding included those prescribed by the Securities and Exchange
Commission and Staff Accounting Bulletins.
Reclassifications
Certain prior year balances have been reclassified to conform to the March
31, 1995 presentation.
2. INVENTORIES
Inventories consist of the following (in thousands):
JUNE 30, MARCH 31,
-------- ---------
1994 1995
-------- ---------
Raw materials........................................................... $ 919 $ 1,082
Work-in-progress........................................................ 583 585
Finished goods.......................................................... 322 415
-------- ---------
$1,824 $ 2,082
======== =========
3. BANK LINE OF CREDIT
At March 31, 1995, the Company had an unsecured line of credit agreement
with a bank, which provided for borrowings of up to $2,000,000 for general
working capital purposes through October 1, 1995. Borrowings under the agreement
bear interest at the bank s prime rate plus one percent (10% in total at March
31, 1995) and are based upon a percentage of eligible accounts receivable. This
facility requires the Company comply with certain financial covenants, as well
as obtain bank approval prior to declaration of dividends. While the Company
currently complies with each of the financial covenants, violation of any of the
covenants in the future would
F-8
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
3. BANK LINE OF CREDIT--(CONTINUED)
require the facility be secured by all of the Company's assets. There were no
amounts outstanding under this line of credit at March 31, 1995.
4. COMMITMENTS
Facility Lease
The Company leases its office and warehouse facilities under an operating
lease that expires in May 2001 with one five-year option to renew at fair market
value. In addition, the Company leases office space for a sales representative
in Illinois that expires in May 1995. Future minimum lease payments at March 31,
1995 are as follows (in thousands):
1995 (remaining three months)........................................................ $ 77
1996................................................................................. 307
1997................................................................................. 319
1998................................................................................. 332
1999................................................................................. 347
Thereafter........................................................................... 314
------
$1,696
======
Rent expense was approximately $111,000 and $309,000 for the years ended
June 30, 1993 and 1994, respectively, and $210,000 and $240,000 for the nine
months ended March 31, 1994 and 1995, respectively.
Royalty Agreements
The Company has intellectual property and proprietary rights to various
redemption games subject to royalty agreements. Under these agreements, the
Company is obligated to pay royalties ranging from 3% to 7% of net sales.
Royalty expense incurred from the sales of these games was approximately
$358,000 and $450,000 for the years ended June 30, 1993 and 1994, respectively,
and $396,000 and $279,000 for the nine months ended March 31, 1994 and 1995,
respectively.
5. SHAREHOLDERS' EQUITY
Initial Public Offering
In May 1994, the Company completed an initial public offering (the
'Offering') in which it sold 1,035,000 shares of Common Stock at $8.00 per
share. The Offering raised net proceeds of approximately $6,822,000. Pursuant to
the Offering, the Company issued warrants to the underwriter which entitles the
underwriter to purchase 55,000 shares of Common Stock at $9.60 per share through
May 1999. As of March 31, 1995 no warrants had been exercised.
On July 15, 1994, the Company received an additional $879,000, exclusive of
offering costs, from the underwriters who purchased 119,430 shares of Common
Stock pursuant to the over-allotment provisions of the Offering.
1989 Stock Option Plan
Under the Company's stock option plan (the 'Option Plan'), the Board of
Directors may grant incentive and nonqualified options to employees, directors
and consultants to purchase up to 625,000 shares of Common Stock. The maximum
number of shares that may be issued to any one optionee is 150,000. The Option
Plan
F-9
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY--(CONTINUED)
expires in August 1999. The Option Plan can also be terminated by the Board of
Directors at any time without shareholder approval.
Nonqualified stock options may be granted to employees, directors and
consultants. Incentive stock options may be granted to employees only. The
exercise price of the nonqualified and incentive stock options granted may not
be less than 85% and 100%, respectively, of the Common Stock's fair market value
at the date of grant (110% of fair market value for options issued to owners of
10% or more of the outstanding voting stock). Fair market value is determined by
the Board of Directors. Options typically expire ten years from the date of
grant (five years for options issued to owners of 10% or more of the voting
stock) and vest at the discretion of the Board of Directors, generally over a
four-year period.
Activity under the Option Plan is as follows:
OPTIONS OUTSTANDING
OPTIONS ---------------------------
AVAILABLE NUMBER PRICE PER
FOR GRANT OF SHARES SHARE
----------- --------- --------------
Balance at June 30, 1993........... 7,650 292,350 $1.70-$ 3.00
Increase in authorized shares.... 325,000 --
Options granted.................. (118,850) 118,850 $3.00-$ 8.00
Options canceled................. 5,500 (5,500) $3.00
Options exercised................ -- (500) $3.00
---------- ---------
Balance at June 30, 1994........... 219,300 405,200 $1.70-$ 8.00
Options granted.................. (124,500) 124,500 $9.12-$12.375
Options canceled................. 7,663 (7,663) $3.00-$11.75
Options exercised................ -- (114,862) $2.00-$ 5.00
---------- ---------
Balance at March 31, 1995.......... 102,463 407,175 $1.70-$12.375
========== =========
Options to purchase 68,954, 188,704 and 192,333 shares were exercisable at
June 30, 1993, June 30, 1994, and March 31, 1995, respectively.
1994 Directors Stock Option Plan
In March 1994, the Company's Board of Directors adopted, and in April 1994,
the shareholders approved, the 1994 Directors Stock Option Plan (the 'Directors
Plan') to provide for the grant of options to purchase shares of Common Stock to
nonemployee directors. The maximum number of shares of Common Stock that may be
issued pursuant to options granted under the Directors Plan is 85,000. The
maximum number of shares that may be issued to any one non-employee Director is
30,000. Upon becoming a non-employee Director, there is an initial grant of
7,000 shares, of which 2,000 of the shares immediately vest; the remaining 5,000
will vest at 50% every anniversary date, so long as the Director remains on the
Board. In addition, on the date of each Annual Shareholder Meeting, non-employee
Directors will be granted an additional option for 5,000 shares, vesting over
F-10
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY--(CONTINUED)
a two-year term. In the event of a change in control, options granted under the
Plan become immediately exercisable. Activity under the Directors Plan is as
follows:
OPTIONS OUTSTANDING
OPTIONS ---------------------------
AVAILABLE NUMBER PRICE PER
FOR GRANT OF SHARES SHARE
---------- --------- --------------
Balance at June 30, 1993........... -- --
Options authorized............... 85,000 --
Options granted.................. (21,000) 21,000 $ 7.50
---------- ---------
Balance at June 30, 1994........... 64,000 21,000
Options granted.................. (15,000) 15,000 $12.75
---------- ---------
Balance at March 31, 1995.......... 49,000 36,000 $ 7.50-$12.75
========== =========
Options to purchase 6,000 and 13,500 shares were exercisable at June 30,
1994 and March 31, 1995, respectively.
1994 Employee Stock Purchase Plan
In March 1994, the Company's Board of Directors adopted, and in April 1994,
the shareholders approved the 1994 Employee Stock Purchase Plan (the 'Stock
Purchase Plan') to permit eligible employees to acquire shares of the Company's
Common Stock through payroll deductions. A total of 50,000 shares of Common
Stock are authorized for issuance under the Stock Purchase Plan. Offerings under
the Stock Purchase Plan commence on July 1, 1994. The purchase price for the
Company's Common Stock purchased under the Stock Purchase Plan is eighty-five
percent of the lesser of the fair market value of the shares on the first day of
the offering period (July 1 or January 1) or the last day of the offering period
(June 30 or December 31). On December 31, 1994, 4,966 shares were purchased at
$6.80 per share.
Private Equity Offering
In May 1993, the Company completed a private equity offering in which it
sold 644,666 units ('Units') at $3.00 per Unit. The private offering raised net
proceeds of approximately $1,574,000. In addition, a noteholder exchanged a
$66,000 note payable from the Company for 22,000 Units. Each Unit consists of
one share of Common Stock and one Common Stock purchase warrant ('Warrants').
Two Warrants entitle the holder to purchase one share of Common Stock, at an
exercise price of $5.00 per share, during specified periods through April 1996.
Pursuant to the offering, the Company issued warrants to the sales agent (the
'Sales Agent Warrants') which entitles the sales agent to purchase 128,933 Units
at $3.00 per Unit through June 1998. During the first nine months of fiscal
1995, 500 Sales Agent Warrants were exercised. The exercise of the remaining
Sales Agent Warrants and all Warrants would result in the issuance of 526,233
shares of Common Stock for proceeds of approximately $2,374,300.
Shares Reserved
At March 31, 1995, the Company has reserved for future issuance 1,220,905
shares of Common Stock pursuant to the terms of its stock option plans, stock
purchase plan and all warrants.
In March 1994, the Company's Board of Directors authorized, and in April
1994, the shareholders approved an amendment and restatement of the Company's
Articles of Incorporation, to increase the number of authorized shares of Common
Stock to 10,000,000 shares and to provide for the issuance of up to 1,000,000
shares of undesignated Preferred Stock. Through March 31, 1995, no shares of
Preferred Stock have been issued.
F-11
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
6. EMPLOYEE BENEFIT PLAN
The Company has an employee salary deferral plan (the '401k Plan') that
covers substantially all full-time employees who are twenty-one years of age or
older. Company-approved contributions to the 401k Plan are determined quarterly
at the discretion of the Board of Directors. Company contributions vest evenly
over four years and are fully vested after four years of service. Employee
contributions are fully vested at all times. Company contributions were
approximately $9,000 and $27,000 for the years ended June 30, 1993 and 1994,
respectively, and $20,000 and $28,800 for the nine months ended March 31, 1994
and 1995, respectively.
7. INCOME TAXES
The components of the provision for income taxes are as follows (in
thousands):
YEAR ENDED JUNE 30,
------------------------------------------
1993 1994
------------------- -------------------
Current:
Federal....................... $ 280 $ 1,011
State......................... 100 248
------ -------
380 1,259
Deferred:
Federal....................... (128) (90)
State......................... -- (41)
------ -------
(128) (131)
------ -------
$ 252 $ 1,128
====== =======
The provision for income taxes reconciles to the amount computed by
applying the federal statutory rate to income before provision for income taxes
as follows (in thousands):
YEAR ENDED JUNE 30,
--------------------------------------
1993 1994
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
Federal statutory rate..................... $ 313 34% $ 959 34%
State taxes, net of federal benefit........ 65 7 136 5
Other...................................... -- -- 33 1
Benefit of operating loss carryforwards.... (126) (14) -- --
------ ----- ------ -----
$ 252 27% $1,128 40%
====== ===== ====== =====
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax assets as of June 30, 1994, are as follows (in thousands):
Accounts receivable allowances.................................. $ 88
Inventory reserves and valuation................................ 24
Book over tax depreciation and amortization..................... 16
Nondeductible accruals.......................................... 61
State income taxes.............................................. 70
----
259
Valuation allowance............................................. --
----
Net deferred tax assets......................................... $259
====
F-12
LAZER-TRON CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1995 AND FOR THE NINE MONTHS ENDED
MARCH 31, 1994 AND 1995 IS UNAUDITED)
7. INCOME TAXES--(CONTINUED)
The valuation allowance decreased by $180,000 and $46,000 for the years
ended June 30, 1993 and 1994, respectively.
At June 30, 1994, the Company had fully utilized all California net
operating loss carryforwards of approximately $350,000.
For the nine months ended March 31, 1995, income taxes have been provided
based upon an estimated annualized effective rate of 35% applied to the
Company's pre-tax book income from its ongoing operations. The tax effect of the
merger-related expenditures, which are anticipated to be largely nondeductible
for tax purposes, are accounted for separately in the quarter in which the
expenditures are incurred. Accordingly, the net effective tax rate for the nine
months ended March 31, 1995 is 44%.
8. GEOGRAPHIC INFORMATION
International sales, principally to customers in the Far East, were
approximately $1,765,000 and $3,240,000 for the years ended June 30, 1993 and
1994, respectively, and $2,250,000 and $3,100,000 for the nine months ended
March 31, 1994 and 1995, respectively.
9. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. The Company's cash investments consist principally of
investments in 30-day Treasury Bills and treasury money market funds placed with
high-credit quality financial institutions. The Company currently markets its
products through a variety of domestic and international distributors. The
Company performs ongoing credit evaluations of its customers financial condition
and generally does not require collateral. The Company maintains reserves for
potential credit losses and returns.
For the year ended June 30, 1993 one customer accounted for 11% of net
sales. For the year ended June 30, 1994 and the nine months ended March 31, 1994
and 1995, no single customer accounted for more than 10% of sales.
10. SUBSEQUENT EVENT
On March 22, 1995, the Company entered into an Agreement and Plan of Merger
(Agreement) with Acclaim Entertainment, Inc. (Acclaim) and Acclaim Arcade
Holdings, Inc. The parties intend that the merger, if consummated, will be a
tax-free transaction, that it will be accounted for as a pooling of interests
and that it will result in the Company being a wholly-owned subsidiary of
Acclaim. In accordance with the terms of the Agreement, Acclaim was granted an
option to purchase up to 250,000 shares of the Company's Common Stock at an
exercise price of $8.00 per share. The option may be exercised only if the
merger is terminated under certain specific circumstances and would then be
exercisable for a two year period following such occurrence. In addition, if the
merger is not consummated because the Company's Board of Directors exercises its
fiduciary duties in connection with another Acquisition Transaction, a break-up
fee of $200,000 would be payable to Acclaim, and, if such Acquisition
Transaction were to be consummated within one year, the Company must pay Acclaim
5% of the value of the aggregate consideration received in connection with such
Acquisition Transaction, less the $200,000 fee. Through March 31, 1995, the
Company had incurred merger costs (comprised primarily of legal, financial
advisor and accounting fees) of approximately $249,000.
F-13
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG LAZER-TRON CORPORATION,
ACCLAIM ENTERTAINMENT, INC. AND ACCLAIM ARCADE HOLDINGS, INC.
DATED AS OF MARCH 22, 1995
TABLE OF CONTENTS
PAGE
----
ARTICLE I--The Merger..................................................... 1
Section 1.01 The Merger.......................................... 1
Section 1.02 Effects of the Merger............................... 1
Section 1.03 Merger Consideration................................ 2
Section 1.04 Directors and Officers; Articles of Incorporation;
By-laws........................................... 2
Section 1.05 Conversion of Shares................................ 3
Section 1.06 Stock Plans and Warrants............................ 3
Section 1.07 Tax Free Reorganization............................. 4
Section 1.08 Pooling of Interests................................ 4
ARTICLE II--Exchange of Shares............................................ 4
Section 2.01 Surrender of Certificates........................... 4
Section 2.02 No Fractional Shares................................ 5
Section 2.03 No Dividends........................................ 5
Section 2.04 Return to Acclaim................................... 5
Section 2.05 Dissenting Shares................................... 5
Section 2.06 No Further Transfer................................. 6
ARTICLE III--Representations and Warranties of Lazer...................... 6
Section 3.01 Organization and Good Standing...................... 6
Section 3.02 Capitalization...................................... 6
Section 3.03 Authority Relating to this Agreement................ 7
Section 3.04 Consents and Approvals; No Violations............... 8
Section 3.05 Public Reports...................................... 8
Section 3.06 Absence of Certain Changes.......................... 8
Section 3.07 No Undisclosed Liabilities.......................... 8
Section 3.08 No Default.......................................... 9
Section 3.09 Litigation.......................................... 9
Section 3.10 Compliance with Applicable Law...................... 9
Section 3.11 Taxes............................................... 9
Section 3.12 Employee Benefit Plans; ERISA....................... 10
Section 3.13 Intellectual Property............................... 12
Section 3.14 Pooling Matters..................................... 12
Section 3.15 Change in Control................................... 13
Section 3.16 Employees and Other Matters......................... 13
Section 3.17 Labor Disputes...................................... 13
Section 3.18 Contracts........................................... 13
Section 3.19 Suppliers and Customers............................. 14
Section 3.20 Accounts Receivable................................. 14
Section 3.21 Financial Statements and Condition.................. 14
Section 3.22 Real Property; Leases............................... 14
Section 3.23 Environmental Matters............................... 15
Section 3.24 Personal Property and Inventories................... 16
Section 3.25 Insurance........................................... 16
Section 3.26 [Intentionally omitted]............................. 16
Section 3.27 Affiliates.......................................... 16
Section 3.28 Indemnification..................................... 16
Section 3.29 Brokers or Finders.................................. 17
ARTICLE IV--Representations and Warranties of Acclaim and Holdings........ 17
Section 4.01 Organization and Good Standing...................... 17
Section 4.02 Foreign Qualification............................... 17
Section 4.03 Capitalization of Acclaim and Holdings.............. 17
i
PAGE
----
Section 4.04 Authority Relative to Agreement..................... 17
Section 4.05 No Violation of Other Instruments or Obligations.... 18
Section 4.06 Consents and Approvals.............................. 18
Section 4.07 Public Reports...................................... 18
Section 4.08 No Material Adverse Effect.......................... 19
Section 4.09 Holdings............................................ 19
Section 4.10 Finder's Fees....................................... 19
Section 4.11 No Undisclosed Liabilities.......................... 19
Section 4.12 No Default.......................................... 19
Section 4.13 Litigation.......................................... 19
Section 4.14 Compliance with Applicable Law...................... 20
Section 4.15 Intentionally Omitted............................... 20
Section 4.16 Operation of the Surviving Corporation.............. 20
Section 4.17 Lazer Stock......................................... 20
ARTICLE V--Covenants...................................................... 20
Section 5.01 Lazer Pre-Closing Obligations....................... 20
Section 5.02 Acclaim Pre-Closing Obligations..................... 22
Section 5.03 No Solicitations.................................... 22
Section 5.04 Access to Information............................... 22
Section 5.05 Lazer Stockholder Meeting........................... 23
Section 5.06 Proxy Statement..................................... 23
Section 5.07 Registration on Form S-4............................ 24
Section 5.08 Best Efforts........................................ 25
Section 5.09 Letters of Accountants.............................. 25
Section 5.10 Affiliates.......................................... 25
Section 5.11 Indemnification of Managers......................... 25
Section 5.12 No Breach of Representations and Warranties......... 27
Section 5.13 Consents; Notices................................... 27
Section 5.14 Fees and Expenses................................... 27
Section 5.15 The Option.......................................... 28
Section 5.16 Pooling............................................. 28
Section 5.17 Public Announcements................................ 28
Section 5.18 Registration Right Agreements and Warrants.......... 28
Section 5.19 NASDAQ Listing...................................... 28
Section 5.20 Acclaim Employee Option Plans and Benefit
Arrangements...................................... 28
Section 5.21 Employment Agreements............................... 29
Section 5.22 Closing Balance Sheet............................... 29
Section 5.23 Operation of the Surviving Corporation.............. 29
Section 5.24 .................................................... 29
Section 5.25 Intellectual Property............................... 29
Section 5.26 Executive Bonus..................................... 30
ARTICLE VI--Conditions to Acclaim's and Holding's Obligations............. 30
Section 6.01 Representations and Warranties...................... 30
Section 6.02 Covenants........................................... 30
Section 6.03 Officer's Certificate............................... 30
Section 6.04 Opinion of Counsel.................................. 30
Section 6.05 Consents............................................ 30
Section 6.06 HSR Act............................................. 30
Section 6.07 Legality............................................ 30
Section 6.08 Injunctions......................................... 30
Section 6.09 Closing Balance Sheet; Material Adverse Effect...... 30
Section 6.10 Resignations........................................ 31
ii
PAGE
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Section 6.11 Employment Agreements............................... 31
Section 6.12 Stockholder Approval................................ 31
Section 6.13 Due Diligence....................................... 31
Section 6.14 Benefit Plans; Stock Option Plans................... 31
Section 6.15 Stock Price......................................... 31
Section 6.16 Merger.............................................. 31
Section 6.17 Institution of Proceedings.......................... 31
Section 6.18 Registration Statement.............................. 31
Section 6.19 Accountants' Letters................................ 31
Section 6.20 Lazer Affiliate Agreements.......................... 31
Section 6.21 FIRPTA.............................................. 32
ARTICLE VII--Conditions to Lazer's Obligations............................ 32
Section 7.01 Representations and Warranties...................... 32
Section 7.02 Covenants........................................... 32
Section 7.03 Officer's Certificate............................... 32
Section 7.04 Opinion of Counsel.................................. 32
Section 7.05 Consents............................................ 32
Section 7.06 HSR Act............................................. 32
Section 7.07 Legality............................................ 32
Section 7.08 Injunctions......................................... 32
Section 7.09 Effectiveness of Registration Statement............. 32
Section 7.10 Employment Agreements............................... 33
Section 7.11 Stockholder Approval................................ 33
Section 7.12 Merger.............................................. 33
Section 7.13 Accountants' Letters................................ 33
Section 7.14 Institution of Proceedings.......................... 33
Section 7.15 Stock Price......................................... 33
ARTICLE VIII--Termination and Amendment................................... 33
Section 8.01 Termination......................................... 33
Section 8.02 Effect of Termination............................... 34
Section 8.03 Amendment........................................... 34
Section 8.04 Extension; Waiver................................... 34
ARTICLE IX--Indemnification............................................... 34
Section 9.01 By Lazer............................................ 34
Section 9.02 By Acclaim.......................................... 35
Section 9.03 Limitations on Indemnification...................... 35
Section 9.04 Indemnification Procedure for Third Party Claims.... 35
Section 9.05 Indemnification Procedure for Claims Between Lazer
and Acclaim....................................... 36
Section 9.06 Limitations on Indemnity............................ 36
ARTICLE X--Miscellaneous.................................................. 36
Section 10.01 Survival of Representations and Warranties.......... 36
Section 10.02 Notices............................................. 37
Section 10.03 Descriptive Headings................................ 37
Section 10.04 Counterparts........................................ 37
Section 10.05 Entire Agreement; Assignment........................ 38
Section 10.06 Governing Law and Consent to Jurisdiction........... 38
Section 10.07 Expenses............................................ 38
Section 10.08 Costs of Enforcement................................ 38
Section 10.09 Specific Performance................................ 38
Section 10.10 Publicity........................................... 38
Section 10.11 Parties in Interest................................. 38
iii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 22, 1995, by and among
Lazer-Tron Corporation ('Lazer'), a California corporation, Acclaim
Entertainment, Inc. ('Acclaim'), a Delaware corporation, and Acclaim Arcade
Holdings, Inc. ('Holdings'), a Delaware corporation organized solely for the
purpose of consummating the transactions contemplated hereby and a wholly owned
subsidiary of Acclaim.
WHEREAS, the Board of Directors of each of Lazer and Acclaim have
determined that it is in the best interests of their respective companies and
stockholders to consummate the business combination transaction provided for
herein and in the Agreement of Merger required to be filed under California law
(the 'California Certificate') in form and substance reasonably satisfactory to
Acclaim and Lazer pursuant to which Holdings will, subject to the terms and
conditions set forth herein, merge with and into Lazer (the 'Merger') so that
Lazer will be the surviving entity and a wholly owned subsidiary of Acclaim.
Upon the effectiveness of the Merger, all the outstanding capital stock of Lazer
will be converted into common stock of Acclaim subject to Section 2.05 hereof,
and Acclaim will substitute comparable obligations of Acclaim for all
obligations relating to the outstanding options and warrants to purchase
securities of Lazer, as provided in this Agreement and the California
Certificate and the applicable provisions of the Delaware General Corporation
Law (the 'DGCL') and the California General Corporation Law (the 'CGCL');
WHEREAS, the Merger is intended to be treated as a tax-free reorganization
pursuant to the provisions of Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended (the 'Code'), by virtue of the provisions of Section
368(a)(2)(E) of the Code and it is a condition to Acclaim's and Holdings'
obligations hereunder that the Merger be treated as a 'pooling of interests'
('Pooling') for accounting purposes; and
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 The Merger. (a) Upon the terms and subject to the conditions
hereof and in accordance with Section 252 of the DGCL and Sections 1103 and 1108
of the CGCL, as promptly as practicable following the satisfaction or waiver of
the conditions set forth in Article VI and Article VII hereof, but in no event
later than five days thereafter (unless the parties shall otherwise agree) a
closing (the 'Closing') of the Merger shall take place at the offices of
Rosenman & Colin, 575 Madison Avenue, New York, New York, or such other place
and at such time as the parties shall agree in writing (the 'Closing Date').
(b) Concurrently with the Closing, (i) a certificate of merger (the
'Certificate of Merger'), in form and substance reasonably satisfactory to
Acclaim and Lazer, providing for the merger of Holdings with and into Lazer
shall be duly prepared, executed and filed by Lazer, as the surviving
corporation (the 'Surviving Corporation'), with the Delaware Secretary of State
in accordance with the relevant provisions of the DGCL and (ii) the appropriate
officers of Lazer, Acclaim and Holdings shall execute and acknowledge the
California Certificate and it shall be filed with the California Secretary of
State in accordance with the CGCL, and the Merger shall become effective upon
completion of the latest of such filings as are required under the DGCL and the
CGCL. The date and time the Merger becomes effective is referred to herein as
the 'Effective Time'.
SECTION 1.02 Effects of the Merger. (a) The Merger shall have the effects
set forth in the DGCL and the CGCL and as hereinafter set forth. Following the
Merger, the Surviving Corporation shall (i) continue its corporate existence
under the laws of the State of California, (ii) be a wholly owned subsidiary of
Acclaim, (iii) retain its name 'Lazer-Tron Corporation', and (iv) succeed to all
rights, assets, liabilities and obligations of Lazer and Holdings in accordance
with the DGCL and the CGCL. At the Effective Time, pursuant to Section 1107 of
the CGCL, the separate existence of Holdings shall cease and the Surviving
Corporation shall succeed, without other transfer, to all the rights and
property of each of Holdings and Lazer (sometimes hereinafter referred to
collectively as the 'Constituent Corporations') and shall be subject to all the
debts and liabilities of each in the same manner as if the Surviving Corporation
had itself incurred them. All rights of creditors and all liens upon the
property of each of the Constituent Corporations shall be preserved unimpaired,
provided that such
liens upon property of Holdings shall be limited to the property affected
thereby immediately prior to the time the Merger is effective. Any action or
proceeding pending by or against Holdings may be prosecuted to judgment, which
shall bind the Surviving Corporation, or the Surviving Corporation may be
proceeded against or substituted in its place.
(b) At the Effective Time each share of common stock of Holdings issued and
outstanding, immediately prior to the Effective Time shall by reason of the
Merger and without any action by the holder thereof be converted into one
validly issued, fully paid and non-assessable share of common stock of the
Surviving Corporation.
SECTION 1.03 Merger Consideration. (a) At the Effective Time, each share
of common stock, no par value, of Lazer (the 'Lazer Common Stock') issued and
outstanding immediately prior to the Effective Time shall, by reason of the
Merger and without any action by the holder thereof, be converted into the right
to receive the following consideration (the 'Merger Consideration'):
(i) if the average of the closing sale price of a share of common
stock, par value $0.02 per share, of Acclaim (the 'Acclaim Common Stock')
on the Nasdaq Stock Market's National Market System (as reported in the
Wall Street Journal) for the 20 business days immediately preceding the
second business day prior to the Closing Date (the 'Acclaim Common Stock
Price') shall be at least $12.50 but less than $16.00, that number of
shares of Acclaim Common Stock equal to the product (rounded up to the
nearest one thousandth) of (i) one (1) and (ii) a fraction, the numerator
of which is $8.00 and the denominator of which is the Acclaim Common Stock
Price;
(ii) if the Acclaim Common Stock Price shall be at least $16.00 and
not more than $20.00, one half (1/2) of a share of Acclaim Common Stock; or
(iii) if the Acclaim Common Stock Price shall be more than $20.00,
that number of shares of Acclaim Common Stock equal to the product (rounded
up to the nearest one thousandth) of (i) one (1) and (ii) a fraction, the
numerator of which is $10.00 and the denominator of which is the Acclaim
Common Stock Price.
(b) The issuance of the Acclaim Common Stock to be delivered to the holders
of the Lazer Common Stock (the 'Lazer Stockholders') in connection with the
Merger shall be registered by Acclaim under the Securities Act of 1933, as
amended (the '1933 Act'), on a registration statement on Form S-4 (the 'S-4')
which shall have been declared effective by the Securities and Exchange
Commission (the 'SEC') at or prior to the Effective Time.
(c) No fractional shares of Acclaim Common Stock shall be issued or
delivered to a Lazer Stockholder in payment of the Merger Consideration; cash
shall be paid in lieu of any such fractional shares pursuant to Section 2.02
hereof. The fractional shares of Acclaim Common Stock to be received by each
Lazer Stockholder will be aggregated so that no Lazer Stockholder will receive
cash in an amount equal to or greater than the value of one full share of
Acclaim Common Stock.
(d) Dissenting Shares (hereinafter defined) shall not be converted into the
right to receive the Merger Consideration and the holders thereof shall have
only such rights as are provided under Chapter 13 of the CGCL unless and until
the holders of any Dissenting Shares (the 'Dissenting Shareholders') withdraw
their demand for purchase of the Dissenting Shares in accordance with Chapter 13
of the CGCL or such Dissenting Shares or the Dissenting Shareholders otherwise
lose their status as Dissenting Shares or Dissenting Shareholders under Section
1309 of the CGCL.
(e) Notwithstanding the foregoing provisions of this Section 1.03, if the
Acclaim Common Stock Price shall be less than $12.50, each of Acclaim and Lazer,
at its sole option, shall have the right to give notice pursuant to Section 8.01
hereof of its election to terminate this Agreement.
SECTION 1.04 Directors and Officers; Articles of Incorporation;
By-laws. At the Effective Time, the Board of Directors of the Surviving
Corporation shall consist of Messrs. Gregory E. Fischbach, James Scoroposki,
Robert Holmes, Anthony R. Williams and Norman B. Petermeier and the officers of
the Surviving Corporation shall be the existing officers of Lazer, each to hold
office in accordance with the Articles of Incorporation and By-laws of the
Surviving Corporation. The Articles of Incorporation and By-laws of Lazer at the
Effective Time
2
shall be the Articles of Incorporation and By-laws of the Surviving Corporation
after the Effective Time, and thereafter may be amended in accordance with their
respective terms and applicable law.
SECTION 1.05 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, and subject to
Section 2.02, each issued and outstanding share of Lazer Common Stock (including
shares issued pursuant to the 1994 Employee Stock Purchase Plan (the 'Employee
Purchase Plan') as provided in Section 1.06) other than Dissenting Shares, if
any, shall be converted into the right to receive a fraction (rounded up to the
nearest one-thousandth of a share) of a fully paid and nonassessable share of
Acclaim Common Stock, determined in accordance with Section 1.03 hereof.
SECTION 1.06 Stock Plans and Warrants. (a) At the Effective Time, each
outstanding option to purchase Lazer Common Stock (a 'Stock Option') granted
under the Lazer's 1989 Stock Option Plan (the 'Employee Option Plan',
collectively with the Director Stock Option Plan (the 'Director Option Plan'),
the 'Lazer Stock Option Plans') and each outstanding warrant (the 'Warrants')
described on Schedule 3.02 hereto, whether vested or unvested, shall, by virtue
of the Merger and without any further action on the part of any holder thereof,
be deemed substituted with an option or warrant (hereinafter referred to as an
'Acclaim Option or Warrant'), as applicable, on substantially the same terms and
conditions as were applicable under such Stock Option or Warrant, to acquire
that number of shares of Acclaim Common Stock (and with respect to the Sales
Agent Warrants (as hereinafter defined) listed on Schedule 3.02 which are
exercisable for Lazer Common Stock and a warrant to buy one-half of a share of
Lazer Common Stock (the 'Underlying Warrant'), in addition to such number of
shares of Acclaim Common Stock, that number of warrants to purchase shares of
Acclaim Common Stock (herein referred to as the 'Underlying Acclaim Warrant') as
the holder of such Stock Option or Warrant would have been entitled to receive
pursuant to the Merger had such holder exercised such Stock Option or Warrant in
full immediately prior to the Effective Time (without taking into account
whether or not such Stock Option or Warrant was in fact exercisable), and the
exercise price per share for such shares of Acclaim Common Stock shall be equal
to (x) the aggregate exercise price for Lazer Common Stock purchasable pursuant
to such substituted Stock Option or Warrant (and with respect to the Sales Agent
Warrants, the aggregate exercise price to acquire the Lazer Common Stock and
Underlying Acclaim Warrant) divided by (y) the number of shares of Acclaim
Common Stock deemed directly purchasable pursuant to such Stock Option or
Warrant; and, with respect to any Underlying Acclaim Warrant the exercise price
for the Acclaim Common Stock purchasable upon exercise of any Underlying Acclaim
Warrant shall be determined in the same manner as set forth above with respect
to any other Stock Option or Warrant as though the Underlying Warrants were
outstanding immediately prior to the Closing Date. Immediately prior to the
Effective Time, each outstanding right to acquire Lazer Common Stock ('Lazer
Stock Purchase Rights') issued pursuant to the Employee Purchase Plan shall be
exercised or deemed exercised (such deemed exercise shall nevertheless require
application of the funds held in the applicable employee's account under the
Employee Purchase Plan) to purchase shares of Lazer Common Stock at an exercise
price per share determined in accordance with the formula set forth in the
Employee Purchase Plan and for that number of shares of Lazer Common Stock and
upon the terms and conditions determined in accordance with the terms of the
Employee Purchase Plan. After such exercise or deemed exercise of all
outstanding Lazer Stock Purchase Rights, but in any event no later than July 1,
1995, including without limitation with respect to rights outstanding on the
date hereof and/or outstanding through June 30, 1994, the Employee Purchase Plan
and any other unexercised rights shall be terminated (unless the closing shall
occur prior to said date in which event the Employee Purchase Plan and all such
rights shall terminate as of the date two business days prior to such Closing
Date) provided, that the Closing subsequently occurs. All such shares of Lazer
Common Stock issued upon the exercise or deemed exercise of Lazer Stock Purchase
Rights under the Employee Purchase Plan shall be converted into the right to
receive Acclaim Common Stock as provided in Sections 1.03 or 1.05. If the
foregoing calculation results in a substituted Acclaim Option or Warrant (or
would result in an Underlying Acclaim Warrant) being exercisable for a fraction
of a share of Acclaim Common Stock, then the number of shares of Acclaim Common
Stock subject to such Acclaim Option or Warrant (or underlying Acclaim Warrant)
will be rounded down to the nearest whole number of shares with no cash being
paid for such fractional share. The exercise price of such Acclaim Option or
Warrant (or underlying Acclaim Warrant) shall be rounded to the nearest whole
cent. In the case of any Stock Option to which Section 421 of the Code applies
by reason of its qualification under any of Sections 422-423 of the Code
('statutory stock options'), the option price, the number of shares purchasable
pursuant to such Stock Option and the terms and conditions of exercise thereof
shall comply with Section 424(a) of the Code. Continuous employment or service
with Lazer will be
3
credited to an optionee for purposes of determining the number of shares of
Acclaim Common Stock subject to exercise under a converted Stock Option. Stock
Options under the Director Option Plan shall by the terms thereof accelerate and
thereafter terminate concurrently with or immediately prior to the Effective
Time.
(b) As soon as practicable after the Effective Time, Acclaim shall deliver
to each holder of an outstanding Stock Option or Warrant an appropriate notice
setting forth such holder's rights pursuant thereto and such Stock Option or
Warrant shall continue in effect on the same terms and conditions (subject to
the adjustments required by this Section 1.06 after giving effect to the
Merger). Acclaim shall comply with the terms of all such Stock Options and
Warrants and use it best efforts to ensure, to the extent required by, and
subject to the provisions of, any such Lazer Stock Plan that Stock Options which
qualified as qualified stock options prior to the Effective Time continue to
qualify as qualified stock options after the Effective Time. Acclaim shall take
all corporate action necessary to reserve for issuance a sufficient number of
shares of Acclaim Common Stock for delivery pursuant to the terms set forth in
this Section 1.06. Acclaim shall use reasonable efforts to cause the Acclaim
Common Stock to be issued pursuant to exercise of the substituted Options and
Warrants to be issued under Acclaim's existing stock option plans or otherwise
with respect to not more than 10,000 non-qualified stock options and, if not
already registered, to register such Acclaim Common Stock issuable pursuant to
such plans or otherwise, as applicable, as soon as reasonably practicable
following the Effective Time on a registration statement on Form S-8 or other
applicable form.
(c) If necessary to effect the adjustments contemplated by this Section
1.06, Lazer will use its reasonable efforts to obtain the consent of each holder
of a Stock Option or Warrant.
SECTION 1.07 Tax Free Reorganization. The parties intend to adopt this
Agreement and the Merger as a tax-free plan of reorganization under Section
368(a)(1)(A) of the Code by virtue of the provisions of Section 368(a)(2)(E) of
the Code. The Acclaim Common Stock issued in the Merger will be issued solely in
exchange for the Lazer Stock, and no other transaction other than the Merger and
as provided in this Agreement is intended to be an adjustment to the
consideration paid for the Lazer Stock. Except for cash paid in lieu of
fractional shares and dissenters rights, no consideration that could constitute
'other property' within the meaning of Section 356(a) of the Code is being
transferred by Acclaim for the Lazer Common Stock in the Merger. The parties
shall not take a position on any tax return inconsistent with this Section 1.07
unless otherwise required by law.
SECTION 1.08 Pooling of Interests. The parties acknowledge that it is a
condition of Acclaim's and Holdings' obligations hereunder that the Merger be
treated as a Pooling for accounting purposes under and in accordance with the
applicable provisions of GAAP, including without limitation Opinion No. 16 of
the Accounting Principles Board ('APB 16'). The affiliates of Lazer shall
execute and deliver to Acclaim Affiliates Agreements (as defined below) as
contemplated by Section 6.20 below, to ensure compliance by such affiliates with
the restrictions required to allow such accounting treatment to be utilized.
ARTICLE II
EXCHANGE OF SHARES
SECTION 2.01 Surrender of Certificates. Prior to the Effective Time,
Acclaim shall make available to American Securities Transfer, Inc., or a bank
reasonably acceptable to Lazer (the 'Exchange Agent'), in trust for the benefit
of the holders of Lazer Common Stock for exchange in accordance with this
Article II, certificates representing the aggregate number of shares of Acclaim
Common Stock issuable pursuant to Section 1.05. Promptly after the Effective
Time, the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented Lazer
Common Stock (the 'Certificates') a letter of transmittal and instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing Acclaim Common Stock and cash in lieu of fractional shares, if
applicable. Upon surrender of a Certificate to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration for each
share of Lazer Common Stock formerly represented by such Certificate, and the
Certificate so surrendered shall forthwith be canceled. Until surrendered as
contemplated by this Article II, from and after the Effective Time each
Certificate shall be deemed to represent only the right to receive the Merger
Consideration for each share of Lazer Common Stock formerly represented by such
Certificate, and shall not evidence any interest in, or any right to exercise
the rights of a stockholder of, Acclaim. If a certificate representing Acclaim
Common Stock is to
4
be issued or a cash payment in lieu of fractional share interests is to be made
to a person other than the one in whose name the Certificate surrendered in
exchange therefor is registered, it shall be a condition to such issuance or
payment that such Certificate be properly endorsed (or accompanied by an
appropriate instrument of transfer) and accompanied by evidence that any
applicable stock transfer taxes have been paid or provided for.
SECTION 2.02 No Fractional Shares. No certificate or scrip representing
fractional shares of Acclaim Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Acclaim. The
fractional shares of Acclaim Common Stock to be received by each Lazer
Stockholder will be aggregated so that no Lazer Stockholder will receive cash in
an amount equal to or greater than the value of one full share of Acclaim Common
Stock. In lieu of any such fractional share, the Exchange Agent shall pay to
each Lazer Stockholder who otherwise would be entitled to receive a fractional
share of Acclaim Common Stock an amount of cash determined by multiplying (i)
the Acclaim Common Stock Price by (ii) the fraction of a share of Acclaim Common
Stock to which such holder would otherwise be entitled. Acclaim shall make
available to the Exchange Agent sufficient funds as and when necessary to enable
the Exchange Agent to make the cash payments contemplated hereby. In no event
shall interest be paid or accrued on any such cash payments. The transfer of
cash to Lazer Stockholders in lieu of fractional shares of Acclaim Common Stock,
if any, is solely for the purpose of avoiding the expense and inconvenience to
Acclaim of accounting for fractional shares and does not represent separately
bargained for consideration.
SECTION 2.03 No Dividends. No dividends or other distributions declared or
made after the Effective Time with respect to Acclaim Common Stock with a record
date after the Effective Time shall be paid to the holder of any Certificate
with respect to the Acclaim Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate and comply with all
requirements necessary to avoid 'backup withholding' under Section 3406 of the
Code. Dividends or other distributions with a record date after the Effective
Time payable in respect of Acclaim Common Stock held by the Exchange Agent shall
be held in trust for the benefit of such holders of Certificates. Following
surrender of any previously unsurrendered Certificate and compliance with such
requirements under Section 3406 of the Code, there shall be paid to the record
holder of the certificates representing whole shares of Acclaim Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Acclaim Common Stock and (ii) at the date of payment of any dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender, the amount of such dividends or
other distributions payable with respect to such whole shares of Acclaim Common
Stock.
SECTION 2.04 Return to Acclaim. Any shares of Acclaim Common Stock and any
cash in lieu of fractional share interests made available to the Exchange Agent
and not exchanged for Certificates within six months after the Effective Time
and any dividends and distributions held by the Exchange Agent for payment or
delivery to the holders of unsurrendered Certificates representing Lazer Common
Stock and unclaimed at the end of such six-month period shall be redelivered or
repaid by the Exchange Agent to Acclaim, after which time any holder of
Certificates who has not theretofore delivered or surrendered such Certificates
to the Exchange Agent, subject to applicable law, shall look as a general
creditor only to Acclaim for payment of the Merger Consideration, cash in lieu
of fractional share interests, and any such dividends or distributions.
Notwithstanding the foregoing, none of the Exchange Agent, the Surviving
Corporation or any other party hereto shall be liable to a holder of Lazer
Common Stock for any Merger Consideration, cash in lieu of fractional share
interests or dividends or distributions delivered to a public official pursuant
to applicable escheat laws.
SECTION 2.05 Dissenting Shares. If demands for payment under Chapter 13 of
the CGCL are filed with respect to 5% or more of the outstanding shares of the
Lazer Stock, the holders of which vote against the Merger, then such holders
shall be entitled to exercise dissenters' rights to the extent available under
Chapter 13 of the CGCL with respect to the shares for which such demand has been
filed in accordance with Chapter 13 of the CGCL. In addition, any shares of
Lazer Common Stock whose transfer is restricted by law or regulation or by Lazer
and that are voted against the Merger shall be entitled to exercise dissenters'
rights to the extent available under Chapter 13 of the CGCL. If and to the
extent dissenters' rights are available under the CGCL to holders of Lazer
Common Stock in connection with the Merger, who have voted against the Merger
and with respect to which dissenters' rights shall have been properly demanded
in accordance with the provisions of Chapter 13 of
5
the CGCL ('Dissenting Shares'), such Dissenting Shares shall not be converted
into the right to receive the Merger Consideration and the holders thereof shall
have only such rights as are provided in such Chapter 13 of the CGCL unless and
until the holder of any such Dissenting Shares withdraws his demand for such
purchase of such Dissenting Shares or such Dissenting Shares or holders
otherwise lose their status as Dissenting Shares or shareholders, respectively,
under Section 1309 of the CGCL or otherwise loses his right to such appraisal.
If a holder of Dissenting Shares shall properly withdraw his demand for purchase
of such Dissenting Shares or such Dissenting Shares or holders of Dissenting
Shares shall otherwise lose their status as Dissenting Shares or shareholders,
respectively, under Section 1309 of the CGCL, then, as of the Effective Time or
the occurrence of such event, whichever last occurs, such holder's Dissenting
Shares shall cease to be Dissenting Shares and shall be converted into and
represent the right to receive the Merger Consideration. Prior to the Effective
Time, Lazer shall give Acclaim prompt notice of any written demands for
appraisal or withdrawals of demands for appraisal received by Lazer and, except
with the prior written consent of Acclaim, shall not settle or offer to settle
any such demands.
SECTION 2.06 No Further Transfer. Following the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Lazer Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged for the Merger Consideration as provided in this
Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LAZER
Lazer represents and warrants to acclaim and holdings as follows:
SECTION 3.01 Organization and Good Standing. Each of Lazer and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. Each of Lazer and its
subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not, in the aggregate, have a
Material Adverse Effect. 'Material Adverse Effect' means, with respect to Lazer,
any event that could have a material adverse effect on the business, assets,
results of operations or financial condition of and its subsidiaries taken as a
whole; provided that a Material Adverse Effect shall not include any effect that
results from general economic conditions affecting the video and coin-operated
arcade game market. Lazer has heretofore delivered to Acclaim accurate and
complete copies of the Articles of Incorporation and By-laws of and its
subsidiaries, as currently in effect.
SECTION 3.02 Capitalization. (a) As of the date hereof the authorized
capital stock of consists of 10,000,000 shares of Common Stock of which
3,554,852 shares were issued and outstanding as of February 28, 1995 and
1,000,000 shares of preferred stock, no par value (' Preferred Stock') of which
there were no shares outstanding as of February 28, 1995. An aggregate of
518,127 shares of Common Stock were reserved and authorized for issuance
pursuant to the Employee Option Plan, of which options to purchase a total of
413,414 shares of Common Stock were outstanding as of February 28, 1995. An
aggregate of 85,000 shares of Common Stock were reserved and authorized for
issuance pursuant to the Director Option Plan, of which options to purchase a
total of 36,000 shares of Common Stock were outstanding as of February 28, 1995.
An aggregate of 45,034 shares of Common Stock were reserved and authorized for
issuance pursuant to the Employee Purchase Plan. An aggregate of 667,166 shares
of Common Stock were reserved and authorized for issuance pursuant to redeemable
warrants ('Redeemable Warrants') outstanding as of February 28, 1995. An
aggregate of 192,646 shares of Common Stock were reserved and authorized for
issuance pursuant to sales agent warrants as set forth on Schedule 3.02 (the
'Sales Agent Warrants') outstanding as of February 28, 1995. An aggregate of
55,000 shares of Common Stock were reserved and authorized for issuance pursuant
to a warrant held by Van Kasper & Co. (the 'Underwriter Warrant'). All of the
issued and outstanding shares of Lazer Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. All prior
sales of Lazer's securities have been made in
6
compliance with or under an exemption from the registration requirements of the
1933 Act and applicable state securities laws, and no shareholders of Lazer have
any rescission rights with respect to any Lazer securities. Except as referred
to above or reflected in Schedule 3.02(a), Lazer does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character to or by which Lazer is a party or is bound which,
directly or indirectly, obligate Lazer to issue, deliver or sell any shares of
Lazer Common Stock or Lazer Preferred Stock or any other equity security of
Lazer or any securities representing the right to purchase or otherwise receive
any shares of Lazer Common Stock or any other equity security of Lazer. The
names of the optionees and warrantholders holding Stock Options and Warrants,
the date of grant of each Stock Option or Warrant to purchase Lazer Common Stock
granted and outstanding as of February 28, 1995, the number of shares of Lazer
Common Stock subject to each such Stock Option or Warrant, the expiration date
of each such Stock Option or Warrant, and the price at which each such Stock
Option or Warrant may be exercised under Lazer's Stock Option Plans are set
forth in Schedule 3.02(a). Assuming the conversion of Stock Options and Warrants
under Section 1.06 hereof, at the Effective Time there will not be any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character by which Lazer or any of its subsidiaries will be bound calling
for the sale or issuance by Lazer of any shares of the capital stock of Lazer or
any of its subsidiaries. No vesting restrictions of any Stock Options (except
with respect to 36,000 Stock Options outstanding under the Director Option Plan)
or Warrants will, as a consequence of the Merger, lapse so as to accelerate the
vesting of any such Stock Options or Warrants and the Board of Directors of
Lazer has not and will not have, as of the Closing Date, taken any action to
permit such acceleration and will take any action necessary to prevent such
acceleration.
(b) Schedule 3.02(b) sets forth a true and correct list of all of Lazer's
subsidiaries as of the date of this Agreement. Except as set forth on Schedule
3.02(b), Lazer owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of Lazer's subsidiaries, free and clear of all
Liens (as defined below) whatsoever, and all of such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. None of
Lazer's subsidiaries has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the sale
or issuance by such subsidiary of any shares of capital stock or any other
equity security of such subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of such subsidiary.
(c) All existing option agreements subject to the Lazer Stock Option Plans
and all existing Warrants set forth on Schedule 3.02(a) hereof are in form and
substance substantially the same as the forms of option agreements and warrant
agreements previously provided to Acclaim or as filed with the Lazer SEC
Reports, as applicable and each conforms to the expressly enumerated provisions
of the Lazer Stock Option Plans or such Warrant Agreement, as applicable, under
which each was issued including without limitation as to exercise and vesting
and the Lazer Board of Directors has not taken (except with respect to 36,000
options outstanding under the Director Option Plan) and will not take any action
pursuant to the Lazer Stock Option Plans or such Warrant Agreements or otherwise
which would permit the acceleration of the exercisability of any Options or
Warrants whether in connection with the Merger or the transactions contemplated
hereby or otherwise.
SECTION 3.03 Authority Relating to this Agreement. Lazer has full
corporate power and authority to execute and deliver this Agreement and all
other documents hereby contemplated and, subject to obtaining requisite
shareholder approval, to consummate the transactions contemplated hereby and to
take all other actions required to be taken by it pursuant to the provisions
hereof. The execution and delivery of this Agreement by Lazer and the
consummation by Lazer of the transactions contemplated hereby have been duly and
validly authorized and approved by the Board of Directors of Lazer and no other
corporate proceedings on the part of Lazer are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than, with
respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the outstanding shares of Lazer Common Stock in
accordance with the CGCL and Lazer's Articles of Incorporation and Bylaws). This
Agreement has been duly and validly executed and delivered by Lazer and
constitutes a valid and binding agreement of Lazer, enforceable against Lazer,
in accordance with its terms, except as such enforcement may be limited by
bankruptcy and other laws affecting the enforceability of creditors' rights
generally or laws governing the availability of specific performance or other
equitable remedies, or restrictions on the enforcement of securities
indemnification and contribution provisions imposed by public policy.
7
SECTION 3.04 Consents and Approvals; No Violations. Except for applicable
requirements of the 1933 Act, Securities Exchange Act of 1934, as amended (the
'1934 Act'), state Blue Sky laws, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the 'HSR Act'), the filing and recordation of the
Certificate of Merger, as required by the DGCL, the California Certificate as
required by the CGCL, appropriate documents with the relevant authorities of
States in which Lazer is qualified to do business, and such filings,
authorizations, orders and approvals as may be required under State 'control
share acquisition', 'antitrust' or other similar statutes or regulations, and
such filings, authorizations, orders and approvals as may be required under
foreign laws and NASD Bylaws, or as set forth in Schedule 3.04 hereto, no filing
with, and no permit, authorization, consent or approval of, any public body or
authority, including courts of competent jurisdiction, domestic or foreign
('Governmental Entity'), or of any third party, is necessary for the entering
into and/or consummation by Lazer of the transactions contemplated by this
Agreement. Except as set forth in Schedule 3.04, subject to obtaining requisite
shareholder approval, neither the execution and delivery of this Agreement by
Lazer nor the consummation by Lazer of the transactions contemplated hereby nor
compliance by Lazer with any of the provisions hereof will (i) constitute any
violation or breach of any provision of the Articles of Incorporation or By-laws
of Lazer or its subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration or result in
the creation of any lien) under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which Lazer or its subsidiaries is a party or by
which either they or their properties or assets may be bound or (iii) other than
filings and consents under the 1933 Act, 1934 Act, the HSR Act or as otherwise
set forth on Schedule 3.04, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Lazer, its subsidiaries or any of
their properties or assets, except in the case of subclause (ii) or (iii) of
this sentence for violations, breaches, defaults, rights which arose or liens
which would not, in the aggregate, have a Material Adverse Effect and which
would not prevent or materially delay the consummation of the transactions
contemplated hereby.
SECTION 3.05 Public Reports. Except as disclosed in Schedule 3.05 hereto,
Lazer has and at the Effective Time will have filed all required forms, reports
and documents with the SEC since the effectiveness of the registration statement
relating to its initial public offering in May 1994 (collectively, the 'Lazer
SEC Reports'), all of which forms, reports and documents have and shall have
complied in all material respects with all applicable requirements of the 1933
Act and the 1934 Act. Except as disclosed in Schedule 3.05, as of their
respective dates of filing in final or definitive form (or, if amended or
superseded by a subsequent filing, then on the date of such subsequent filing),
none of the Lazer SEC Reports, including, without limitation, any financial
statements or schedules included therein, contained or shall contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading. Each of the balance
sheets (including the related notes) included in the Lazer SEC Reports fairly
presents and shall present the consolidated financial position of Lazer and its
subsidiaries as of the respective dates thereof, and the other related financial
statements (including the related notes) included therein fairly presented the
consolidated results of operations and changes in financial position of Lazer
and its subsidiaries for the respective periods indicated, except, in the case
of interim financial statements, for year-end audit adjustments, consisting only
of normal recurring accruals. Each of the financial statements (including the
related notes) included in the Lazer SEC Reports has been and shall have been
prepared in accordance with generally accepted accounting principles ('GAAP')
consistently applied during the periods involved, except as otherwise noted
therein or, in the case of the unaudited financial statements, as permitted by
the applicable rules and regulations of the SEC.
SECTION 3.06 Absence of Certain Changes. Except as contemplated herein or
set forth in Schedule 3.06, since December 31, 1994 neither Lazer nor its
subsidiaries (i) has taken any of the actions set forth in Sections 5.01(a)
through 5.01(c) and/or 5.01(e) through 5.01(l) or agreed to take any of such
actions, (ii) suffered a Material Adverse Effect or (iii) entered into any
transaction, or conducted its business or operations, other than in the ordinary
course of business and consistent with past practice.
SECTION 3.07 No Undisclosed Liabilities. Except as and to the extent
provided in Lazer's unaudited balance sheet as at December 31, 1994 and the
notes thereto (the 'Lazer Balance Sheet'), neither Lazer nor its subsidiaries
had at December 31, 1994 any liabilities absolute, accrued, unaccrued,
contingent or otherwise required by GAAP to be reflected on a consolidated
balance sheet of Lazer and its subsidiaries in excess of
8
$50,000 in the aggregate. Except as and to the extent set forth in Schedule
3.07, since December 31, 1994 neither Lazer nor its subsidiaries has incurred
any liabilities (absolute, accrued, contingent or otherwise) which are, in the
aggregate, material to the business, operations or financial condition of Lazer
and its subsidiaries taken as a whole, except liabilities (i) adequately
provided for in the Lazer Balance Sheet, (ii) incurred since December 31, 1994
in the ordinary course of business, (iii) consistent with past practice or (iv)
incurred in connection with this Agreement.
SECTION 3.08 No Default. Except as set forth in Schedule 3.08, neither
Lazer nor any of its subsidiaries is in default or violation (and no event has
occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (i) its Articles of
Incorporation or its By-laws, (ii) any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which Lazer or any of
its subsidiaries is a party or by which they or any of their properties or
assets may be bound or (iii) any order, writ, injunction, decree, statute, rule
or regulation applicable to Lazer or any of its subsidiaries, except in the case
of subclause (ii) or (iii) of this sentence for defaults or violations which
would not, in the aggregate, have a Material Adverse Effect and which would not
prevent or materially delay the consummation of the transactions contemplated
hereby.
SECTION 3.09 Litigation. Except as set forth in Schedule 3.09 or in the
Lazer SEC Reports, there is no suit, action or proceeding pending or, to the
knowledge of Lazer, any investigation pending or any suit, action, proceeding or
investigation threatened against, involving or affecting Lazer or its officers
and directors in such capacities, any of its subsidiaries, or any of its or
their respective properties or rights seeking equitable relief or claiming
damages in excess of $250,000, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Lazer or its officers and
directors in such capacities, or any of its subsidiaries, which does or might
reasonably be expected to (i) result in the modification, termination,
suspension, impairment or reformation of any contract to which Lazer or any of
its subsidiaries is a party, which modification, termination, suspension,
impairment or reformation would have a Material Adverse Effect; (ii) materially
adversely affect the manner in which Lazer conducts its business; (iii) affect
the ability of Lazer or Acclaim to consummate any of the transactions
contemplated hereby; or (iv) have a Material Adverse Effect. Except as set forth
in Schedule 3.09, there is no suit, action or proceeding pending by Lazer
against any third party.
SECTION 3.10 Compliance with Applicable Law. The businesses of Lazer and
its subsidiaries are not being conducted in violation of any applicable law,
ordinance, rule, regulation, decree or order of any Governmental Entity, except
for violations which, in the aggregate, do not and would not reasonably be
expected to have a Material Adverse Effect. Lazer and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the 'Lazer Permits'), except for failures to hold such Lazer Permits
which would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect. Lazer and its subsidiaries are in compliance with the terms of
the Lazer Permits, except where the failure so to comply would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 3.11 Taxes. Lazer and each of its subsidiaries have duly and
timely filed all material federal, state, local and foreign tax returns required
to be filed by it, and except for Taxes (as hereinafter defined) not in excess
of $100,000, Lazer has duly and timely paid, caused to be paid or made adequate
provision for the payment of all Taxes required to be paid in respect of the
periods covered by such returns, except such as are being contested in good
faith by appropriate proceedings or otherwise and/or as described on Schedule
3.11 hereto, and has made adequate provision for payment of all Taxes
anticipated to be payable in respect of all periods since the periods covered by
such returns. Except as disclosed in Schedule 3.11 and except for taxes not in
excess of $100,000, Lazer and each of its subsidiaries have fully collected,
withheld and/or paid over all Taxes required to be collected, withheld and/or
paid over to a taxing authority. Except as disclosed in Schedule 3.11, all
deficiencies and assessments asserted as a result of any examinations or other
audits by federal, state, local or foreign taxing authorities have been paid,
fully settled or adequately provided for in the financial statements contained
in the Lazer SEC Reports, and no issue or claim has been asserted for Taxes by
any taxing authority for any prior period, the adverse determination of which
would result in a deficiency which would have a Material Adverse Effect, other
than those heretofore paid or provided for. Except as set forth in Schedule
3.11, there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any federal, state,
9
local or foreign tax return of Lazer or its subsidiaries. Except as set forth in
Schedule 3.11, neither Lazer nor any of its subsidiaries has filed any consent
under Section 341(f) of the Code (or any corresponding provision of state, local
or foreign tax law), is a party to any agreement, contract or arrangement
providing for the allocation or sharing of any Taxes or providing for a
contractual or other obligation to indemnify or reimburse any other person or
entity with respect to any Taxes, or is a party to any agreement, contract or
arrangement that would result, separately or in the aggregate, in the payment of
any 'excess parachute payment' within the meaning of Section 280G of the Code.
Neither the Merger nor any other transaction contemplated by this Agreement will
result in any payment or series of payments by Lazer, Acclaim or any
subsidiaries of either that will constitute a parachute payment within the
meaning of Section 280G of the Code. For purposes of this Agreement, 'Taxes'
shall mean any and all taxes, fees, levies, duties, charges or other assessments
imposed by any federal, state, county, local or foreign government, taxing
authority, subdivision or agency thereof, including interest, penalties,
additions to tax or additional amounts relating thereto.
SECTION 3.12 Employee Benefit Plans; ERISA. (a) The name of each plan,
program, arrangement, agreement or commitment sponsored or maintained by or on
behalf of Lazer or any ERISA Affiliate or to which Lazer or any ERISA Affiliate
makes or is obligated to make contributions or to which Lazer or any ERISA
Affiliate made or was obligated to make contributions during the five (5) year
period ending on the date hereof, which is a pension, profit sharing, savings,
thrift or other retirement plan (including, without limitation, each 'employee
pension benefit plan' as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ('ERISA')), deferred compensation, stock
purchase, stock option, performance share, bonus or other incentive plan,
severance pay plan, policy or procedure, life, health, disability or accident
insurance plan (including, without limitation, each 'employee welfare benefit
plan' as defined in Section 3(1) of ERISA) or vacation or other employee benefit
plan, program, arrangement, agreement or commitment, whether or not written (all
of the foregoing being hereinafter referred to individually as a 'Plan' and
collectively as the 'Plans'), is set forth on Schedule 3.12(a) hereto. Except as
set forth in Schedule 3.12(a), Lazer and each of its ERISA Affiliates have
complied with all of the provisions of each such Plan and all applicable
provisions of ERISA and the Code, have administered each such Plan (including
the payment of benefits thereunder) in accordance with the provisions of each
such Plan and all applicable provisions of ERISA and the Code and have timely
made all required contributions thereto.
(b) Copies of the two most recent annual reports (Form 5500, including, if
applicable, Schedule B thereto) prepared in connection with each Plan with
respect to which such a report is required have been delivered to Acclaim. All
Plans which individually or collectively would constitute an 'employee pension
benefit plan,' as defined in Section 3(2) of ERISA (collectively, the 'Lazer
Pension Plans'), are identified as such in Schedule 3.12(b). All contributions
due from Lazer or any ERISA Affiliate with respect to any of the Plans have been
made as required under ERISA or have been accrued on Lazer's or any such ERISA
Affiliate's financial statements as of March 31, 1995. Each Plan has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations, including, without
limitation, ERISA and the Code, which are applicable to such Plans, except as
would not have a Material Adverse Effect.
(c) No Lazer Pension Plan constitutes, or has since the enactment of ERISA
constituted, a 'multiemployer plan,' as defined in Section 3(37) or 4001(a)(3)
of ERISA. Lazer or any ERISA Affiliate does not maintain or contribute to and
during the last five years has not maintained or contributed to a Lazer Pension
Plan which is subject to the provisions of Title IV of ERISA and does not have
any liability with respect to any Lazer Pension Plan which is subject to the
provisions of Title IV of ERISA. No Lazer Pension Plans are subject to Title IV
of ERISA. No 'prohibited transaction', as defined in Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any Plan which is covered
by Title I of ERISA, which would result in any material liability to Lazer and
its ERISA Affiliates taken as a whole, excluding transactions effected pursuant
to a statutory or administrative exemption. Nothing done or omitted to be done
and no transaction or holding of any asset under or in connection with any Plan
has or will make Lazer or any officer or director of Lazer subject to any
material liability under Title I of ERISA or liable for any material Tax or
penalty pursuant to Section 4972, 4975, 4976 or 4979 of the Code or Section 502
of ERISA.
(d) With respect to each Lazer Pension Plan that is intended to be
qualified under Section 401(a) of the Code (a 'Lazer 401(a) Plan'), either (A) a
favorable determination letter has been received from the (Internal Revenue
Service) (the 'IRS') as to such qualification under the Code as in effect
immediately after the Tax Reform Act
10
of 1986 or (B) an application for a favorable determination letter is pending or
will be duly filed with the IRS prior to the expiration of the time within which
retroactive amendment relating back to the effective date of such plan may be
made under Section 401(b) of the Code and regulations or IRS pronouncements
thereunder, and there is no reason to believe that any favorable determination
letter will not be received and that no amendments will be required in order to
receive the same which will result in a material cost increase thereto. Lazer
has delivered to Acclaim or its counsel a complete and correct copy of the most
recent IRS determination letter with respect to each Lazer 401(a) Plan.
(e) Lazer or, if applicable, any ERISA Affiliate, is entitled to cease its
participation in each Plan referred to in this Section 3.12 without default,
penalty, premium or any additional cost to Lazer in excess of $100,000 in the
aggregate and each such Plan, by its provisions, permits Lazer or, if
applicable, any ERISA Affiliate, to amend or terminate, in whole or in part,
each Plan referred to in this Section 3.12 without default, penalty, premium or
any additional cost to Lazer in excess of $100,000.
(f) The consummation of the transactions contemplated by this Agreement
will not, except as disclosed in Schedule 3.12(f) hereto, result in or entitle
any employee or former employee (or any other person) of Lazer or any ERISA
Affiliate (including any such person who becomes an employee of Acclaim or
Holdings) to severance pay, or any other payment becoming due from Lazer or any
ERISA Affiliate.
(g) Except as set forth in Schedule 3.12(g) hereto, with respect to each
Plan which is an 'employee welfare benefit plan' within the meaning of Section
3(1) of ERISA (a 'Welfare Plan'): (i) the applicable requirements of Part III of
Subchapter B of Chapter 1 of the Code are satisfied if benefits under such
Welfare Plan are intended to qualify for tax-favored treatment; and (ii) each
such Welfare Plan which is a group health plan within the meaning of Section
4980B of the Code is in compliance with the applicable requirements of Section
4980B of the Code and Sections 601 through 608 of ERISA.
(h) There are no leased employees within the meaning of Section 414(n) of
the Code who perform services for Lazer or any ERISA Affiliate.
(i) No Plan is funded by a trust described in Section 501(c)(9) of the
Code.
(j) Lazer is not a member of an affiliated service group within the meaning
of Section 414(m) of the Code.
(k) Schedule 3.12(k) hereto sets forth the aggregate of the annual employer
contributions and other direct expenses (which expenses are equal to or in
excess of $9,000 with respect to any Plan) paid by Lazer in connection with each
Plan for each of the last three plan years of such Plan.
(l) Except as set forth in Schedule 3.12(l), all reports and other
information required under ERISA or any other applicable law or regulation to be
filed by Lazer or any ERISA Affiliate, or, with respect to a Plan, the
administrator (as defined in Section 3(16) of ERISA) thereof or any other person
on or prior to the date hereof or on or prior to the Closing Date with the
relevant Governmental Body and/or distributed or made available to any Plan
participant and beneficiary (including 'alternate payees', as defined in Section
206(d)(3)(K) of ERISA), as the case may be, have been timely filed, distributed
or made available in accordance with ERISA or such other applicable law or
regulation, as the case may be, and all such reports and other information are,
and at the Closing Date will be, as the case may be, true and correct in all
material respects as of the date given and no penalties under ERISA or any other
applicable law or regulation are and at the Closing Date will be owed to any
Plan participant and/or beneficiary and/or any Governmental Body with respect to
the failure to file any such reports or to distribute or make available any such
reports or other information.
(m) None of the Plans is under investigation or audit by either the United
States Department of Labor or the Internal Revenue Service.
(n) None of the Plans provides any benefits including, without limitation,
life insurance or medical benefits (whether or not insured) with respect to any
current or former employee of Lazer or any ERISA Affiliate beyond their
retirement or other termination of service other than (i) coverage mandated by
Sections 601-608 of ERISA or any other applicable law or (ii) disability
benefits under any Welfare Plan that have been fully provided for by insurance
or otherwise.
11
(o) There has been delivered to Acclaim with respect to each Plan set forth
in Schedule 3.12(a) a copy of the Plan, and where required, a copy of the
summary plan description, together with each Summary of Material Modifications
required under ERISA with respect to such Plan and all material employee
communications relating to such Plan.
(p) For purposes of this Section 3.12, the term 'ERISA Affiliate' shall
mean all members of a controlled group of corporations and all trades and
businesses (whether or not incorporated) under common control and all other
entities which, together with Lazer are treated as a single employer under any
or all of Section 414(b), (c), (m), (n) or (o) of the Code at any time during
the period of ten (10) years ending on the Closing Date. Lazer has no ERISA
Affiliates other than Lazer Tron Limited.
SECTION 3.13 Intellectual Property. Schedule 3.13 hereto is a complete
list of the trademarks, trade names, patents, copyrights, fictitious business
names, service marks and pending applications therefor that are owned by Lazer
and a complete list of the trademarks, trade names, patents, copyrights,
fictitious business names, service marks and pending applications therefor that
are used by Lazer or which Lazer has the right or license to use. The
trademarks, trade names, patents, copyrights, fictitious business names, service
marks and pending applications appearing on Schedule 3.13 hereto, together with
any other trademarks, trade names, patents, copyrights, fictitious business
names and service marks owned, used or licensed by Lazer, are collectively
herein referred to as the 'Proprietary Rights'. Prior to using a name for any
game held out for sale or lease, Lazer performs a search under both United
States and common law seeking to determine whether, based on such search, it is
reasonable to use such name or mark in the manner in which Lazer believes its
intended use will not infringe any other third parties' rights therein, whether
statutory or common law rights of such third parties (including, without
limitation, trademark and the rights of privacy and publicity). Except as
disclosed on Schedule 3.13, Lazer owns and/or has the right or license to use
each of the Proprietary Rights for the categories of goods and services to the
extent that each such Proprietary Right is currently being used. Except as
disclosed on Schedule 3.13 hereto, (i) Lazer is not bound by or a party to any
options, licenses, or material agreements of any kind with respect to the
Proprietary Rights and (ii) has not assigned, licensed or in any manner
encumbered or materially impaired any rights in the Proprietary Rights. As used
solely in this Section 3.13, 'material' or 'materially' refers to a state of
facts which, if present, would restrict, impair, diminish or adversely affect
Lazer's ability to use any or all of the Proprietary Rights in the manner
presently used by Lazer or would result in the loss of a significant economic
benefit presently received or receivable by Lazer from or in respect of such
Proprietary Right. To Lazer's knowledge, the Proprietary Rights owned or used by
Lazer are free and clear of all mortgages, charges, pledges, liens, security
interests, claims or encumbrances (hereinafter 'Liens'), of any kind or nature.
Except as disclosed on Schedule 3.09 hereto, no Proprietary Right owned or used
by Lazer to Lazer's knowledge infringes or violates any personal, property,
statutory or common law or any other rights of any third parties (including,
without limitation, copyright, trademark and the rights of privacy and
publicity) and no claim alleging any such infringement or violation has been
received by Lazer. Except as disclosed in Schedule 3.09 hereto, no unresolved
claims or notices to Lazer's knowledge have been asserted or given during the
past three years by any person challenging the use by Lazer of any of the
Proprietary Rights or challenging or questioning the validity, enforceability or
effectiveness of or the title of Lazer or any of its subsidiaries to any of the
Proprietary Rights or any agreement relating thereto nor is there any action,
suit, investigation or proceeding by or before any court or other governmental
entity reasonably likely to materially adversely affect the validity or
enforceability of or impair the title or right of Lazer or any of its
subsidiaries to use any of the Proprietary Rights owned or used by Lazer or any
of its subsidiaries. Except as disclosed on Schedule 3.09 or 3.13 hereto, (i)
Lazer has not been informed of any claims or suits pending or threatened against
Lazer that relate to the business of Lazer claiming an infringement by Lazer of
any patents, licenses, trademarks, service marks or trade names of others and
Lazer has not to Lazer's knowledge infringed any Proprietary Rights of any third
party under any personal, property, statutory or common law or any other rights
of third parties, and (ii) Lazer has not commenced any claims or suits or
threatened any claims or suits relating to Lazer's business, claiming an
infringement by a third party of any patents, licenses, trademarks, service
marks or trade names of Lazer and, to Lazer's knowledge, no third party is
infringing any of Lazer's Proprietary Rights. All such Proprietary Rights are
not breached or terminated as a result of the Merger and the transactions
contemplated hereby.
SECTION 3.14 Pooling Matters. Except as set forth in Schedule 3.14,
neither Lazer nor any of its affiliates has taken or agreed to take, nor will
any of them take, any action (other than any action taken or agreed to be
12
taken as expressly provided herein or as requested in writing by Acclaim in
connection with the transactions contemplated hereby) that would adversely
affect the ability of Acclaim to account for the business combination to be
effected by the Merger as a Pooling under and in accordance with the applicable
provisions of GAAP including without limitation APB 16.
SECTION 3.15 Change in Control. Except as set forth in Schedule 3.15,
neither Lazer nor any of its subsidiaries is a party to any contract, agreement
or understanding which contains a 'change in control,' 'potential change in
control' or similar provision.
SECTION 3.16 Employees and Other Matters. Schedule 3.16 hereto is a
correct and complete list of (i) the directors and officers of Lazer and
independent contractors regularly employed by Lazer and not otherwise identified
in the Schedules hereto, together with a statement of the full amount payable by
way of salary, bonuses perquisites and other direct or indirect compensation to
each such person; (ii) the name of each bank in which Lazer has an account or
safety deposit box; and (iii) the names of all persons, if any, holding
currently effective powers of attorney from Lazer and a summary statement of the
terms thereof. With respect to each officer and director listed in Schedule 3.16
hereto, a copy of any existing employment contract has been made available to
Acclaim.
SECTION 3.17 Labor Disputes. (a) Lazer is not a party to any collective
bargaining agreements, whether or not expired. There are no labor unions or
other organizations representing or, to Lazer's knowledge, purporting to
represent or attempting to represent any employee of Lazer.
(b) Lazer has not violated any provision of federal or state law or any
governmental rule or regulation, or any order, ruling, decree, judgment or
arbitration award of any court, arbitrator or any government agency regarding
the terms and conditions of employment of employees, former employees or,
without limitation, laws, rules, regulations, orders, rulings, decrees,
judgments and awards relating to discrimination (including, without limitation,
discrimination on the basis of age, sex, race or religion), fair labor standards
and occupational health and safety, wrongful discharge or violation of the
person rights of employees, former employees or prospective employees or state
temporary disability laws, rules or regulations, except where such failure would
not have a Material Adverse Effect.
(c) There is no unfair labor practice charge or complaint pending or, to
Lazer's knowledge, threatened against Lazer before the National Labor Relations
Board or any State Labor Relations Board. There are no claims of discrimination
of any kind pending or, to Lazer's knowledge, threatened against Lazer before
any Governmental Body.
(d) There is no labor strike or dispute, slowdown, work stoppage, lockout,
disturbance, grievance, litigation or claim relating to labor matters involving
any employees, including, without limitation, violation of any federal, state or
local labor, safety or employment laws (domestic or foreign), charges of unfair
labor practices or discrimination complaints, pending or threatened against
Lazer.
(e) To Lazer's knowledge, Lazer does not have any liability to any or all
of its employees arising as a result of the Worker Adjustment and Retraining
Notification Act (29 U.S.C. Section 2101 et seq.).
SECTION 3.18 Contracts. (a) Schedule 3.18 hereto contains a complete and
correct list of all contracts, arrangements and agreements as in effect on the
date hereof (the 'Contracts') to which Lazer is a party, including evidences of
indebtedness, whether written or oral, purchase or sale agreements (other than
purchase and sales orders entered into in the ordinary course), agency or
advertising contracts, agreements with employees, sales representatives and
distributors, and agreements with factors, banks or other lending institutions,
(other than the Contracts listed in Schedules 3.16, 3.19 and 3.22 hereto),
except for any Contracts which are not reasonably expected to involve an
expenditure of more than $25,000 individually or more than $100,000 in the
aggregate from the date of this Agreement. A true and complete copy of each
written Contract has heretofore been made available to Acclaim. Except as
specifically identified on Schedule 3.18, Lazer has performed all of its
material obligations required to be performed by it, has paid all advances and
royalties required to be paid by it and is not in default in any material
respect under any Contract, and no event has occurred thereunder in each case
which, with the lapse of time or the giving of notice or both, would constitute
such a default and to Lazer's knowledge no other party to any Contract is in
default in any material respect thereunder. Each of the Contracts listed in
Schedule 3.18 hereto constitutes a valid, binding, enforceable and legal
obligation of Lazer in accordance with its
13
terms, except as such enforcement may be limited by bankruptcy and other laws
affecting the enforceability of creditors' rights generally or laws governing
the availability of specific performance or other equitable remedies, or other
restriction on the enforcement of securities indemnification and contribution
provisions imposed by public policy. Lazer has not received notice that any
other party to any of the Contracts is, and to the best of Lazer's knowledge
none of the other parties to such contracts is, in material default thereunder.
(b) Except as set forth on Schedule 3.18(b) hereto, none of the Contracts'
terms requires the consent or waiver of a third party in connection with the
transactions contemplated hereby.
SECTION 3.19 Suppliers and Customers. Schedule 3.19 hereto is a complete
and accurate list of all agreements, understandings and commitments in existence
as of the date of this Agreement with all suppliers of Lazer each of which
individually accounted for 5% or more of Lazer's invoiced amount from its
vendors and a complete and accurate list of all agreements, understandings and
commitments with all customers of Lazer each of which individually accounted for
5% or more of Lazer's net sales, respectively, during the immediately preceding
fiscal year of Lazer ended June 30, 1994, and for the eight months ended
February 28, 1995, respectively.
SECTION 3.20 Accounts Receivable. All accounts receivable reflected in the
Lazer Balance Sheet and on the books of Lazer at the date hereof do, and on the
date of the Closing Balance Sheet (as hereinafter defined) shall, represent
receivables which, net of reserves therein reflected (which reserves are in
accordance with the requirements of GAAP), are at December 31, 1994, the date
hereof and at the date of the Closing Balance Sheet, fully collectible and
subject to no counterclaims or set-offs.
SECTION 3.21 Financial Statements and Condition. (a) The audited balance
sheets of Lazer as of June 30, 1993 and 1994, and related statements of
operations, cash flows and shareholders' equity, including the notes thereto,
have been certified by Lazer's independent certified public accountants and
delivered to Acclaim. The Lazer Balance Sheet and the related financial
statements have been delivered to Acclaim. Such financial statements present
fairly, in all material respects, the financial position of Lazer as of June 30,
1992, 1993 and 1994 and December 31, 1994, respectively, and the results of
Lazer's operations, cash flows and shareholders' equity for each of the three
years in the three year period ended June 30, 1994 and the six month period
ended December 31, 1994, respectively, all in conformity with GAAP applied on a
consistent basis, except that the unaudited financial statements may not include
all notes required under GAAP.
(b) As of December 31, 1994, the Net Worth and Working Capital of Lazer
were $12,709,000 and $12,258,000, respectively, and Net Sales for the six month
period ended December 31, 1994 was $7,200,000. As at, or for the period ended
on, the last day of the month immediately preceding the month in which the
Closing Date occurs, as applicable, Net Worth, Working Capital and Net Sales
(calculated on a pro forma basis without deduction of any transaction expenses
and fees incurred by Lazer in connection with the Merger and the transactions
contemplated thereby up to an aggregate of $750,000) shall be as follows:
(i) as at, and with respect to Net Sales for the eleven months ended
May 31, 1995, at least $12,800,000, $12,400,000 and $12,900,000,
respectively if the Closing Date occurs in June 1995;
(ii) as at, and with respect to Net Sales for the twelve months ended
June 30, 1995, at least $12,900,000, $12,500,000 and $14,400,000,
respectively if the Closing Date occurs in July 1995; and
(iii) as at, and with respect to Net Sales for the thirteen months
ended July 31, 1995, at least $12,900,000, $12,500,000 and $15,400,000,
respectively if the Closing Date occurs in August 1995 or thereafter.
For purposes of this section, 'Net Worth' means the net book value of Total
Assets less Total Liabilities in each case in the manner calculated in the
December Balance Sheet. 'Working Capital' means Current Assets less Current
Liabilities in each case in the manner calculated in the December Balance Sheet.
Section 3.22 Real Property; Leases. (a) Schedule 3.22(a) hereto identifies
and describes each item of real property leased by Lazer or in which Lazer has
an interest (the 'Leased Property'). Lazer does not own any real property.
14
(b) Except as set forth in Schedule 3.22(b) hereto, each Leased Property is
subject to a lease agreement constituting valid, binding and enforceable
obligations of Lazer in accordance with its terms, except as such enforcement
may be limited by bankruptcy and other laws affecting the enforceability of
creditors' rights generally or laws governing the availability of specific
performance or other equitable remedies, or restrictions on the enforcement of
securities indemnification and contribution provisions imposed by public policy.
A true and complete copy of each such lease agreement has been made available to
Acclaim. Lazer has performed all material obligations required to be performed
by each such lease agreement, and no material default exists under any provision
thereof, nor has any event occurred thereunder which, with the lapse of time or
the giving of notice or both, would constitute a material default by Lazer
thereunder.
SECTION 3.23 Environmental Matters. (a) Except as set forth in Schedule
3.23(a) hereto (or in such cases which would not reasonably be expected to have
a Material Adverse Effect), (i) Lazer has obtained or caused to be obtained and
continues to maintain or cause the maintenance of permits, licenses, consents
and approvals (the 'Environmental Approvals') necessary for conducting the
business of Lazer which are required under Environmental Laws (as defined
below), and (ii) Lazer has not operated in violation of any Environmental Law or
the terms of any Environmental Approval.
(b) To Lazer's knowledge, except as set forth in Schedule 3.23(b) hereto
(or in such cases which would not reasonably be expected to have a Material
Adverse Effect), (i) Lazer has not used, stored, generated, discharged, emitted,
transported, disposed of or treated Hazardous Substances (as defined in Section
101 of CERCLA (as defined below)) except in the manner which complies with
Environmental Laws; (ii) to the knowledge of Lazer, after due inquiry, no prior
owner, occupant, tenant or user of the Leased Property or any Facility (as
defined in Section 101 of CERCLA) has ever used, stored, generated, discharged,
emitted, transported, disposed of or treated Hazardous Substances, at, on or
from the Leased Property or any Facility except in compliance with all
Environmental Laws; (iii) to the knowledge of Lazer, after due inquiry, there is
not, and there has not been, any release or threat of release (as those terms
are defined in Section 101 of CERCLA) of any Hazardous Substances at, or from
the Leased Property or any Facility, nor is there or has there been any
Environmental Condition (as defined below) relating to the Leased Property or
any Facility.
(c) Except as set forth on Schedule 3.23(c) hereto, Lazer has not received
written notice of any pending or threatened investigation, claims, enforcement
proceedings, citizen suits or other actions instituted by any private party,
employee or Governmental Body arising out of the conduct or the operations of
Lazer, in connection with any Environmental Laws, or as a result of any
Environmental Condition at the Leased Property or any Facility.
For purposes of this Agreement, 'Environmental Condition' shall mean any
condition with respect to the Environment on or off the Leased Property or any
Facility, whether or not yet discovered, which could or does result in any
damage, loss, cost, expense, claim, demand, order, or liability to or against
Lazer or Acclaim by any third party (including, without limitation, any
government entity), including, without limitation, any condition resulting from
the operation of Lazer's business and/or the operation of the business of any
other property owner or operator in the vicinity of the Leased Property or any
Facility and/or any activity or operation formerly conducted by any person or
entity on or off the Leased Property or any Facility.
For purposes of this Agreement, 'Environmental Laws' shall mean (a) the
Resource Conservation and Recovery Act, as amended, the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended ('CERCLA'),
the Federal Clean Water Act, as amended, or any other federal, state, or local
law, regulation, ordinance, rule, guideline or by-law regulating Hazardous
Substances or the Environment, whether existing as of the date hereof,
previously enforced, or subsequently enacted; (b) any present or previously
enforced law, ordinance, regulation, rule, guideline or by-law of any federal,
state, local, administrative agency, or any other governmental or
quasi-governmental entity or authority that asserts or may assert jurisdiction
over the Leased Property or any Facility or the operations or activity at the
Leased Property or any Facility, that regulates the presence, release, threat of
release, use, handling, manufacturing, generation, production, storage,
treatment, processing, transportation or disposal of any Hazardous Substances,
including, but not limited to (i) requiring any permit, license, approval,
consent or authorization, or the renewal thereof; (ii) regulating the amount,
form, manner of storage, transport and/or disposal of Hazardous Substances; or
(iii) requiring any reporting, inspection report, business plan, notification,
or any other dissemination of or access to information
15
regarding Hazardous Substances, including warnings or notices to tenants,
subtenants, employees, occupants, invitees or consumers.
SECTION 3.24 Personal Property and Inventories. (a) Except as set forth in
Schedule 3.24(a) hereto and except for Liens (i) for any current taxes or
assessments not yet delinquent, (ii) reflected on the Lazer Balance Sheet, (iii)
which do not materially detract from the value, or interfere with the present
use of, Lazer's personal property or (iv) created by statute of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due, Lazer has good and marketable title,
free and clear of all Liens, to all of the personal property reflected on the
Lazer Balance Sheet and all personal property acquired since that date, except
such personal property as has been disposed of in the ordinary course of
business since such date.
(b) All inventories reflected on the Lazer Balance Sheet other than those
previously sold are, and all inventories reflected on the Closing Balance Sheet
(as hereinafter defined) shall be, as of the respective dates thereof,
merchantable, containing no amount of obsolete or damaged goods which have not
been written down or reserved in conformity with GAAP. Such inventories are
located at the location(s) set forth in Schedule 3.24(b) hereto.
(c) The inventory reflected on the Lazer Balance Sheet shall be the
inventory owned by Lazer as of the Closing Date, except for inventory items
acquired, distributed or disposed of in the ordinary course of business.
(d) Cash appearing on the Lazer Balance Sheet is at the date hereof, and
until the Closing Date shall be, invested in investment grade money market
accounts and short term federal government securities other than amounts held in
checking and payroll accounts in accordance and in amounts consistent with past
practice.
SECTION 3.25 Insurance. (a) Lazer has adequate insurance coverage for the
assets and operations of its business which is of the type and in the amounts
customarily carried by persons conducting businesses similar to that of Lazer;
(b) Schedule 3.25 hereto is a complete and correct list of all policies of
insurance carried by Lazer or pursuant to which Lazer is a named beneficiary or
pursuant to which the business or properties of Lazer are insured and true and
complete copies of which have been provided to Acclaim; (c) on the date hereof,
all of such policies are in full force and effect; (d) all premiums due and
payable in respect of such policies have been paid in full; and (e) there exists
no default or other circumstance which would create the substantial likelihood
of the cancellation or non-renewal of any such policy. Lazer has notified such
insurers of any claim know to Lazer which it believes is covered by any such
insurance policy and has provided Acclaim with a copy of such claim.
SECTION 3.26 [Intentionally omitted]
SECTION 3.27 Affiliates. (a) Schedule 3.27(a) sets forth as of the date
hereof the names of each Principal set forth on Schedule 1A, each officer and
director of Lazer and each 'affiliate' (as such term is defined in the 1933 Act)
of Lazer as set forth on Schedule 1C (each a 'Lazer Affiliate' and collectively
the 'Lazer Affiliates'). Concurrently with the execution hereof, each Lazer
Affiliate has entered into an agreement in the form attached as Exhibit A hereto
as applicable (the 'Lazer Affiliate Agreements').
(b) Other than the persons listed on Schedule 3.27(a) and other than any
person who becomes a 10% shareholder of Lazer subsequent to the date hereof
(other than the Kelly Family Trust or 1992 Kelly Family Trust, or any person so
listed on Schedule 3.27(a)), there shall not be as of the Closing Date, any
other persons who could be included as Lazer Affiliates as defined in Section
3.27(a) who shall not have entered into a Lazer Affiliate Agreement.
(c) Neither Lazer nor any of the Lazer Affiliates has taken or agreed to
take, nor will any of them take any action (other than any action taken or
agreed to be taken as expressly provided herein or as requested in writing by
Acclaim in connection with the transactions contemplated hereby) that would
already affect the ability of Acclaim to account for the business combination to
be effected by the Merger as a Pooling under and in accordance with the
applicable provisions of GAAP including, without limitation, APB 16.
SECTION 3.28 Indemnification. Except as set forth on Schedule 3.28 no
indemnification or similar arrangements exist provided by Lazer for officers or
directors of Lazer except as provided by applicable California statute, the
Certificate of Incorporation or the By-laws of Lazer.
16
SECTION 3.29 Brokers or Finders. Except as set forth on Schedule 3.29
Lazer, its subsidiaries and its affiliates, represent that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
payable by Lazer or any of its affiliates or subsidiaries in connection with any
of the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACCLAIM AND HOLDINGS
Acclaim and Holdings, jointly and severally, represent and warrant to Lazer
that:
SECTION 4.01 Organization and Good Standing. Each of Acclaim and Holdings
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, operate or lease all of its properties and assets and carry on
its business as it is now being conducted.
SECTION 4.02 Foreign Qualification. Acclaim is duly licensed or qualified
to do business as a foreign corporation and is in good standing in the State of
New York. The property and assets owned, operated or leased by Acclaim or the
nature or conduct of its business as it is now being conducted do not make
qualification or licensing necessary in any other jurisdiction except for those
jurisdictions where Acclaim's failure to become so qualified or licensed and in
good standing would not affect materially and adversely the business, assets or
financial condition of Acclaim.
SECTION 4.03 Capitalization of Acclaim and Holdings. (a) At the date
hereof, the authorized capital stock of Acclaim consists of (i) 100,000,000
shares of Acclaim Common Stock and (ii) 1,000,000 shares of Preferred Stock, par
value $.01 per share (the 'Acclaim Preferred Stock'), of which 200,000 shares
have been designated 'Series A Preferred Stock.' As of the close of business on
February 28, 1995: (i) 44,487,046 shares of Acclaim Common Stock were issued and
outstanding, 15,065,573 shares of Acclaim Common Stock were reserved for
issuance upon exercise of outstanding stock options and warrants and under the
Acclaim 1988 Stock Option Plan, 272,727 shares of Acclaim Common Stock were held
by Acclaim in its treasury and no shares of Acclaim Common Stock were held by
any subsidiary of Acclaim; and (ii) no shares of Acclaim Preferred Stock were
issued or outstanding or held by Acclaim in its treasury or by any subsidiary of
Acclaim. All of the issued and outstanding shares of Holdings are owned by
Acclaim and there are not any outstanding or authorized subscriptions, options,
warrants, calls, rights, commitments or any other agreements of any character to
or by which Holdings is a party or is bound. Except as set forth in the Acclaim
SEC Reports (as hereinafter defined) or in this Section 4.03, there are not as
of the date hereof any outstanding or authorized subscriptions, options,
warrants, calls, rights, commitments or any other agreements of any character to
or by which Acclaim or any of its subsidiaries is a party or is bound which,
directly or indirectly, obligate Acclaim or any of it subsidiaries to issue,
deliver or sell or cause to be issued, delivered or sold any shares of Acclaim
Common Stock or Acclaim Preferred Stock or any other capital stock or equity
interest of Acclaim or any securities convertible into, or exercisable or
exchangeable for, or evidencing the right to subscribe for any such shares or
interests or obligating Acclaim or any of its subsidiaries to grant, extend or
enter into any such subscription, option, warrant, call or right. All of the
issued and outstanding shares of capital stock of Acclaim and each corporate
subsidiary of Acclaim have been duly authorized and are validly issued, fully
paid and nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof.
SECTION 4.04 Authority Relative to Agreement. Each of Acclaim and Holdings
has the corporate power and authority to execute and deliver this Agreement and
all other documents hereby contemplated, and to consummate, subject to Article
VI hereof, the transactions hereby and thereby contemplated and to take all
other actions required to be taken by it pursuant to the provisions hereof and
thereof. The execution, delivery and, subject to Article VI hereof, performance
of this Agreement and all other documents hereby contemplated to be executed by
Acclaim and Holdings and, subject to Article VI hereof, the consummation by
Acclaim and Holdings of the transactions hereby contemplated have been, duly and
validly authorized by any and all necessary corporate action of Acclaim and
Holdings. This Agreement and all other documents hereby contemplated to be
executed by Acclaim and Holdings constitute legal, valid and binding obligations
of Acclaim and Holdings, respectively, enforceable in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy and
other laws affecting the enforceability of creditors' rights generally or laws
17
governing the availability of specific performance or other equitable remedies,
or restrictions on the enforcement of securities indemnification and
contribution provisions imposed by public policy. The issuance by Acclaim of
shares of Acclaim Common Stock in payment of the Merger Consideration for the
Merger does not require any further corporate action and will not be subject to
preemptive rights or other preferential rights of any present or future
stockholders of Acclaim and, at the Effective Time, the shares of Acclaim Common
Stock, if any, to be issued to Lazer in connection with the Merger will be duly
authorized, validly issued, fully paid and non-assessable with no personal
liability attaching to the ownership thereof. The options and warrants to be
substituted by Acclaim for the Stock Options and Warrants (and the warrants
received upon exercise of the Sales Agent Warrants) pursuant to Section 1.06
hereof have been duly authorized and when issued and delivered in connection
with the Merger will have been duly issued and delivered and will constitute
valid and legally binding obligations of Acclaim enforceable in accordance with
their terms. The shares of Acclaim Common Stock issuable upon exercise of the
options and warrants so substituted (and upon exercise of the warrants received
upon exercise of the Sales Agent Warrants) have been reserved and authorized for
issuance and, when issued in accordance with the terms of such options and
warrants, will be duly authorized, validly issued, fully paid and non-assessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof.
SECTION 4.05 No Violation of Other Instruments or Obligations. Neither the
execution and delivery by Acclaim and Holdings of this Agreement and all other
documents hereby or thereby contemplated nor the consummation by Acclaim and
Holdings of the transactions hereby and thereby contemplated nor compliance by
Acclaim and Holdings with any of the provisions hereof shall (i) constitute any
violation or breach of the respective Certificates of Incorporation or By-laws
of Acclaim or Holdings; (ii) except as listed in Schedule 4.05 hereto,
constitute (with or without due notice or lapse of time or both) a default under
or a violation or breach of, or result in acceleration of any obligation or give
rise to any right of termination, cancellation or result in the creation of any
lien under, any provision of any contract, lease, mortgage or other instrument
or obligation to which either Acclaim or Holdings is a party or by which either
of its properties or assets may be bound, which default, breach or acceleration
has not been waived; (iii) violate any judgment, order, writ, injunction,
decree, statute, rule or regulation affecting Acclaim or any of its assets or
Holdings or any of its assets; (iv) except as listed in Schedule 4.05 hereto,
result in the creation of any Lien on any of the assets or properties of Acclaim
or Holdings; or (v) result in the termination of any license, franchise, lease
or permit to which Acclaim or Holdings is a party or by which each is bound,
except in the case of those items specified in clause (ii), (iii), (iv) or (v)
above, which would not, individually or in the aggregate, limit or delay either
Acclaim's or Holdings' ability to consummate the transactions hereby
contemplated or have a Material Adverse Effect on either Acclaim or Holdings.
'Material Adverse Effect' means, with respect to Acclaim and Holdings, any event
that could have a material adverse effect on the business, assets, results of
operations or financial condition of Acclaim and its consolidated subsidiaries,
treated in the aggregate including without limitation the termination or
suspension of Acclaim's relationship with either Nintendo of America, Inc. or
Sega Enterprises Ltd.; provided that a Material Adverse Effect shall not include
any effect that results from general economic conditions affecting the comic
book, the interactive entertainment, software distribution, publishing or
development; or video game industries within which Acclaim conducts its
business.
SECTION 4.06 Consents and Approvals. Except for applicable requirements of
the 1933 Act, the 1934 Act, state Blue Sky laws, the HSR Act, the filing and
recordation of the Certificate of Merger, as required by the DGCL, the
California Certificate as required by the CGCL, appropriate documents with the
relevant authorities of States in which Acclaim or Holdings is qualified to do
business, and such filings, authorizations, orders and approvals as may be
required under State 'control share acquisition', 'antitrust' or other similar
states or regulations, and such filings, authorizations, orders and approvals as
may be required under foreign laws and NASD Bylaws, or as set forth in Schedule
4.06 hereto, no filing with, and no permit, authorization, consent or approval
of, any Government Entity, or of any third party, is necessary for the entering
into and/or consummation by Acclaim or Holdings of the transactions contemplated
by this Agreement.
SECTION 4.07 Public Reports. Acclaim has and, at the Effective Time will
have, filed all required forms, reports and documents with the SEC since August
31, 1992, (collectively, the 'Acclaim SEC Reports') all of which have and shall
have complied in all material respects with all applicable requirements of the
1933 Act and 1934 Act, and Acclaim is current in all of its required filings
under the 1934 Act. Except as disclosed in Schedule 4.07, as of their respective
dates of filing in final or definitive form (or, if amended or superseded by a
18
subsequent filing, then on the date of such subsequent filing), none of the
Acclaim SEC Reports, including, without limitation, any financial statements or
schedules included therein, contained or shall have contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading. Each of the balance
sheets (including the related notes) included in the Acclaim SEC Reports fairly
presents the consolidated financial position of Acclaim and its subsidiaries as
of the respective dates thereof, and the other related financial statements
(including the related notes) included therein fairly presented the consolidated
results of operations and changes in financial position of Acclaim and its
subsidiaries for the respective periods indicated, except, in the case of
interim financial statements, for year-end audit adjustments, consisting only of
normal recurring accruals. Each of the financial statements (including the
related notes) included in the Acclaim SEC Reports has been prepared in
accordance with GAAP consistently applied during the periods involved, except as
otherwise noted therein.
SECTION 4.08 No Material Adverse Effect. Except as disclosed in Schedule
4.08 or as otherwise permitted hereunder, since November 30, 1994, there has not
occurred any event which has resulted in the occurrence of (a) any Material
Adverse Effect on Acclaim or Holdings, or (b) any damage, destruction or loss,
whether or not covered by insurance, which would have a Material Adverse Effect
on Acclaim or Holdings.
SECTION 4.09 Holdings. Holdings will not conduct any business or have any
liabilities other than those hereunder nor will it have any operating assets
except as contemplated hereby and Acclaim will have good and valid title to all
of the issued and outstanding shares of Holdings.
SECTION 4.10 Finder's Fees. Acclaim, Holdings and their respective
affiliates and subsidiaries have not incurred any liability for finder's or
brokerage fees or agent's commissions in connection with this Agreement or the
transactions hereby contemplated.
SECTION 4.11 No Undisclosed Liabilities. Except as and to the extent
provided in Acclaim's unaudited balance sheet as at November 30, 1994 and the
notes thereto (the 'Acclaim Balance Sheet'), neither Acclaim nor its
subsidiaries had at November 30, 1994 any liabilities, absolute, accrued,
unaccrued contingent or otherwise, which were in the aggregate, material to the
business, operations or financial condition of Acclaim and its subsidiaries
taken as a whole, and which were required by GAAP to be reflected on a
consolidated balance sheet of Acclaim and its subsidiaries. Except as and to the
extent set forth in Schedule 4.11, as of the date hereof since November 30, 1994
neither Acclaim nor its subsidiaries has incurred any liabilities (absolute,
accrued, contingent or otherwise) which are, in the aggregate, material to the
business, operations or financial condition of Acclaim and its subsidiaries
taken as a whole, except liabilities (i) adequately provided for in the Acclaim
Balance Sheet, (ii) incurred since November 30, 1994 in the ordinary course of
business, (iii) consistent with past practice or (iv) incurred in connection
with this Agreement.
SECTION 4.12 No Default. Except as set forth in Schedule 4.12, neither
Acclaim nor any of its subsidiaries is in default or violation (and no event has
occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (i) its Certificate
of Incorporation or its By-laws, (ii) any note, bond, mortgage, indenture,
license, contract, agreement or other instrument or obligation to which Acclaim
or any of its subsidiaries is a party or by which they or any of their
properties or assets may be bound or (iii) any order, writ, injunction, decree,
statute, rule or regulation applicable to Acclaim or any of its subsidiaries,
except in the case of subclause (ii) or (iii) for defaults or violations which
would not, in the aggregate, have a Material Adverse Effect and which would not
prevent or materially delay the consummation of the transactions contemplated
hereby.
SECTION 4.13 Litigation. Except as set forth in Schedule 4.13 or in the
Acclaim SEC Reports, there is no suit, action or proceeding pending or, to the
knowledge of Acclaim, any investigation pending or any suit, action, proceeding
or investigation threatened against, involving or affecting Acclaim or its
officers and directors in such capacities, any of its subsidiaries, or any of
its or their respective properties or rights seeking equitable relief, nor is
there any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Acclaim or its officers and directors in such capacities, or any of its
subsidiaries, which does or might reasonably be expected to (i) result in the
modification, termination, suspension, impairment or reformation of any contract
to which Acclaim or any of its subsidiaries is a party, which modification,
termination, suspension, impairment or reformation would have a Material Adverse
19
Effect; (ii) materially adversely affect the manner in which Acclaim conducts
its business; (iii) adversely affect the ability of Lazer or Acclaim to
consummate any of the transactions contemplated hereby; or (iv) have a Material
Adverse Effect.
SECTION 4.14 Compliance with Applicable Law. To Acclaim's knowledge, the
business of Acclaim and its subsidiaries are not being conducted in violation of
any applicable law, ordinance, rule, regulation, decree or order of any
Governmental Entity, except for violations which, in the aggregate, do not and
would not reasonably be expected to have a Material Adverse Effect. Acclaim and
its subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the 'Acclaim Permits'), except for failures to hold such
Acclaim Permits which would not, in the aggregate, have a Material Adverse
Effect. Acclaim and its subsidiaries are in compliance with the terms of the
Acclaim Permits, except where the failure so to comply would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 4.15 [Intentionally Omitted.]
SECTION 4.16 Operation of the Surviving Corporation. Immediately following
the Effective Time, the Surviving Corporation will continue to operate the prior
Lazer business as a separate subsidiary of Acclaim. Acclaim represents that it
has no current plans or intentions following the Effective Time to (i)
materially change the operations or location of operations of Lazer as conducted
immediately prior to the Effective Time, (ii) cause the Surviving Corporation to
sell, transfer or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business or for the payment of
expenses incurred by the Surviving Corporation in the Merger, (iii) liquidate
the Surviving Corporation, (iv) merge the Surviving Corporation with or into
another corporation, including Acclaim or its affiliates, (v) sell, distribute
or otherwise dispose of the Common Stock of the Surviving Corporation, (vi)
issue additional shares of stock (or rights to acquire shares of stock) of the
Surviving Corporation that would result in Acclaim losing control of the
Surviving Corporation within the meaning of Section 368(c) of the Code, or (vii)
reacquire any of its Common Stock issued in the Merger.
SECTION 4.17 Lazer Stock. As of the date hereof, neither Acclaim nor
Holdings is the beneficial owner of Lazer Common Stock or except as provided
herein has any rights to acquire Lazer Common Stock.
ARTICLE V
COVENANTS
SECTION 5.01 Lazer Pre-Closing Obligations. Except as expressly
contemplated by this Agreement (including any actions that are permitted to be
taken under Section 5.03) or as set forth in Schedule 5.01 attached hereto,
during the period from the date of this Agreement and continuing until the
earlier of the Effective Time or the termination of this Agreement in accordance
with its terms, (x) Lazer and its subsidiaries will each carry on their
respective businesses in the regular and ordinary course, consistent with past
practice, and use their best efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, contractors, distributors and others having business dealings with
them and (y) without limiting the generality of the foregoing, neither Lazer nor
any of its subsidiaries will:
(a) (i) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly
owned subsidiary of Lazer may declare and pay a dividend to its parent,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (iii)
amend the terms of, repurchase, redeem or otherwise acquire, or permit
any subsidiary to repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, or propose to do any
of the foregoing except as expressly permitted hereby;
(b) authorize for issuance, issue, sell, deliver or agree or commit
to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights), except as required
20
pursuant to the agreements and instruments outstanding on the date
hereof and which have been disclosed in writing to Acclaim (provided
that no additional issuances of options will be made under the Lazer
Stock Option Plans without the consent of Acclaim, and no additional
sales of Lazer Common Stock will be made under the Employee Purchase
Plan except for issuances under the Employee Purchase Plan for the
offering period ending June 30, 1995), or amend in any material respect
any of the terms of any such securities or agreements outstanding on the
date hereof except as expressly permitted hereby, or permit the
acceleration of any Options (other than Options under the Director
Option Plan) or Warrants by the lapsing of any vesting restrictions as a
result of the Merger or otherwise in connection with any of such
securities;
(c) amend or propose to amend its charter or by-laws;
(d) acquire, sell, lease, encumber, transfer or dispose of any
assets in excess of $100,000 in any instance or $500,000 in the
aggregate, or make any capital expenditures in excess of $100,000 in any
instance or over $250,000 in the aggregate, except in each case pursuant
to obligations in effect on the date hereof and sales of inventory in
the ordinary course of business and which have been disclosed in writing
to Acclaim, or enter into any contract, commitment, agreement or
transaction other than in the ordinary course of business (unless such
contract, commitment, agreement or transaction is for less than $25,000
and consistent with past practice and in any event enter into any
contract, commitment, agreement or transaction in excess of $100,000)
other than purchase orders for materials and supplies in the ordinary
course of business. In no event shall Lazer make, other than after
consultation with, and approval of, Acclaim (which approval shall be
deemed given if Acclaim does not give written notice of its objection
within three business days after such consultation), any business
decision or enter into any transaction which might reasonably be
expected to have a significant financial or operational effect on Lazer
or its operations;
(e) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of Lazer or any of its subsidiaries or
guarantee (or become liable for) any debt of others or make any loans,
advances or capital contributions or mortgage, pledge or otherwise
encumber any material assets or create or suffer any material Lien
thereupon, other than in the ordinary course of business consistent with
past practice and, in any event, not in excess of $25,000 in any
instance or $100,000 in the aggregate;
(f) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the consolidated financial statements
(or the notes thereto) of Lazer and its consolidated subsidiaries or
incurred in the ordinary course of business consistent with past
practice, and in any event not in excess of $100,000 in any instance or
$150,000 in the aggregate, or settle any lawsuits relating to
intellectual property;
(g) change any of the accounting principles or practices used by it
in the preparation of the quarterly report on Form 10-QSB for the
quarter ended December 31, 1994 (except as required by GAAP);
(h) except as required by law or this Agreement, (i) enter into,
adopt, amend or terminate any Plan or any agreement, arrangement or
policy between itself and one or more of its directors or executive
officers including, without limitation, the Executive Bonus Program or
(ii) increase in any manner the compensation or fringe benefits of any
director, officer or employee of Lazer or pay any benefit to any
officer, director or employee not required by any Plan or arrangement
between itself and that officer, director or employee as in effect as of
the date hereof, except in the case of non-officer employees of Lazer
for normal increases in the ordinary course of business consistent with
past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to Lazer and its
subsidiaries taken as a whole, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
21
(i) other than in the ordinary and regular course of Lazer's
business, retain at the Closing Date, or agreed to retain, subsequent to
the Closing Date, any person for the purpose of providing services to
Lazer, except with Acclaim's prior written consent, which consent shall
not be unreasonably withheld;
(j) cancel, modify or change any of the insurance policies listed
in Schedule 3.26 hereto prior to the Effective Time without the express
written consent of Acclaim, which consent shall not be unreasonably
withheld, except to extend the maturity dates thereof;
(k) take any action, or omit to take any action, that would have an
adverse effect on the Pooling and/or that would impede, frustrate or
lend to the failure of the condition set forth in Section 6.19 hereof;
or
(l) (A) agree to take any of the foregoing actions or (B) take or
agree to take any action or omit to take any action that would or is
reasonably likely to result in any of Lazer's representations and
warranties set forth in this Agreement being untrue or result in any of
the conditions to the Merger set forth in Article VI not being
satisfied.
SECTION 5.02 Acclaim Pre-Closing Obligations. Except as expressly
contemplated by this Agreement or as set forth in Schedule 5.02 attached hereto,
during the period from the date of this Agreement and continuing until the
earlier of the Effective Time or the termination of this Agreement in accordance
with its terms, Acclaim and its subsidiaries will each carry on their respective
businesses in the regular and ordinary course, consistent with past practice,
and use their best efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, contractors, distributors and others having business dealings with
them.
SECTION 5.03 No Solicitations. Lazer will immediately cease any existing
discussions or negotiations with any third parties conducted prior to the date
hereof with respect to any merger, business combination, sale of a significant
amount of assets outside of the ordinary course of business, sale of shares of
capital stock outside of the ordinary course of business or similar transaction
involving such party or any of its subsidiaries or divisions (an 'Acquisition
Transaction'). Neither Lazer nor any of its subsidiaries shall, and Lazer shall
use its best efforts to ensure that none of its affiliates, officers, directors,
representatives, agents or affiliates shall, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing information) any person,
entity or group (including any set forth in the first sentence of this Section
5.03) concerning any Acquisition Transaction (other than the transactions
contemplated by this Agreement); provided, however, that (i) nothing in this
Agreement shall preclude Lazer's Board of Directors, pursuant to its fiduciary
duties as determined by Lazer's Board of Directors after consultation with
outside legal counsel of Lazer, from entering into, or causing Lazer's officers,
representatives, agents or affiliates from entering into, negotiations with or
furnishing information to a third party which has initiated contact with Lazer,
from passing on to Lazer's shareholders information regarding any such third
party proposal or inquiry consistent with such fiduciary duties, or otherwise
fulfilling such fiduciary duties, and (ii) Lazer may participate in negotiations
with or furnish information to a third party which has initiated contact with
Lazer with respect to an Acquisition Transaction consistent with the fiduciary
obligations of its Board of Directors. Lazer shall advise Acclaim within 24
hours of receipt of any such inquiries or proposals regarding an Acquisition
Transaction, including the terms thereof. In the event Lazer receives a proposal
relating to an Acquisition Transaction, nothing contained in this Agreement
shall prevent Lazer's Board of Directors from approving such proposal or
recommending such Acquisition Transaction to Lazer's Stockholders if Lazer's
Board of Directors determines in good faith that failure to take such action
would result in a breach of its fiduciary duties as determined by Lazer's Board
of Directors after consultation with Lazer's outside legal counsel, and in such
case the Board of Directors of Lazer may amend, withhold or withdraw its
recommendation regarding the Merger. However, the taking of such action in
connection with an Acquisition Transaction as contemplated in the preceding
sentence will not relieve Lazer of its obligations under and as contemplated by
Section 5.14 and Section 5.15 hereunder. Nothing in this Agreement shall prevent
Lazer or its Board of Directors from complying with the provisions of the 1934
Act and the rules and regulations thereunder.
SECTION 5.04 Access to Information. (a) Upon reasonable notice and subject
to restrictions contained in confidentiality agreements to which it is subject
(from which it shall use reasonable efforts to be released), Lazer shall (and
shall cause each of its subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of Acclaim ('Acclaim
Representatives'), reasonable access, during normal business hours
22
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records and, during such period, Lazer shall (and
shall cause each of its subsidiaries to) furnish promptly to Acclaim all
information concerning its business, properties and personnel as Acclaim may
reasonably request. Acclaim Representatives shall be permitted to make copies of
and extracts from, the accounts, minute books, other records, books of account,
other books, deeds, leases, title documents, insurance policies, licenses,
contracts, commitments, sales orders, purchase orders, tax returns, records and
files of Lazer, and such other information relating to Lazer as Acclaim shall
request. Acclaim Representatives shall be permitted to discuss the affairs,
finances and accounts of Lazer with the officers, employees, distributors, sales
representatives, licensees, licensors, suppliers, customers, insurance agents,
actuaries, auditors and counsel of Lazer upon prior request and as to
distributors, sales representatives, licensees, licensors, suppliers, customers,
insurance agents, actuaries, only upon consent. The foregoing covenant shall
include allowing Acclaim to conduct a Phase I environmental audit of the Lazer
offices and facilities located in Pleasanton, California, at Acclaim's cost and
expense.
(b) Upon reasonable notice and subject to restrictions contained in
confidentiality agreements to which it is subject (from which it shall use
reasonable efforts to be released), Acclaim shall (and shall cause each of its
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of Lazer ('Lazer Representatives'), reasonable access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments and records and, during such
period, Acclaim shall (and shall cause each of its subsidiaries to) furnish
promptly to Lazer all information concerning its business, properties and
personnel as Lazer may reasonably request. Lazer Representatives shall be
permitted to make copies of and extracts from, the accounts, minute books, other
records, books of account, other books, deeds, leases, title documents,
insurance policies, licenses, contracts, commitments, sales orders, purchase
orders, tax returns, records and files of Acclaim, and such other information
relating to Acclaim as Lazer shall request. Lazer Representatives shall be
permitted to discuss the affairs, finances and accounts of Acclaim with the
officers, employees, distributors, sales representatives, licensees, licensors,
suppliers, customers, insurance agents, actuaries, auditors and counsel of
Acclaim upon prior request and as to distributors, sales representatives,
licensees, licensors, suppliers, customers, insurance agents, actuaries, only
upon consent.
(c) Lazer and Acclaim and any such Lazer Representatives or Acclaim
Representatives, as applicable, shall keep such information confidential in
accordance with the terms of the confidentiality agreement, dated March 6, 1995
(the 'Confidentiality Agreement'), between Lazer and Acclaim.
SECTION 5.05 Lazer Stockholder Meeting. Lazer will take all action
necessary in accordance with California law, Lazer's Articles of Incorporation,
as amended, its By-laws and the requirements of the Nasdaq Stock Market to
convene a meeting of its stockholders (the 'Lazer Stockholders Meeting') as
promptly as practicable following effectiveness of the registration statement on
Form S-4 filed by Acclaim in connection with the issuance of Acclaim Common
Stock pursuant to the transactions contemplated hereby (the 'S-4') and the
clearance by the SEC of the proxy statement included in the S-4 and relating to
the Lazer Stockholders Meeting (the 'Proxy Statement') to consider and vote upon
the Merger and the transactions contemplated hereby. The Lazer Board shall,
subject to its fiduciary obligations as herein provided recommend that the
stockholders of Lazer vote in favor of the Merger and the transactions
contemplated hereby and cause Lazer to use its best efforts to solicit from its
stockholders proxies in favor of such approval.
SECTION 5.06 Proxy Statement. (a) Lazer shall prepare (and Acclaim shall
assist where appropriate) and file with the SEC, as promptly as practicable upon
execution of this Agreement, the Proxy Statement and a form of proxy for use at
the Lazer Stockholders Meeting relating to the vote of Lazer's stockholders with
respect to the Merger and the transactions contemplated by this Agreement
(together with any amendments or supplements thereto, in each case in the form
or forms mailed to Lazer's stockholders). Each of Lazer and Acclaim (if
appropriate) will use its reasonable efforts to have, or cause, the Proxy
Statement to be cleared by the SEC as promptly as practicable and Lazer shall
cause the Proxy Statement to be mailed to stockholders of Lazer at the earliest
possible date. Acclaim and Holdings shall promptly furnish to Lazer such
information regarding each of Acclaim and Holdings and their respective officers
and directors as may be reasonably requested by Lazer for inclusion in the Proxy
Statement.
(b) Lazer covenants that none of the information concerning Lazer or any of
its affiliates, directors, officers, employees, agents or representatives which
is included or incorporated by reference in the Proxy Statement will,
23
at the time the Proxy Statement or any amendment or supplement thereto is filed
with the SEC, at the time of mailing of the Proxy Statement or any amendment or
supplement thereto to Lazer's stockholders or at the time of the Lazer
Stockholders Meeting, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Lazer covenants that the Proxy Statement shall comply as to form in
all material respects with the applicable provisions of the 1934 Act and the
rules and regulations thereunder, except that no representation is made by Lazer
with respect to statements made therein based on information supplied by Acclaim
or Holdings in writing for inclusion or incorporation by reference therein or
with respect to omitted information regarding Acclaim or Holdings so required to
be included therein.
(c) Acclaim covenants that none of the information supplied or to be
supplied to Acclaim or any of its affiliates, directors, officers, employees,
agents or representatives in writing specifically for inclusion in the Proxy
Statement will, at the time the Proxy Statement or any amendment or supplement
thereto is filed with the SEC, at the time of mailing of the Proxy Statement or
any amendment or supplement thereto to Lazer's stockholders or at the time of
the Lazer Stockholders Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 5.07 Registration on Form S-4. (a) The Acclaim Common Stock to be
issued in the Merger shall be registered under the 1933 Act on the S-4. As
promptly as practicable after the date of this Agreement, Acclaim shall prepare,
with the assistance of Lazer, as appropriate (including, but not limited to,
preparation by Lazer and its counsel of applicable disclosure in the Proxy
Statement and the S-4 relating to tax consequences of the Merger on Lazer
Stockholders and submission of any required tax opinions addressed to Lazer),
and file with the SEC the S-4, together with the Prospectus/Proxy Statement to
be included therein and any other documents required by the 1933 Act or the 1934
Act in connection with the Merger. Each of Acclaim and Lazer shall use its best
efforts to respond promptly to any comments of the SEC and to have the S-4
declared effective under the 1933 Act as promptly as practicable after such
filing. Acclaim shall also take any action required to be taken under any
applicable state securities or 'blue sky' laws and regulations of the NASDAQ
Stock Market in connection with the issuance of the Acclaim Common Stock in
connection with the Merger. Lazer shall promptly furnish to Acclaim all
information concerning Lazer and the Lazer Stockholders as may be reasonably
required in connection with any action contemplated by this Section 5.07. Each
of Acclaim and Lazer will notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the S-4 or the Prospectus/Proxy Statement or
for additional information and will supply the other with copies of all
correspondence with the SEC or its staff with respect to the S-4 or the
Prospectus/Proxy Statement. Whenever any event occurs which should be set forth
in an amendment or supplement to the S-4 or the Prospectus/Proxy Statement,
Acclaim or Lazer, as the case may be, shall promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff, and/or mailing to
stockholders of Acclaim and Lazer, such amendment or supplement.
(b) Lazer covenants that none of the information supplied in writing by
Lazer for inclusion or incorporation by reference in the S-4 to be filed with
the SEC in connection with the issuance of Acclaim Common Stock pursuant to the
transactions contemplated hereby will, at the time the S-4 is filed with the SEC
and at the time it becomes effective under the 1933 Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstance under which they were made, not misleading. The S-4 together with
the prospectus/proxy statement included therein (the 'Prospectus/Proxy
Statement'), will comply in all material respects with the provisions of the
1933 Act and the 1934 Act, as the case may be, and the rules and regulations
thereunder, except that no representation is made by Lazer with respect to
statements made therein based on information supplied by Acclaim or Holdings in
writing for inclusion or incorporation by reference therein or with respect to
omitted information regarding Acclaim or Holdings so required to be included
therein.
(c) Acclaim covenants that none of the information supplied in writing by
Acclaim or Holdings for inclusion or incorporation by reference in the S-4 will,
at the time the S-4 is filed with the SEC and at the time it becomes effective
under the 1933 Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. Acclaim covenants that the S-4 and the Prospectus/Proxy Statement
will comply
24
in all material respects with the provisions of the 1933 Act and the 1934 Act,
as the case may be, and the rules and regulations thereunder, except that no
representation is made by Acclaim with respect to statements made therein based
on information supplied by Lazer in writing for inclusion or incorporation by
reference therein or with respect to omitted information regarding Lazer so
required to be included therein.
SECTION 5.08 Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the prompt preparation and filing with the
SEC of the S-4 in compliance with the 1933 Act and the Proxy Statement of Lazer
in compliance with Section 14 of the 1934 Act, (ii) such actions as may be
required to have the S-4 declared effective under the 1933 Act and to have the
Proxy Statement cleared by the staff of the SEC, in each case as promptly as
practicable, including by consulting with each other as to, and responding
promptly to, any comments of the SEC staff with respect thereto, (iii) in the
case of Acclaim, such actions as may be required to be taken under applicable
state securities or Blue Sky laws in connection with the issuance of Acclaim
Common Stock contemplated hereby, (iv) the prompt preparation and filing of all
applicable forms required to be filed under the HSR Act and the prompt
compliance with any requests from the Federal Trade Commission or United States
Department of Justice for additional information, (v) the preparation and filing
of all other forms, registrations and notices required to be filed to consummate
the transactions contemplated hereby and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions, or
waivers by any public or private third party, (vi) such actions as may be
required to cause, prior to the Effective Time, the Acclaim Common Stock to be
issued pursuant hereto, to be listed on the NASDAQ National Market System
(subject to official notice of issuance), and (vii) such actions as may be
reasonable to cause, concurrently with the Effective Time, the delisting of
Lazer's securities from the NASDAQ Stock Market and the deregistration of
Lazer's securities under the 1934 Act; provided, however, that in order to
obtain any consent, approval, waiver, license, permit, authorization,
registration, qualification or other permission or action referred to in clause
(v) of this sentence, no party shall be required to (x) pay any consideration,
to divest itself of any of, or otherwise rearrange the composition of, its
assets or to agree to any conditions or requirements which are materially
adverse or burdensome or (y) amend, or agree to amend, in any material respect
any Contract. Each party shall promptly consult with the other and provide any
necessary information with respect to and provide the other (or its counsel)
with copies of, all filings made by such party with any Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
SECTION 5.09 Letters of Accountants. Each of Lazer and Acclaim shall use
its respective best efforts to cause to be delivered to the other, letters from
their respective independent public accountants to each such party, dated a date
within two business days before the date on which the S-4 shall become effective
and addressed to the other, in form and substance reasonably satisfactory to the
other and customary in scope and substance for 'cold comfort' letters delivered
by independent public accountants in connection with registration statements
similar to the S-4. Acclaim shall have provided Ernst & Young LLP and Lazer
shall have provided Grant Thornton, LLP, a letter acknowledging that its review
process applied to the information contained in the S-4 relating to Lazer or
Acclaim, as the case may be, will be substantially consistent with the
procedures that it would perform if the placement of securities pursuant to the
S-4 were being underwritten pursuant to the 1933 Act. Such letter shall also
indicate Acclaim or Lazer, as the case may be, is knowledgeable with respect to
the due diligence review process that would be performed if this placement of
securities were being underwritten in connection with a registered offering
pursuant to the 1933 Act.
SECTION 5.10 Affiliates. (a) Lazer shall immediately advise Acclaim if any
such person listed on Schedule 3.27(b). should cease to be Affiliate and/or of
any person who becomes a Lazer Affiliate after the date hereof and on or prior
to the Closing Date. Lazer shall use its best efforts to cause each person who
becomes a Lazer Affiliate after the date hereof to deliver to Acclaim at or
prior to 31 days (or as promptly as practicable after such person becomes a
Lazer Affiliate if sooner) prior to the Effective Time a Lazer Affiliate
Agreement to the effect contemplated by Exhibit A hereto.
SECTION 5.11 Indemnification of Managers. (a) Acclaim and Holdings each
agree that all rights to indemnification existing on the date hereof in favor of
the present or former officers and directors of Lazer (the 'Managers') with
respect to actions taken in their capacity as Managers prior to or at the
Effective Time as
25
provided in Lazer's Articles of Incorporation, By-laws or written indemnity
agreements which have been previously provided to Acclaim prior to the date
hereof and which shall not be amended, modified or supplemented after the date
hereof and prior to the Effective Time, shall survive the Merger and the
Surviving Corporation shall assume, honor and be bound by the terms of such
indemnity agreements, Articles of Incorporation and By-laws with respect to
their actions and omissions in such capacity taken prior to the Effective Time,
whether or not such persons continue in their positions with the Surviving
Corporation following the Effective Time, and shall continue in full force and
effect for a period of six (6) years following the Effective Time, and all such
rights in any such agreement, Articles of Incorporation and By-laws in effect as
of the date hereof between Lazer or any of its subsidiaries and any Manager
shall survive the Merger and continue in full force and effect in accordance
with its terms as between such Managers and the Surviving Corporation except as
provided in Section 5.11(b) hereof.
(b) For the entire period from and after the Effective Time until at least
six years after the Effective Time, Acclaim shall cause the Surviving
Corporation to use its best efforts to maintain in effect directors' and
officers' liability insurance covering those persons who are currently covered
by Lazer's directors' and officers' liability insurance policy (a copy of which
has been heretofore delivered to Acclaim) of at least the same coverage and
amounts (not to exceed $1 million), containing terms that are no less
advantageous to such persons with respect to claims made after the Effective
Time arising from such person's actions or omissions in their capacity as
Managers occurring at or before the Effective Time than Lazer's policies in
effect immediately prior to the Effective Time. In the event the Surviving
Corporation is unable to maintain such directors' and officers' liability
insurance, Acclaim agrees that it will indemnify such persons currently covered
by Lazer's directors' and officers' liability insurance policy on the same or
similar terms and conditions and dollar limitations (not to exceed $1 million)
in force and effect under such policy immediately prior to the Effective Time.
(c) The provisions of this Section shall survive the Effective Time and are
intended to be for the benefit of, and shall be enforceable by, each officer and
director of Lazer and his or her heirs and representatives.
(d) In the event of a breach of any of the covenants set forth in 5.23,
Acclaim will assume all of the obligations of the Surviving Corporation under
this Section 5.11.
(e) In the event (i) any third party institutes any suit or proceeding of
the nature contemplated by Section 7.14 hereof (the 'Claim Relating to the
Merger') and (ii) if at such time Acclaim has determined, notwithstanding any
such suit or proceeding, to consummate the Merger and to provide the indemnity
set forth in this Section 5.11(e), then, subject to the conditions set forth
below, Acclaim agrees to indemnify and hold harmless Lazer, its officers and
directors (each, a 'Lazer Indemnified Party') from and against any and all
losses, liabilities, obligations, suits, proceedings, demands, judgments,
damages, claims, expenses and costs (including, without limitation, reasonable
fees, expenses and disbursements of counsel) as and when incurred, arising out
of, based upon, or in connection with the Claim Relating to the Merger on the
terms set forth in this Section 5.11(e). If any Claim Relating to the Merger is
brought against one or more Lazer Indemnified Parties in respect of which
indemnity may be sought against Lazer pursuant to this Section 5.11(e), such
Lazer Indemnified Party(ies) shall promptly and in any event within five days
notify Acclaim in writing of the institution of such Claim Relating to the
Merger and Acclaim shall promptly and in any event within 25 days notify Lazer
of Acclaim's intent to proceed to consummate the Merger and shall thereupon
assume the defense of such Claim Relating to the Merger, including the
employment of counsel (reasonably satisfactory to such Lazer Indemnified
Party(ies); it being acknowledged that Rosenman & Colin is satisfactory)
provided that the Lazer Indemnified Party(ies) shall have the right to employ
its or their own additional counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such Lazer Indemnified Party(ies)
unless (i) the employment of such counsel shall have been authorized in writing
by Acclaim in connection with the defense of such Claim Relating to the Merger
or (ii) Acclaim shall not have promptly employed counsel reasonably satisfactory
to such Lazer Indemnified Party(ies) to have charge of the defense of such Claim
Relating to the Merger or (iii) such Lazer Indemnified Party(ies) shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other Lazer Indemnified Parties which are different from or
additional to those available to Acclaim, in any of which events such fees and
expenses of one such additional counsel shall be borne by Acclaim as they are
incurred by such Lazer Indemnified Party(ies) and Acclaim shall not have the
right to direct the defense of such Claim Relating to the Merger on behalf of
the Lazer Indemnified Party(ies) who have retained separate counsel. Anything in
this Section 5.11(e) to the contrary notwithstanding, Acclaim shall
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not be liable for any settlement of any such Claim Relating to the Merger
effected without its prior written consent. Acclaim shall not, without the prior
written consent of each Lazer Indemnified Party that is not released as
described in this sentence, settle or compromise any Claim Relating to the
Merger, or permit a default or consent to the entry of judgment in or otherwise
seek to terminate any pending or threatened Claim Relating to the Merger, in
respect of which indemnity may be sought under this Section 5.11(e) unless such
settlement, compromise, consent, or termination includes an unconditional
release of such Lazer Indemnified Party from all liability in respect of such
Claim Relating to the Merger.
SECTION 5.12 No Breach of Representations and Warranties. Each of Acclaim,
Holdings, the Principals and Lazer agree that they will not take any action
which would cause or constitute a material breach, or would, if it had been
taken prior to the date hereof, have caused or constituted a material breach of,
any of the representations and warranties set forth in Article III or IV hereof,
as the case may be. Each of the parties hereto shall, in the event of, or
promptly after the occurrence of, or promptly after obtaining knowledge of the
occurrence of or the impending or threatened occurrence of, any fact or event
which would cause or constitute a Material Adverse Effect with regard to Lazer
or Acclaim or a breach of any of the representations and warranties set forth in
Article III or IV hereof, as the case may be, as of the Closing Date, give
detailed notice thereof to the other parties hereto; and such notifying party
shall use its or their best efforts to prevent or promptly to remedy such
breach.
SECTION 5.13 Consents; Notices. Lazer shall obtain and deliver to Acclaim
written consents, in form and substance satisfactory to Acclaim, to the change
in control of Lazer or assignments to the Surviving Corporation of the Contracts
set forth in Schedules 3.18(a) and 3.18(b) hereto and any other consents
required in connection with this Agreement or the transactions hereby
contemplated including without limitation those identified in a schedule hereto.
Lazer shall also deliver all notices to third parties required to be delivered
in connection with the execution of this Agreement and the transactions hereby
contemplated.
SECTION 5.14 Fees and Expenses. (a) Except as set forth in Section
5.14(b), (c) and (d), whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that expenses incurred in connection with the printing and mailing of the Proxy
Statement and the S-4 shall be shared equally by Lazer and Acclaim.
(b) Subject to Sections 5.14(c) and (d), in the event that Lazer shall have
breached any of its obligations representations, warranties or covenants or
prevents the satisfaction of Acclaim's conditions to the Merger, Acclaim shall
have the right to avail itself of all available remedies, whether at law or
equity, and Lazer shall, in addition to any damages or other relief granted to
Acclaim, to the extent Acclaim prevails on any claim or action, pay all costs
and expenses (including attorneys fees and expenses) incurred by Acclaim in
pursuit of such remedies. In the event that Acclaim shall have breached any of
its obligations representations, warranties or covenants or prevents the
satisfaction of Lazer's conditions to the Merger, Lazer shall have the right to
avail itself of all available remedies, whether at law or equity, and Acclaim
shall, in addition to any damages or other relief granted to Lazer, to the
extent Lazer prevails on any claim or action, pay all costs and expenses
(including attorneys fees and expenses) incurred by Lazer in pursuit of such
remedies.
(c) Provided that the circumstances contemplated by the first sentence of
Section 5.14(b) hereof shall not then be in existence as a result of or arising
from the willful action or inaction of Lazer, its officers, directors, employees
or agents, in the event Lazer or its Board of Directors shall have exercised its
right under Section 5.03 in connection with an Acquisition Transaction, and as a
result of any of the foregoing the Merger is not consummated and/or this
Agreement is terminated, then Lazer shall promptly, but in no event later than
one business day following the termination of this Agreement, pay to Acclaim, in
immediately available funds, the sum of Two Hundred Thousand Dollars $200,000,
which amount shall be Acclaim's sole remedy hereunder in such circumstances.
(d) Provided that the circumstances contemplated by the first sentence of
Section 5.14(b) hereof shall not then be in existence as a result of or arising
from the willful action or inaction of Lazer, its officers, directors, employees
or agents, in the event Lazer or its Board of Directors shall have exercised its
rights under Section 5.03 in connection with an Acquisition Transaction and as a
result the Merger is not consummated or this Agreement is terminated, and shall
have consummated such Acquisition Transaction within one year, then Lazer
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shall, or shall cause any other party succeeding to its business or which is a
party to such Acquisition Transaction, as a condition to consummation of any
such Acquisition Transaction, pay to Acclaim, in immediately available funds, a
sum in cash equal to 5% of the value (less any amounts paid or payable to
Acclaim pursuant to Section 5.03(c)), which amount shall be Acclaim's sole
remedy hereunder in such circumstances, of the aggregate consideration actually
received in connection with such Acquisition Transaction by (i) Lazer's
Stockholders, in the case that such Acquisition Transaction is a merger,
business combination, sale of shares of capital stock outside the ordinary
course of business or similar transaction, or (ii) Lazer, in the case that such
Acquisition Transaction is a sale of a significant amount of Lazer's assets
outside the ordinary course of business or similar transactions, in each case at
such times that such consideration is actually distributed to Lazer Stockholders
or Lazer, as applicable. The value of such consideration shall be determined in
a manner consistent with the manner by which it is valued or determined in the
agreements governing that Acquisition Transaction.
(e) Notwithstanding any other provision of this Agreement, the provisions
of this Section 5.14 shall not be conditioned on the vote of the stockholders of
Lazer. This Section 5.14 shall survive the termination of the Merger or this
Agreement.
SECTION 5.15 The Option. Lazer hereby grants Acclaim an option (the
'Option') to purchase shares of Lazer Common Stock for $8.00 per share in cash
on the terms and conditions set forth in the Option Agreement attached as
Exhibit C hereto. Notwithstanding any other provision of this Agreement, the
grant of the Option under this Section 5.15 shall not be conditioned upon the
vote of the stockholders of Lazer. The Option shall survive the termination of
the Merger or this Agreement. Lazer further grants to Acclaim registration
rights relating to the Lazer Common Stock underlying the Option on substantially
the terms set forth in the registration rights agreement attached as Exhibit C
hereto.
SECTION 5.16 Pooling. Each of Acclaim and Lazer agree not to take any
action that would adversely affect the ability of Acclaim to treat the Merger as
a pooling of interests and each of Lazer and Acclaim agree to take such action
as may be reasonably required to negate the impact of any past or future actions
that would adversely impact the ability of Acclaim to treat the Merger as a
pooling of interests.
SECTION 5.17 Public Announcements. Acclaim and Lazer shall consult with
each other before issuing any press releases or otherwise making any public
statements with respect to the Merger or this Agreement and shall not issue any
press release or make any such public statement prior to such consultation,
except as may be required by law or any listing agreement with a national
securities exchange or NASDAQ.
SECTION 5.18 Registration Right Agreements and Warrants. Acclaim agrees as
part of the Merger to assume all of Lazer's obligations in connection with the
registration rights granted by Lazer prior to the date hereof and described on
Schedule 5.18 with respect to any Lazer securities which had rights under such
agreements and were exchanged or substituted in the Merger, subject to Acclaim's
reasonable renegotiation with Van Kasper & Co. and with Cohig & Associates, Inc.
of their rights thereunder.
SECTION 5.19 NASDAQ Listing. As soon as practicable after the Effective
Time, Acclaim will use its best efforts (i) to cause the Acclaim Common Stock to
be issued in the Merger to be quoted on the Nasdaq Stock Market or listed on
such securities exchange as Acclaim Common Stock is then listed and (ii) to
cause the shares of Acclaim Common Stock issued upon exercise of substituted
Lazer Stock Options or Warrants to be quoted upon issuance on the Nasdaq Stock
Market or listed on such securities exchange as the Acclaim Common Stock is then
listed.
SECTION 5.20 Acclaim Employee Option Plans and Benefit Arrangements.
Acclaim shall use its best efforts to arrange that, as soon as practicable
after the Effective Time, all Acclaim benefit arrangements and Acclaim employee
plans (the 'Acclaim Benefits') provide the same or a comparable benefit or plan
to each employee of Lazer as is provided to Acclaim's employees who are
similarly situated. The Acclaim Benefits shall give full credit for each
participant's period of service with Lazer prior to the Effective Time for all
purposes for which such service was recognized under the Plans prior to the
Effective Time and full credit for deductibles satisfied under the Plans toward
any deductibles for the same period following the Effective Time, and shall
waive any pre-existing condition limitation for any employee covered under the
Plans immediately prior to the Effective Time. From and after the Effective
Time, Acclaim and the Surviving Corporation shall provide all employees of Lazer
with the opportunity to participate in any employee stock option or other
incentive
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compensation plan of Acclaim on substantially the same terms and subject to
substantially the same conditions as are available to similarly situated
employees of Acclaim.
SECTION 5.21 Employment Agreements. Acclaim covenants and agrees that it
shall cause the Surviving Corporation to, concurrently with the Effective Time,
execute the employment agreements substantially in the form attached hereto as
Exhibit D.
SECTION 5.22 Closing Balance Sheet. No later than five days prior to the
Closing and in any event no later than the tenth day of the month within which
the Closing is anticipated to take place, Lazer shall furnish Acclaim with a
balance sheet dated as of the last day of the month immediately preceding the
month in which the Closing Date occurs and a Net Sales presentation for the
applicable period described in Section 3.21(b) ended with the date of such
balance sheet (together, the 'Closing Balance Sheet'). The Closing Balance Sheet
shall be prepared in accordance with GAAP (without footnotes) and reflect the
applicable minimum amounts set forth in Section 3.21(b) hereof with respect to
Lazer's Working Capital, Net Worth and Net Sales, prepared on a pro forma basis
after deduction of expenses and fees incurred by Lazer in connection with the
Merger and transactions contemplated hereby up to an aggregate of $750,000. Such
Closing Balance Sheet shall be certified by the President and Chief Financial
Officer of Lazer in their respective capacity as such . Within three days of its
receipt of the Closing Balance Sheet, Acclaim shall notify Lazer in writing (a
'Dispute Notice') whether Acclaim in good faith accepts or rejects the
calculations set forth in the Closing Balance Sheet, and in the case of a
rejection thereof specifying the ground of such rejection in reasonable detail
(a 'Dispute'). In the event of a Dispute, Lazer and Acclaim shall seek within 15
days from the date of Acclaim's Dispute Notice to resolve such Dispute to the
satisfaction of Acclaim and Acclaim's independent public accountants.
SECTION 5.23 Operation of the Surviving Corporation. So long as the
Surviving Corporation has any obligations under Section 5.11 hereof, Acclaim
shall not (i) take any affirmative action to materially adversely change the
operations of the Surviving Corporation; (ii) cause the Surviving Corporation to
sell, transfer or otherwise dispose of any of its assets other than Proprietary
Rights, except for (a) dispositions, pledges and transfers to Acclaim's lenders
or to bona fide third party lenders providing financing to Lazer, in each case
for collateral purposes, (b) dispositions made in the ordinary course of
business, (c) the payment of expenses incurred by the Surviving Corporation
other than Acclaim's or Lazer in the Merger or (d) unless the Surviving
Corporation shall have received, in the good faith determination of its Board of
Directors, fair value therefor; (iii) liquidate the Surviving Corporation; (iv)
merge the Surviving Corporation with or into another corporation, including
Acclaim or its Affiliates, unless such corporation agrees to be bound by the
provisions of Section 5.11 and this Section 5.23 and such corporation has a net
worth at least equal to Acclaim's as of the date hereof or Acclaim agrees to
guarantee such obligations; (v) sell, distribute or otherwise dispose of the
Common Stock of the Surviving Corporation, unless the corporation receiving such
Common Stock agrees to be bound by the provisions of Section 5.11 and this
Section 5.23 and such corporation has a net worth at least equal to Acclaim's as
of the date hereof or Acclaim agrees to guarantee such obligations; (vi) issue
additional shares of Common Stock (or rights to purchase shares of Common Stock)
of the Surviving Corporation that result in Acclaim losing control of the
Surviving Corporation unless the purchaser thereof agrees to be bound by the
provisions of Section 5.11 and this Section 5.23 and such corporation has a net
worth at least equal to Acclaim's as of the date hereof or Acclaim agrees to
guarantee such obligations; or (vii) cause the Surviving Corporation to make
dividends, distributions or loans to Acclaim or its Affiliates or enter into
other transactions (other than transfers of Proprietary Rights) on other than an
arm's length basis.
SECTION 5.24 Each of Acclaim and Lazer agree to use its best efforts not
to take any actions that would adversely affect the ability of the Merger to be
treated as a tax free reorganization pursuant to the provisions of Section
368(a) of the Code and will provide appropriate factual statements to Lazer's
counsel with respect to matters pertaining to the treatment of the Merger as a
tax free reorganization under Section 368(a) of the Code.
SECTION 5.25 Intellectual Property. Lazer covenants that prior to using a
name for any game which is being held out for sale or lease, Lazer shall perform
a search under both U.S. and common law seeking to determine whether, based on
such search, it is reasonable to use such name or mark in the manner in which
Lazer believes its intended use will not infringe any other third parties'
rights therein, whether statutory or common law rights (including, without
limitation, trademark and the rights of privacy and publicity).
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SECTION 5.26 Executive Bonus. Acclaim shall cause the Surviving
Corporation to pay to persons covered thereunder, not later than 120 days after
June 30, 1995, any accrued and unpaid bonus payable to such persons by the
Surviving Corporation in respect of the Surviving Corporation's fiscal year
ended June 30, 1995.
ARTICLE VI
CONDITIONS TO ACCLAIM'S AND HOLDING'S OBLIGATIONS
All obligations of Acclaim and Holdings under this Agreement are subject to
the fulfillment, at the Closing Date, of each of the following conditions, any
or all of which may be waived in whole or in part, at or prior to the Closing
Date, by Acclaim in its sole discretion:
SECTION 6.01 Representations and Warranties. The representations and
warranties contained in Article III hereof shall be true and correct at and as
of the Closing Date as though such representations and warranties were made at
and as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date.
SECTION 6.02 Covenants. Lazer shall have performed and complied in all
material respects with all agreements and conditions on their part required by
this Agreement to be performed or complied with prior to or on the Closing Date.
SECTION 6.03 Officer's Certificate. The Purchaser shall have received (i)
a certificate of the chief executive officer of Lazer, dated the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 6.01 and
6.02 hereof and (ii) such other evidence with respect to the fulfillment of any
of said conditions as Acclaim may reasonably request.
SECTION 6.04 Opinion of Counsel. (a) Acclaim shall have received an
opinion of counsel for Lazer, dated the Closing Date, in form and substance
reasonably satisfactory to Acclaim and its counsel.
(b) Acclaim shall have received opinions of counsel for Lazer, dated the
date of the effective date of the S-4 and as of the Closing Date regarding the
tax free nature of the Merger as contemplated by Section 1.07 hereof in form and
substance reasonably satisfactory to Acclaim and its counsel.
SECTION 6.05 Consents. (a) Acclaim shall have received (in form and
substance satisfactory to Acclaim) all approvals set forth in Schedule 4.05 and
4.06 hereto from all governmental and regulatory authorities of the United
States and the several States and from any third party set forth in Schedule
4.05 and 4.06 hereto in connection with the execution, delivery and performance
of this Agreement and the consummation of the transactions hereby contemplated.
(b) Lazer shall have obtained all necessary consents and approvals to the
transactions contemplated hereby under the agreements listed on Schedule 3.04
and 3.18 hereto, which consents shall be in form and substance acceptable to
Acclaim.
SECTION 6.06 HSR Act. Lazer shall have made all pre-merger notification
filings required to be made by it under the HSR Act, all applicable waiting
periods thereunder shall have expired or been terminated without any request
from any appropriate governmental agency for additional information or, if
additional information has been requested, all applicable extended waiting
periods shall have expired.
SECTION 6.07 Legality. No change shall have occurred in any law, rule or
regulation which would prohibit or infringe the performance of Acclaim's
obligations under Article I hereof.
SECTION 6.08 Injunctions. (a) No court, agency or other authority shall
have issued any order, decree or judgment to set aside, restrain, enjoin or
prevent the performance of Acclaim's obligations in Article I hereof.
(b) No statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits
restrains, enjoins, sets aside or prevents the consummation of the Merger and
shall be in effect.
SECTION 6.09 Closing Balance Sheet; Material Adverse Effect. Acclaim shall
have received from Lazer the Closing Balance Sheet in accordance with Section
5.23 herein and reflecting the summary amounts set forth in Section 3.21(b)
hereof with respect to Lazer's Working Capital and Net Worth and there shall be
no dispute with
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respect thereto. From the date hereof through and including the Closing Date,
Lazer shall not have suffered a Material Adverse Effect.
SECTION 6.10 Resignations. Lazer shall have caused to be delivered to
Acclaim written resignations, effective as of the Closing Date, of each of the
directors and officers of Lazer and its subsidiaries specified in Schedule 6.10
hereof from all offices and directorships of Lazer and its subsidiaries.
SECTION 6.11 Employment Agreements. At the Effective Time, each of the
Principals shall have entered into an Employment Agreement with the Surviving
Corporation in the form attached as Exhibit D hereto, as applicable.
SECTION 6.12 Stockholder Approval. This Agreement shall have been approved
and adopted by the affirmative vote of the holders of a majority of the
outstanding Lazer Common Stock in accordance with applicable law and Dissenting
Shares and/or shares of common stock of Lazer capable of becoming Dissenting
Shares after the Closing shall not constitute in excess of 10% of the shares
eligible to vote for such approval and adoption.
SECTION 6.13 Due Diligence. Completion of Acclaim's due diligence of
Lazer's operations and financial condition to the satisfaction of Acclaim and
its counsel, including, without limitation, analysis and review of matters and
documents listed on Schedules to this Agreement and/or otherwise provided to
Acclaim prior to the date hereof and satisfaction with Environmental Conditions
relating to Lazer's offices and facilities located in Pleasanton, California.
SECTION 6.14 Benefit Plans; Stock Option Plans. Termination of all Lazer
Stock Option Plans and employee cash bonus or cash incentive performance plans
(including, without limitation, the Executive Bonus Plan, except for the
payments provided under Section 5.26 hereof) and receipt prior to the Closing
Date of all necessary consents from the holders of all outstanding Stock Options
and Warrants and registration rights with respect to changes therein reasonably
requested by Acclaim.
SECTION 6.15 Stock Price. If the Acclaim Common Stock Price shall be less
than $12.50.
SECTION 6.16 Merger. The Certificate of Merger and the California
Certificate shall have been executed and delivered by Lazer to Acclaim.
SECTION 6.17 Institution of Proceedings. There shall not have been
instituted by any third party any suit or proceeding to enjoin, prevent, set
aside, restrain or invalidate this Agreement or the transactions hereby
contemplated or seeking damages from or to impose obligations upon Lazer or its
directors or officers or Acclaim by reason of this Agreement or the transactions
hereby contemplated which, in Acclaim's good faith judgment, would involve
liabilities, expenses or lapse of time that would be materially adverse to
Acclaim's interests.
SECTION 6.18 Registration Statement. The S-4 shall have become effective
under the 1933 Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
SECTION 6.19 Accountants' Letters. (a) Acclaim shall have received a
letter from Grant Thornton LLP, Acclaim's independent public accountants, with
respect to Acclaim, and from Ernst & Young, LLP Lazer's independent public
accountants, with respect to Lazer, dated the date of the Proxy Statement, and
confirmed in writing at the Effective Date, to the effect that each of Lazer and
Acclaim, as applicable, may participate in a transaction such as the Merger in a
manner so as to permit the Merger to qualify as a Pooling, provided that Acclaim
may not exercise its rights to terminate this Agreement as a result of the
failure of the conditions provided in this Section 6.19 if the reason that such
letters cannot be delivered is solely as a result of the actions or omissions of
Acclaim or its affiliates.
(b) Acclaim shall have received a 'cold comfort' letter from Ernst & Young,
LLP dated within two days prior to the effectiveness of the S-4 with respect to
the operations of Lazer in the form and substance of such letters delivered by
independent public accountants in connection with registration statements on
Form S-4 and reasonably satisfactory to Acclaim and its counsel.
SECTION 6.20 Lazer Affiliate Agreements. Each of the persons listed on
Schedules 3.27(a) shall have entered into a Lazer Affiliate Agreement, which
Lazer Affiliate Agreements, as of the Closing Date, (i) shall be in full force
and effect, (ii) shall be the legal, valid and binding obligation of the
signatory thereto, enforceable in
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accordance with its terms and not conflict with any other agreement to which
such person is a party and (iii) the provisions of which shall not have been
challenged or modified by any legal proceeding or otherwise changed or amended
without the prior written consent of Acclaim.
SECTION 6.21 FIRPTA. Acclaim shall have received from Lazer an affidavit
meeting the requirements of Section 1445(b)(3) of the Code and the Treasury
Regulations promulgated thereunder.
ARTICLE VII
CONDITIONS TO LAZER'S OBLIGATIONS
All obligations of Lazer under this Agreement are subject to the
fulfillment, at the Closing Date, of each of the following conditions, any or
all of which may be waived in whole or in part, at or prior to the Closing Date
by Lazer in its sole discretion:
SECTION 7.01 Representations and Warranties. The representations and
warranties contained in Article IV hereof shall be true and correct at and as of
the Closing Date as though such representations and warranties were made at and
as of such time, except for those representations and warranties that are
expressly made as of a specified earlier date.
SECTION 7.02 Covenants. Acclaim and Holdings shall each have performed and
complied in all material respects with all agreements and conditions on their
respective parts required by this Agreement to be performed or complied with
prior to or on the Closing Date.
SECTION 7.03 Officer's Certificate. Lazer shall have received a
certificate of an executive officer of each of Acclaim and Holdings, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 7.01 and 7.02 hereof.
SECTION 7.04 Opinion of Counsel. Lazer shall have received an opinion of
counsel for Acclaim, dated the Closing Date, in form and substance reasonably
satisfactory to Lazer and its counsel.
SECTION 7.05 Consents. (a) All approvals set forth in Schedule 3.04 hereto
from all Governmental Entities in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions hereby
contemplated shall have been received.
(b) Acclaim shall have obtained all necessary consents and approvals to the
transactions contemplated hereby under the agreements listed on Schedule 4.05
and 4.06 hereto.
SECTION 7.06 HSR Act. Acclaim shall have made all pre-merger notification
filings required to be made by it under the HSR Act, all applicable waiting
periods thereunder shall have expired or been terminated without any request
from any appropriate governmental agency for additional information or, if
additional information has been requested, all applicable extended waiting
periods shall have expired.
SECTION 7.07 Legality. No change shall have occurred in any law, rule or
regulation which would prohibit the performance of Lazer's obligations under
Article I hereof.
SECTION 7.08 Injunctions. (a) No court, agency or other governmental
authority shall have issued any order, decree or judgment to set aside,
restrain, enjoin or prevent the performance of Lazer's obligations in Article I
hereof other than any of the foregoing, which is also covered by Section 7.14
hereof.
(b) No statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any United States
court or Governmental Entity of competent jurisdiction which prohibits,
restrains, sets aside, enjoins or prevents the consummation of the Merger and
shall be in effect other than any of the foregoing, which is also covered by
Section 7.14 hereof.
SECTION 7.09 Effectiveness of Registration Statement. The S-4, which
includes the Proxy Statement, shall have been declared effective under the 1933
Act and shall not be the subject of any stop order or proceedings seeking a stop
order.
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SECTION 7.10 Employment Agreements. At the Effective Time, the Surviving
Corporation shall have entered into an Employment Agreement with each of the
Principals applicable in the form attached as Exhibit D hereto.
SECTION 7.11 Stockholder Approval. This Agreement shall have been approved
and adopted by the affirmative vote of the holders of a majority of the
outstanding Lazer Common Stock in accordance with applicable law.
SECTION 7.12 Merger. The Certificate of Merger at the California
Certificate shall have been executed and delivered by Acclaim to Lazer.
SECTION 7.13 Accountants' Letters. Lazer shall have received a 'cold
comfort' letter from Grant Thornton, LLP, Acclaim's independent public
accountants, dated within two days prior to effectiveness of the S-4 in form and
substance of such letters delivered by independent public accountants in
connection with registration statements on Form S-4 and reasonably satisfactory
to Lazer and its counsel.
SECTION 7.14 Institution of Proceedings. Prior to the Effective Time,
there shall not have been instituted by any third party any suit or proceeding
to restrain, enjoin, prevent, set aside or invalidate this Agreement or the
transactions hereby contemplated or seeking damages from or to impose
obligations upon Lazer or its directors or officers by reason of this Agreement
or the transactions hereby contemplated which in Lazer's good faith judgment
would involve expenses, liabilities, or lapse of time that would be materially
adverse to Lazer's or to such person's interests, as to any of which Acclaim, in
its sole discretion, upon review and assessment thereof with Lazer and its other
advisers, Lazer's and Acclaim's counsel and such other review as Acclaim
reasonably requires (as to which Lazer will, and will cause its counsel and
advisers to, cooperate with Acclaim and its counsel with respect to such
review), has not agreed to indemnify Lazer and/or its directors and officers
pursuant to Section 5.11(e).
SECTION 7.15 Stock Price. If the Acclaim Common Stock Price shall be less
than $12.50.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual consent of Lazer and Acclaim;
(b) by either Lazer or Acclaim, if the Merger shall not have been
consummated on or before July 31, 1995 (unless the failure to consummate
the Merger by such date shall be due to a breach of a representation and
warranty or of a covenant by such party and/or the action or failure to
act of the party seeking to terminate this Agreement); provided however,
that (i) in the event the Closing Balance Sheet shall be dated as of
July 31, 1995, such consummation date shall automatically be extended to
August 15, 1995 and (ii) in the event the Closing Balance Sheet shall be
dated as of July 31, 1995 and Acclaim shall dispute the calculations
therein pursuant to Section 5.22 hereof, such consummation date shall be
automatically extended to August 31, 1995.
(c) by either Lazer or Acclaim, if (i) the conditions to such
party's obligations shall have become impossible to satisfy or shall not
have been satisfied, other than as a result of its own acts or omissions
in violation of its obligation hereunder or (ii) any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger shall have become final and
nonappealable;
(d) by Acclaim, if (i) subject to Section 7.06 hereof, there has
been a material violation or breach by Lazer or any party to an
Affiliate's Agreement of any representation, warranty or any agreement
contained in this Agreement or therein, as applicable, or any failed
condition to Acclaim's obligations under Article VI hereof, (ii) if the
Acclaim Common Stock Price shall be less than $12.50 or (iii) Lazer has
breached its covenants under Section 5.04 hereof.
(e) by Lazer if (i) subject to Section 6.06 hereof, there has been
a material violation or breach by Acclaim of any representation,
warranty or any agreement contained in this Agreement or any failed
33
condition to Lazer's obligations under Article VII hereof, (ii) if the
Acclaim Common Stock Price shall be less than $12.50, or (iii) Acclaim
has breached its covenant under Section 5.04 hereof.
(f) by either party if approval of the Merger by the Lazer
Stockholders shall not have been obtained by reason of the failure to
obtain the required vote upon a vote taken at the Lazer Stockholders
Meeting or any adjournments thereof; provided however, that termination
pursuant to this Section 8.01(f) shall not relieve Lazer of any
obligations or consequences by reason of any breach of any
representation, warranty or covenant of Lazer or any other failed
condition to Acclaim's obligation under Article VI hereof.
(g) by either party if, in accordance with Section 5.03 Lazer's
Board of Directors accepts, approves or recommends to the Lazer
stockholders a proposal relating to an Acquisition Transaction or the
Lazer Board of Directors amends, withholds or withdraws its
recommendation of the Merger; provided, however, that termination by
either party pursuant to this Section 8.01(g) shall not relieve Lazer of
its obligations pursuant to Section 5.14, Section 5.15 and Article IX of
this Agreement.
SECTION 8.02 Effect of Termination. (a) Subject to subsection (b) of this
Section 8.02, in the event of the termination of this Agreement pursuant to
Section 8.01 hereof, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any party hereto or its affiliates,
directors, officers or stockholders, other than the provisions of Sections 5.14,
5.15, Article IX and the Confidentiality Agreement. Nothing contained in this
Section 8.02 shall relieve any party from liability for any wilful breach of
this Agreement. The indemnification provisions set forth in Article IX hereof
shall survive any such termination of this Agreement as to any party who shall
be in breach of this Agreement as at any such date of termination or at any
earlier date of the termination of this Agreement pursuant hereto if the
non-breaching party shall have given the appropriate notice under Article IX
hereof prior to any such termination, unless the survival of such provisions is
specifically waived by the non-breaching party or parties hereto.
(b) If Acclaim or Lazer shall have the right to terminate this Agreement
then the party which does not have the right to terminate will use its best
efforts to cure the condition giving rise to such right. If such party is unable
to cure the condition giving rise to such right, the other party may exercise
its right to terminate this Agreement or waive such right and proceed to
consummate the transactions contemplated hereby. The giving of notice pursuant
to Section 5.12 of this Agreement shall not act as a waiver of any breach
hereunder. Notwithstanding the exercise of the foregoing right to terminate or
waive, the aggrieved party shall have and may pursue its rights to recover
damages for breach of contract or any representation, warranty or covenant
giving rise to such right subject to the limitations of Section 5.14(c) and
5.14(d).
SECTION 8.03 Amendment. This Agreement may be amended by the parties
hereto at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of Lazer, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 8.04 Extension; Waiver. At any time prior to the Effective Date,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 By Lazer. Lazer agrees to indemnify and hold harmless
Acclaim, Holdings and their respective directors, officers, employees and agents
(the 'Acclaim Parties') against, and to reimburse the Acclaim Parties on demand
with respect to, any and all losses, liabilities, obligations, suits,
proceedings, demands, judgments, damages, claims, expenses and costs (including,
without limitation, reasonable fees, expenses and disbursements of counsel)
(collectively, 'Losses') which each may suffer, incur or pay, by reason
34
of (i) the breach by Lazer, Lazer's affiliates or the Kelly Family Trust and the
1992 Kelly Family Trust, or the Principals of any representation, warranty or
covenant contained in this Agreement or in any agreement, certificate or other
document executed by the Principals or Lazer, Lazer's affiliates or the Kelly
Family Trust and the 1992 Kelly Family Trust, and delivered to Acclaim or
Holdings pursuant to the provisions of this Agreement; (ii) the failure of the
Principals, Lazer, Lazer's affiliates or the Kelly Family Trust and the 1992
Kelly Family Trust to execute, deliver and perform any agreement required by
this Agreement or any agreement executed pursuant to the provisions of this
Agreement or entered into concurrently herewith as referenced in Section 10.05
hereof; and/or (iii) the allegation in writing by any third party of the
existence of any liability, obligation, lease, agreement, contract, other
commitment or state of facts which, if such allegation were true, would
constitute a breach by the Principals, Lazer, Lazer's affiliates or the Kelly
Family Trust and the 1992 Kelly Family Trust of any representation or warranty
contained in this Agreement or in any agreement, certificate or other document
delivered by or on behalf of the Principals, Lazer, Lazer's affiliates or the
Kelly Family Trust and the 1992 Kelly Family Trust to Acclaim pursuant to the
provisions of this Agreement or of any covenant made by the Principals, Lazer,
Lazer's affiliates or the Kelly Family Trust and the 1992 Kelly Family Trust
herein or therein.
SECTION 9.02 By Acclaim. Acclaim agrees to indemnify and hold harmless
Lazer, its directors, officers, employees and agents (the 'Lazer Parties')
against, and to reimburse the Lazer Parties on demand with respect to, any and
all Losses which each may suffer, incur or pay by reason of (i) the breach by
Acclaim or Holdings of any representation, warranty or covenant contained in
this Agreement or in any agreement, certificate or other document executed by
Acclaim or Holdings and delivered to Lazer pursuant to the provisions of this
Agreement; (ii) the failure of Acclaim or Holdings to perform any agreement
required by this Agreement or any agreement executed pursuant to the provisions
of this Agreement and/or (iii) the allegation in writing by any third party of
the existence of any liability, obligation, lease, agreement, contract, other
commitment or state of facts which, if such allegation were true, would
constitute a breach by Acclaim or Holdings of any representation or warranty
contained in this Agreement or in any agreement, certificate or other document
delivered by or on behalf of Acclaim or Holdings to Lazer pursuant to the
provisions of this Agreement or of any covenant made by Acclaim or Holdings
herein or therein.
SECTION 9.03 Limitations on Indemnification. (a) Neither the Acclaim
Parties, on the one hand, nor the Lazer Parties, on the other hand, shall be
entitled to be indemnified pursuant to Section 9.01 hereof or pursuant to
Section 9.02 hereof, as the case may be, unless and until the aggregate of all
Losses (other than those hereinafter referred to in the proviso to this
sentence) incurred by the Acclaim Parties or the Lazer Parties, as the case may
be, exceeds $150,000 and, upon exceeding such amount, the Acclaim Parties or the
Lazer Parties, as the case may be, shall be entitled to be indemnified for all
Losses (including all Losses below such $150,000 threshold on a dollar for
dollar basis); provided, however, that notwithstanding the foregoing, (i)
Acclaim shall be entitled to be indemnified on a dollar-for-dollar basis from
and against all Losses arising under Section 9.01 hereof if the Principals or
Lazer shall have acted in bad faith or shall have engaged in willful misconduct
in respect thereof and (ii) Lazer shall be entitled to be indemnified on a
dollar-for-dollar basis from and against all Losses arising under Section 9.02
hereof if Acclaim shall have acted in bad faith or shall have engaged in willful
misconduct in respect thereof.
SECTION 9.04 Indemnification Procedure for Third Party Claims. The Acclaim
Parties, in the case of Section 9.01 hereof, and the Lazer Parties, in the case
of Section 9.02 hereof (hereinafter, the applicable party or parties providing
indemnity, the 'Indemnifying Party' and the party or parties being indemnified,
the 'Indemnified Party') agree to give the Indemnifying Party prompt written
notice of the allegation by any third party of the existence of any liability,
obligation, lease, agreement, contract, other commitment or state of facts
referred to in clause (iii) of Sections 9.01 and 9.02 hereof, as applicable (any
of such claims being referred to as a 'Third Party Claim'); provided, however,
that the Indemnified Party's failure to notify, or a delay in notifying, the
Indemnifying Party of any Third Party Claim (provided that such Third Party
Claim is a claim solely for monetary damages) shall relieve the Indemnifying
Party of its obligations under this Article IX only to the extent, if any, that
it is materially prejudiced by reason of any such delay or failure. The
Indemnifying Party shall be entitled, at his or its sole cost and expense, to
participate in and to control the contest, defense, settlement or compromise of
any Third Party Claim (provided that such Third Party Claim is a claim solely
for monetary damages) if the Indemnifying Party shall agree in writing within 15
days after the receipt of notice of such claim that it is required, pursuant to
this Article IX, to indemnify the Indemnified Party for the full amount of
Losses
35
arising in respect of such claim (the 'Claim Acknowledgement Procedure'),
subject to Section 9.03 hereof. If the Indemnifying Party shall assume the
defense of a claim hereunder, the Indemnified Party shall be kept informed with
respect to, and shall have the right to participate in, the contest, defense,
settlement or compromise of any such claim. If the Indemnifying Party does not
assume the defense of a claim within a reasonable time after notice thereof or,
after assumption, does not thereafter diligently pursue such defense or does not
comply with the Claim Acknowledgement Procedure, the Indemnified Party shall be
entitled to defend, settle or compromise such matter for the account and at the
expense of the Indemnifying Party. Notwithstanding the foregoing provisions of
this Section 9.04, (i) the Indemnified Parties shall have the sole right to
control the contest, defense, settlement or compromise of any claim if such
claim is not a claim solely for monetary damages and (ii) Acclaim shall have the
sole right to control the contest, defense, settlement or compromise of any
claim if, by reason of such claim, the rights of Acclaim or in or to any of its
non-cash assets including, but not limited to, any character, publication or
license might be, in Acclaim's sole discretion, adversely affected. Unless (x) a
Third Party Claim shall have been instituted against an Indemnified Party and
(y) the Indemnifying Party, if it shall have the right pursuant to this Section
9.04 to assume the defense thereof, shall not have assumed such defense after
notification thereof in accordance with the Claim Acknowledgement Procedure, the
Indemnified Party shall not settle or compromise such claim without the prior
written consent of the Indemnifying Party; provided, however, that the
Indemnifying Party shall not be so entitled to consent if the settlement or
compromise of any single such Third Party Claim shall be $25,000 or less. If the
Indemnifying Party shall not have the right, pursuant to this Section 9.04, to
assume the defense of a Third Party Claim because such claim is not a claim
solely for monetary damages, the Indemnifying Party shall receive 20 days' prior
written notice of the Indemnified Party's proposed settlement and shall be
entitled to consent only to the monetary portion, if any, of the settlement or
compromise of the Third Party Claim as to which the Indemnifying Party is being
asked to indemnify the Indemnified Party; provided, however, that the
Indemnifying Party shall not be so entitled to consent if the monetary portion
of the settlement or compromise of any single such Third Party Claim shall be
$25,000 or less. If the Indemnifying Party shall have the right, pursuant to
this Section 9.04, to assume the defense of a Third Party Claim because such
claim is a claim solely for monetary damages, the Indemnified Party shall
receive 20 days' prior written notice of the Indemnifying Party's proposed
settlement and shall be entitled to consent to any such settlement or compromise
which exceeds the amount available for indemnification under Section 9.03(b) or
(c) hereof.
SECTION 9.05 Indemnification Procedure for Claims Between Lazer and
Acclaim. The Acclaim Parties, in the case of Section 9.01 hereof, and the Lazer
Parties, in the case of Section 9.02 hereof agree to give the Indemnifying Party
prompt written notice with respect to which the Indemnifying Party may become
obligated to hold harmless or indemnify the Indemnified Party. The Indemnified
Party shall promptly deliver to the Indemnifying Party a written notice
describing such matter giving rise to any indemnification hereunder (a 'Claim')
in reasonable detail and specifying the estimated amount of the Losses that may
be incurred by the Indemnified Party in connection therewith. If the
Indemnifying Party objects in writing to hold harmless or indemnify the
Indemnified Party within five (5) business days following receipt of such
notice, then the Indemnified Party and the Indemnifying Party will negotiate in
good faith to resolve such Claim. If the parties do not resolve such Claim
within ten (10) business days after the Indemnifying Party has first objected in
writing, then the parties may pursue their respective available remedies
hereunder or otherwise.
SECTION 9.06 Limitations on Indemnity. (a) An Indemnified Party shall act
in good faith and in a commercially reasonable manner to mitigate any Losses it
may suffer.
(b) Notwithstanding any provision of this Article IX, Lazer's obligations
and liabilities hereunder are subject to the limitations set forth in Section
5.14(c) and 5.14(d) hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 Survival of Representations and Warranties. All statements,
certifications, indemnifications, representations and warranties made hereby by
the parties to this Agreement and their respective covenants, agreements and
obligations to be performed pursuant to the terms hereof shall not survive the
Closing, provided, however, that for purposes of determining 'termination for
cause' as defined in the Employment
36
Agreements attached as Exhibit D hereto notwithstanding any examination by or on
behalf of any party hereto and notwithstanding the consummation of the
transactions hereby contemplated, such covenants, agreements, representations
and warranties, certifications and obligations of Lazer shall survive the
closing of the transactions hereby contemplated for a period of one (1) year
from the Closing Date, except in the case of Sections 3.07, 3.20, 3.21 and 3.24
(such enumerated representations of Lazer hereinafter referred to as the 'Audit
Representations') which shall survive the Closing for a period ending with the
issuance of an audit report relating to the combined audited financial
statements of Acclaim and Lazer for a period subsequent to the Closing, provided
further, however, any representation or warranty or agreement made hereunder and
any indemnity under Article IX hereof shall survive for such purpose the time at
which it would otherwise terminate pursuant to this sentence, if notice of the
inaccuracy or breach thereof (in the case of a representation or warranty or
agreement) or the claim thereunder (in the case of an indemnity) shall have been
given to the party from whom indemnity may be sought in respect thereof (or to
the appropriate entity under the applicable insurance policy) prior to one (1)
year from the Closing Date (or such shorter period in the case the 'Audit
Representations').
SECTION 10.02 Notices. All notices and other communications hereunder
shall be in writing (and shall be deemed given upon receipt) if delivered
personally, sent by facsimile transmission (receipt of which is confirmed) or by
mail to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
1. if Lazer, to:
Lazer-Tron Corporation
4430 Willow Road
Pleasanton, CA 94588
Attention: Mr. Norman B. Petermeier
Facsimile No. (510) 460-0365
with a copy to:
Fenwick & West
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Dennis R. DeBroeck, Esq.
Facsimile No. (415) 857-0361
and
2. if to Acclaim, to
Acclaim Entertainment, Inc.
One Acclaim Plaza
Glen Cove, New York 11542-2708
Attention: Mr. Anthony R. Williams
Facsimile No.: (516) 656-2040
with a copy to
Rosenman & Colin
575 Madison Avenue
New York, NY 10022
Attention: Eric M. Lerner, Esq.
Facsimile No.: (212) 940-8776
SECTION 10.03 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
SECTION 10.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
37
SECTION 10.05 Entire Agreement; Assignment. This Agreement, the side
letters dated the date hereof entered into concurrently with the execution
hereof (i.e. (i) the agreements of each of Norman Petermeier, Matthew Kelly and
Brian Kelly with respect to their employment agreements, (ii) the agreements of
the Kelly Family Trust and the 1992 Kelly Family Trust with respect to voting
for the Merger, and (iii) the agreement between Lazer and Acclaim regarding
breach of the foregoing agreements) and each of the exhibits hereto (a)
constitute the entire agreement and supersedes all prior agreements and
understandings including the Letter of Intent dated March 7, 1995, both written
and oral, among the parties with respect to the subject matter hereof other than
the Confidentiality Agreement, any provisions of which are inconsistent with the
transactions contemplated by this Agreement being waived hereby but the
provisions of which that are not inconsistent shall survive and (b) shall not be
assigned by operation of law or otherwise. The parties acknowledge that neither
party has any rights or obligations under the Letter of Intent.
SECTION 10.06 Governing Law and Consent to Jurisdiction. This Agreement
shall be governed and construed in accordance with the laws of the State of
Delaware without regard to any applicable principles of conflicts of law.
SECTION 10.07 Expenses. Except as otherwise set forth herein, each of the
parties hereto shall bear its own expenses associated with the negotiation and
execution of the Agreement and the consummation of the transactions contemplated
hereby including, without limitation, legal and accounting fees and expenses.
SECTION 10.08 Costs of Enforcement. Except as otherwise set forth herein,
the prevailing party in any proceeding brought to enforce any provision of the
Agreement shall be entitled to recover the reasonable fees and costs of its
counsel, plus all other costs of such proceeding.
SECTION 10.09 Specific Performance. The parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
SECTION 10.10 Publicity. Except as otherwise required by law or the rules
of the National Association of Securities Dealers, Inc., neither Lazer or
Acclaim shall, or shall permit any of its subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without prior written approval
of the other party, which approval shall not be unreasonably withheld.
SECTION 10.11 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person or persons any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement, except pursuant to Article IX hereof.
* * * * *
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
ACCLAIM ENTERTAINMENT, INC. LAZER-TRON CORPORATION
By: ANTHONY R. WILLIAMS BY: NORMAN B. PETERMEIER
Name: Anthony R. Williams Name: Norman B. Petermeier
Title: Executive Vice President Title: Chairman, CEO & President
ACCLAIM ARCADE HOLDINGS, INC.
By: ANTHONY R. WILLIAMS
Name: Anthony R. Williams
Title: Executive Vice President
39
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to that certain Agreement and Plan of Merger dated as
of March 22, 1995 (the 'Merger Agreement'), is made and entered into as of June
15, 1995, by and among Lazer-Tron Corporation ('Lazer'), a California
corporation, Acclaim Entertainment, Inc. ('Acclaim'), a Delaware corporation,
and Acclaim Arcade Holdings, Inc. ('Holdings'), a Delaware corporation and a
wholly owned subsidiary of Acclaim, organized solely for the purpose of
consummating the transactions contemplated by the Merger Agreement.
WHEREAS, the Board of Directors of each of Lazer, Acclaim and Holdings have
determined that it is in the best interests of their respective companies and
stockholders to modify and amend the Merger Agreement as set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. The tenth line of the second paragraph on page 1 is modified and amended
to delete the words 'substitute comparable obligations of Acclaim for all' and
insert the words 'assume the' in its place.
2. The fourth and fifth lines under Section 1.01(a) are modified and
amended to delete the words 'five days thereafter' and insert the words 'one
business day after the date of the Lazer Stockholders Meeting (as defined below)
or the latest adjournment thereof' in its place.
3. The ninth line under Section 1.01(b) is modified and amended to delete
the word 'completion' and insert the words 'the effective date' in its place.
4. The third and fourth lines under Section 1.02 are modified and amended
to delete the phrase '(iii) retain its name 'Lazer-Tron Corporation,' and (iv)'
and insert the phrase 'and (iii)' in its place.
5. The fourth and fifth lines under Section 1.03(a)(i) are modified and
amended to delete the phrase 'immediately preceding the second business day
prior to the Closing Date' and insert the phrase 'ending on the second business
day prior to the later of the Lazer Stockholders Meeting or the latest
adjournment thereof' in its place.
6. Section 1.03(e) is modified and amended in its entirety to read as
follows:
'Notwithstanding the foregoing provisions of this Section 1.03, if the
Acclaim Common Stock Price, or the average of the closing sale price of a
share of Acclaim Common Stock on The Nasdaq National Market (as reported in
the Wall Street Journal) for the 20 business days ending on the second
business day prior to the date of the Lazer Stockholders Meeting or the
latest adjournment thereof (the 'Acclaim Closing Common Stock Price'), is
less than $12.50, each of Acclaim and Lazer, at its sole option, shall have
the right to give notice pursuant to Section 8.01 hereof of its election to
terminate this Agreement.'
7. Section 1.06 is modified and amended to read in its entirety as follows:
Section 1.06 Stock Plans and Warrants.
(a) At the Effective Time, each outstanding option to purchase Lazer
Common Stock (a 'Lazer Stock Option') granted under the Lazer 1989 Stock
Option Plan (the 'Employee Option Plan') and/or the Lazer 1994 Directors
Stock Option Plan (the 'Directors Option Plan') (the Employee Option Plan
together with the Directors Option Plan are collectively referred to herein
as, the 'Lazer Stock Option Plans') and each outstanding warrant (the
'Lazer Warrants') described in Schedule 3.02 hereto, whether vested or
unvested, shall, by virtue of the Merger and without any further action on
the part of any holder thereof, be exercisable for, and in the case of the
Sales Agent Warrants (as defined below) subject to the more detailed
procedure set forth in Section 1.06(b) below, that number of shares of
Acclaim Common Stock as the holder of such Lazer Stock Option or Lazer
Warrant would have been entitled to receive pursuant to the Merger (as
provided in Section 1.03 above) had such Lazer Stock Option or Lazer
Warrant been exercised in full immediately prior to the Effective Time
(without taking into account whether such Lazer Stock Option or Lazer
Warrant was then exercisable).
(b) Each holder of Sales Agent Warrants (as defined in Section 3.02),
listed on Schedule 3.02, which are each exercisable for one share of Lazer
Common Stock and an additional warrant (the 'Underlying Warrants') to buy
one-half of a share of Lazer Common Stock, shall have the right to receive
upon exercise thereof, respectively, that number of shares of Acclaim
Common Stock as the holder of such Sales Agent Warrants would have been
entitled to receive pursuant to the Merger had such Sales Agent Warrants
(and the Underlying Warrants) been exercised in full immediately prior to
the Effective Time (without taking into account whether such Sales Agent
Warrants and/or Underlying Warrants were then exercisable).
(c) The exercise price per share for the shares of Acclaim Common
Stock issuable upon exercise of each Lazer Stock Option, Lazer Warrant, or
Underlying Warrant will be equal to (x) the aggregate exercise price for
Lazer Common Stock purchasable pursuant to such Lazer Stock Option,
Underlying Warrant or Lazer Warrant (and/or with respect to a Sales Agent
Warrant, the aggregate exercise price to acquire Lazer Common Stock and the
Underlying Warrant) divided by (y) the number of shares of Acclaim Common
Stock deemed directly purchasable pursuant toh Lazer Stock Option or Lazer
Warrant (excluding with respect to a Sales Agent Warrant the shares of
Acclaim Common Stock deemed directly purchasable pursuant to the Underlying
Warrant) and/or Underlying Warrant as a result of the Merger.
(d) The number of shares of Acclaim Common Stock to be issued upon
exercise of each Lazer Option, Lazer Warrant or Underlying Warrant shall be
aggregated and then rounded down to the nearest whole number of shares. No
fractional share of Acclaim Common Stock shall be issued or delivered to a
Lazer Stockholder upon exercise of any Lazer Option, Lazer Warrant or
Underlying Warrant, and no cash or other consideration shall be payable for
such fractional share.
(e) Immediately prior to the Effective Time, each outstanding right to
acquire Lazer Common Stock ('Lazer Stock Purchase Rights') issued pursuant
to the Employee Purchase Plan shall be exercised or deemed exercised (such
deemed exercise shall nevertheless require application of the funds held in
the applicable employee's account under the Employee Purchase Plan) to
purchase shares of Lazer Common Stock at an exercise price per share
determined in accordance with the formula set forth in the Employee
Purchase Plan and for that number of shares of Lazer Common Stock and upon
the terms and conditions determined in accordance with the terms of the
Employee Purchase Plan. After such exercise or deemed exercise of all
outstanding Lazer Stock Purchase Rights, but in any event no later than
July 1, 1995, including without limitation with respect to rights
outstanding on the date hereof and/or outstanding through June 30, 1995,
the Employee Purchase Plan and any other unexercised rights shall be
terminated (unless the Closing shall occur prior to said date in which
event the Employee Purchase Plan and all such rights shall terminate as of
the date two business days prior to such Closing Date) provided, that the
Closing subsequently occurs. All such shares of Lazer Common Stock issued
upon the exercise or deemed exercise of Lazer Stock Purchase Rights under
the Employee Purchase Plan shall be converted into the right to receive
Acclaim Common Stock as provided in Sections 1.03 or 1.05.
(f) In the case of any Lazer Stock Option to which Section 421 of the
Code applies by reason of its qualification under any of Sections 422- 423
of the Code ('statutory stock options'), the option price, the number of
shares purchasable pursuant to such Lazer Stock Option and the terms and
conditions of exercise thereof shall comply with Section 424(a) of the
Code. Continuous employment or service with Lazer will be credited to an
optionee for purposes of determining the number of shares of Acclaim Common
Stock subject to exercise under such Lazer Stock Option. Lazer Stock
Options under the Director Option Plan shall by the terms thereof
accelerate and be fully exercisable upon the Effective Time and thereafter
shall terminate pursuant to their terms 90 days following the Effective
Time.
(g) As soon as practicable after the Effective Time, Acclaim shall
deliver to each holder of an outstanding Lazer Stock Option or Lazer
Warrant an appropriate notice setting forth such holder's rights pursuant
thereto and such Lazer Stock Option or Lazer Warrant shall continue in
effect on the same terms and conditions (subject to the adjustments
required by this Section 1.06 after giving effect to the Merger). Acclaim
shall comply with the terms of all such Lazer Stock Options and Lazer
Warrants and use its best efforts to ensure, to the extent required by, and
subject to the provisions of, any such Lazer Stock Option Plan that Lazer
Stock Options which qualified as qualified stock options prior to the
Effective Time continue to qualify as qualified stock options after the
Effective Time. Acclaim shall take all corporate
2
action necessary to reserve for issuance a sufficient number of shares of
Acclaim Common Stock for delivery pursuant to the terms set forth in this
Section 1.06. Acclaim shall use reasonable efforts to cause the Acclaim
Common Stock to be issued pursuant to exercise of the Lazer Stock Options
granted under the Employee Option Plan to be issued under Acclaim's 1988
Stock Option Plan (or otherwise with respect to not more than 30,000
non-qualified Lazer Stock Options) and, if not already registered, to
register such Acclaim Common Stock issuable pursuant to such plans or
otherwise, as applicable, as soon as reasonably practicable following the
Effective Time on a registration statement on Form S-8, pursuant to the S-4
or other applicable form and to maintain such registration throughout the
exercise period of such Lazer Stock Options.
(h) If necessary to effect the adjustments contemplated by this
Section 1.06, Lazer will use its reasonable efforts to obtain the consent
of each holder of a Lazer Stock Option or Lazer Warrant.
8. The fifth and sixth lines under Section 1.07 are modified and amended to
insert the word 'Common' after the word 'Lazer'.
9. The fourth line under Section 2.06 is modified and amended to insert the
words 'issued prior to the Effective Time' after the word 'Certificates'.
10. (a) Section 3.21(b)(ii) is modified and amended to delete the number
'$14,400,000' and insert the number '$13,900,000' in its place.
(b) Section 3.21(b)(iii) is modified and amended to delete the number
'$15,400,000' and insert the number '$14,900,000' in its place.
11. Section 5.01(c) is modified and amended to insert after the word
'by-laws' the phrase ', except (i) to delete, effective as of the initial public
offering of Lazer Common Stock, Article VIII, Section 8.4 of Lazer's by-laws and
(ii) to amend Article VII, Section 7.10 of Lazer's by-laws to delete the
reference therein to cumulative voting rights.'
12. The second line under Section 5.10 is modified and amended to delete
'3.27(b).' and insert '3.27(a)' in its place.
13. Section 5.11(e) is modified and amended to (i) add the phrase 'prior to
the Effective Time' before the word 'any' the first time it appears in the first
line thereof, (ii) in the thirteenth line thereof, delete the words 'pursuant to
this Section 5.11(e)', (iii) add after the word 'thereupon' in the seventeenth
line thereof the phrase 'agree to provide the foregoing indemnity and' and (iv)
add the following language at the end of said section:
'Notwithstanding the foregoing, neither the giving by Acclaim of its
notice to proceed with the Merger, assume the defense of the Claim Relating
to the Merger and to indemnify the Lazer Indemnified Parties as referenced
in the second sentence of this Section 5.11(e), nor anything set forth in
this Section 5.11(e), shall in any way restrict or limit Acclaim's rights
as permitted in this Agreement to decide in the future not to consummate
the Merger, including, without limitation, as a result of the Complaint or
the facts and circumstances referred to therein; and provided, further,
that in the event the Merger is not consummated for any reason, Acclaim
will have no continuing obligation under this Section 5.11(e) with respect
to the Claim Relating to the Merger subsequent to the date notice is given
by either Acclaim or Lazer with respect to termination of this Agreement
and or its respective intent not to consummate the Merger, other than for
costs and legal fees incurred prior to said date. Notwithstanding anything
to the contrary herein, in the event the Merger is consummated, Acclaim
shall not thereafter be entitled to terminate its agreement to provide the
foregoing indemnity or to defend any such Claim Relating to the Merger
pursuant to this Section 5.11(e). The Lazer Indemnified Parties shall use
reasonable best efforts to facilitate and assist Acclaim's defense of the
Claim Relating to the Merger and to cooperate with Acclaim in such defense,
including providing access to records and persons relevant to such
defense.'
14. The eleventh line of Section 5.14(d) is modified and amended to delete
the word '5.03(c)' and insert the word '5.14(c)' in its place.
15. The fifth line under Section 5.18 is modified and amended to delete the
words 'or substituted'.
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16. The fifth line under Section 5.19 is modified and amended to delete the
word 'substituted'.
17. The eighteenth line under Section 5.22 is modified and amended to
delete the number '15' and insert the number '11' in its place.
18. (a) The fourth line under Section 5.23 is modified and amended to
insert the words ', except that Acclaim may cause the Surviving Corporation to
guarantee indebtedness or other liabilities of Acclaim or its subsidiaries'
after the first appearance of the word 'Corporation' therein.
(b) The sixth line under Section 5.23 is modified and amended to
insert the words 'or its subsidiaries' after the word 'Acclaim's'.
19. Section 6.04(b) is modified and amended to read in its entirety as
follows:
'(b) Acclaim shall have received a copy of a legal opinion of Fenwick
& West to be addressed to the Board of Directors of Lazer-Tron and dated
the Closing Date in form and substance identical to the opinion of Fenwick
& West previously addressed and delivered to Lazer-Tron's Board of
Directors and dated on or about the effective date of the S-4 pursuant to
Section 5.04 hereof.'
20. The reference to 'Section 5.23' in Section 6.09 is amended to refer
instead to 'Section 5.22'.
21. (a) The caption under Section 6.14 is modified and amended to delete
the word 'Benefit' and insert the word 'Bonus' in its place.
(b) The fourth line under Section 6.14 is modified and amended to
insert the words 'and except for Lazer-Tron's existing 401(k) plan' after
the word 'hereof'.
(c) The fifth line under Section 6.14 is modified and amended to
insert the word 'Lazer' twice, once following the word 'outstanding' and
once following the first appearance of the word 'and'.
22. Section 6.15 is modified and amended in its entirety to read as
follows: 'The Acclaim Common Stock Price and the Acclaim Closing Common Stock
Price shall be equal to or greater than $12.50.'
23. The first line under Section 7.12 is modified and amended to delete the
word 'at' and insert the word 'and' in its place.
24. Section 7.14 is modified and amended to (i) add the words '(and assume
the defense of)' after the word 'indemnify' in the eleventh line thereof and
(ii) delete '/or' at the end of the eleventh line thereof.
25. Section 7.15 is modified and amended in its entirety to read as
follows: 'The Acclaim Common Stock Price and the Acclaim Closing Common Stock
Price shall be equal to or greater than $12.50.'
26. The fifth line under Section 8.01(d) is modified and amended to insert
the words 'or the Acclaim Closing Common Stock Price' after the word 'Price'.
27. The fourth line under Section 8.01(e) is modified and amended to insert
the words 'or the Acclaim Closing Common Stock Price' after the word 'Price'.
28. (a) The fifth line under Section 10.01 is modified and amended to
insert the words 'that the covenants and agreements contained in Sections 1.03,
1.04, 1.06, 1.07, 2.01, 2.02, 2.03, 2.04, 2.06, 5.11, 5.18, 5.19, 5.20, 5.23,
5.24 and 5.26 shall survive the Closing and, provided further,' after the word
'however,'.
(b) The sixteenth line under Section 10.01 is modified and amended to
delete the phrase 'and any indemnity under Article IX hereof' therefrom.
29. The last line of Section 10.11 is modified and amended to insert the
phrase 'and Sections 5.11, 5.18, 5.19, 5.20, 5.23, 5.24 and 5.26' before the
word 'hereof.'
Upon the execution hereof, each reference in the Merger Agreement to 'this
Agreement', 'hereby', 'hereunder', 'herein', 'hereof' or words of like import
referring to the Merger Agreement shall mean and refer to the Merger Agreement
as amended by this Amendment No. 1 to the Merger Agreement. All other provisions
of the Merger Agreement shall remain in full force and effect except and to the
extent explicitly
4
amended hereby. This Amendment No. 1 to the Merger Agreement shall be governed
and construed in accordance with the laws of the State of Delaware without
regard to any applicable principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Merger Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
ACCLAIM ENTERTAINMENT, INC.
By: /s/ ANTHONY R. WILLIAMS
Anthony R. Williams
Executive Vice President
ACCLAIM ARCADE HOLDINGS, INC.
By: /s/ ANTHONY R. WILLIAMS
Anthony R. Williams
Executive Vice President
LAZER-TRON CORPORATION
By: /s/ NORMAN B. PETERMEIER
Norman B. Petermeier
Chairman, CEO & President
5
EXHIBIT B
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
1300. REORGANIZATION OR SHORT-FORM MERGER, DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS. (a) If the approval of the
outstanding shares (Section 152) of a corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of
Section 1201, each shareholder of the corporation entitled to vote on the
transaction and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation in which the
shareholder holds shares to purchase for cash at their fair market value the
shares owned by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value shall be determined as of the day before
the first announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or share
dividend which becomes effective thereafter.
(b) As used in this chapter, 'dissenting shares' means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, 'dissenting shareholder' means the
recordholder of dissenting shares and includes a transferee of record.
1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND FOR
PURCHASE; TIME; CONTENTS. (a) If, in the case of a reorganization, any
shareholders of a corporation have a right under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require
the corporation to purchase their shares for cash, such corporation shall mail
to each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
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(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFIED
SECURITIES. Within 30 days after the date on which notice of the approval by
the outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR MARKET
VALUE; FILING; TIME OF PAYMENT. (a) If the corporation and the shareholder
agree that the shares are dissenting shares and agree upon the price of the
shares, the dissenting shareholder is entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Any
agreements fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS. (a) If the corporation denies that the shares are
dissenting shares, or the corporation and the shareholder fail to agree upon the
fair market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
2
1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT; JUDGMENT;
PAYMENT; APPEAL; COSTS. (a) If the court appoints an appraiser or appraisers,
they shall proceed forthwith to determine the fair market value per share.
Within the time fixed by the court, the appraisers, or a majority of them, shall
make and file a report in the office of the clerk of the court. Thereupon, on
the motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court finds
the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST. To
the extent that the provisions of Chapter 5 prevent the payment to any holders
of dissenting shares of their fair market value, they shall become creditors of
the corporation for the amount thereof together with interest at the legal rate
on judgments until the date of payment, but subordinate to all other creditors
in any liquidation proceeding, such debt to be payable when permissible under
the provisions of Chapter 5.
1307. DIVIDENDS ON DISSENTING SHARES. Cash dividends declared and paid by
the corporation upon the dissenting shares after the date of approval of the
reorganization by the outstanding shares (Section 152) and prior to payment for
the shares by the corporation shall be credited against the total amount to be
paid by the corporation therefor.
1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT. Except as expressly limited in this chapter, holders of
dissenting shares continue to have all the rights and privileges incident to
their shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw a demand for payment
unless the corporation consents thereto.
1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS. Dissenting
shares lose their status as dissenting shares and the holders thereof cease to
be dissenting shareholders and cease to be entitled to require the corporation
to purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
3
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL. If litigation is instituted to test the
sufficiency or regularity of the votes of the shareholders in authorizing a
reorganization, any proceedings under Sections 1304 and 1305 shall be suspended
until final determination of such litigation.
1311. EXEMPT SHARES. This chapter, except Section 1312, does not apply to
classes of shares whose terms and provisions specifically set forth the amount
to be paid in respect to such shares in the event of a reorganization or merger.
1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACH, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS. (a) No
shareholder of a corporation who has a right under this chapter to demand
payment of cash for the shares held by the shareholder shall have any right at
law or in equity to attack the validity of the reorganization or short-form
merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
4
EXHIBIT C
[LOGO]
VAN KASPER & COMPANY
INVESTMENT BANKERS
11661 SAN VICENTE BLVD., SUITE 709, LOS ANGELES, CALIFORNIA 90049
As of March 14, 1995
Lazer-Tron Corporation
4430 Willow Road
Pleasanton, California 94588
Gentlemen:
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of Lazer-Tron Corporation, a
California corporation ('Lazer-Tron'), of a proposed reorganization and merger
(the 'Transaction') among Lazer-Tron, Acclaim Entertainment, Inc., a Delaware
corporation ('Acclaim'), and Acclaim Arcade Holdings, Inc., a newly formed
Delaware corporation ('NEWCO') which is a wholly-owned subsidiary of Acclaim.
A summary of the structure of the Transaction is as follows:
1. NEWCO will merge with and into Lazer-Tron, leaving Lazer-Tron
as the surviving entity in the merger. Upon the effective time of the
Merger, shareholders of Lazer-Tron (other than those who validly hold
'Dissenters Shares' as defined in the Agreement referred to below) will
receive one-half share of Common Stock of Acclaim for each share of Common
Stock, without par value, of Lazer-Tron, subject to adjustment in
accordance with the Agreement if the market value of the Common Stock of
Acclaim shall be less than $16 per share or shall exceed $20 per share.
2. Options and warrants to purchase Lazer-Tron Common Stock which
are outstanding at the effective time of the merger will be or
substituted for an identical Acclaim option or warrant to purchase the
number of shares of Acclaim Common Stock that the holder thereof would
have been entitled to receive in the Transaction, had such option or
warrant been exercised prior to the effective date of the Transaction.
3. Following the merger of NEWCO into Lazer-Tron, Lazer-Tron as
the surviving entity to the merger, will be a wholly-owned subsidiary
of Acclaim. The Transaction is intended by the parties to be accounted
for as a 'pooling' under generally accepted accounting principles.
In connection with our opinion, we have held extensive discussions with the
management of Lazer-Tron and certain members of the management of Acclaim, and
have reviewed a draft of the Agreement and Plan of Merger in the form provided
to us by Lazer-Tron (the 'Agreement') among Lazer-Tron, Acclaim and NEWCO, which
we have been advised is a preliminary draft which will be substantially modified
in negotiations between the parties; certain publicly available documents for
each of Lazer-Tron and Acclaim; internal budgets and projects provided to us by
Lazer-Tron; certain marketing materials and press releases provided to us by
each of Lazer-Tron and Acclaim; publicly available data and information for
companies which we have determined to be comparable; and available research
reports for each of Lazer-Tron, Acclaim and other companies which we have
Lazer-Tron Corporation
As of March 14, 1995
Page 2
determined to be comparable. We note that Acclaim denied our request to be shown
its internally prepared forecasts.
In our review we have assumed, with your permission, that the documents to
be prepared, used and signed by the parties to formally effect the Transaction,
including the agreements effecting the merger between NEWCO and Lazer-Tron, and
the proxy or other disclosure material to be delivered to the shareholders of
Lazer-Tron to elicit any necessary consents to the Transaction, will effect the
Transaction on the terms set forth in the Agreement without material alteration.
We note that any material modification to the terms and conditions of the
Agreement from those set forth in the draft delivered to us could result in a
change in our opinion as set forth herein.
We have reviewed such relevant financial and other inforamtion that was
publicly available or furnished to us by Lazer-Tron and Acclaim, including
information provided during discussions with each company. In addition, we have
compared certain financial and securities data of Lazer-Tron and Acclaim with
that of various other companies whose securities are publicly traded, reviewed
recent merger and acquisition transactions of companies we determined to be
similar, conducted a premium-paid analysis, and conducted such other financial
analysis as we have determined, based upon our judgement as investment bankers,
to be appropriate for purposes of this opinion. We have also taken into account
the views of the management and certain shareholders of Lazer-Tron as to the
prospects of Lazer-Tron if the Transaction is not effected. We have not been
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of Lazer-Tron or investing in Lazer-Tron. Furthermore,
we have not negotiated the Transaction, provided any legal advice or advised you
with respect to alternatives to the Transaction. Although we have performed a
valuation of Lazer-Tron and Acclaim using a number of commonly accepted
methodologies, we have not made an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Lazer-Tron or Acclaim.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness of all of the financial and other
information that was publicly available or furnished or otherwise communicated
to us by Lazer-Tron or Acclaim. With respect to financial projections of
Lazer-Tron provided to us, we have reviewed those projections in light of
discussions we have conducted with analysts and other industry sources.
Independent of the foregoing, we have assumed that the projections were
reasonably prepared, based upon assumptions reflecting the best currently
available estimates and good faith judgments of management as to the future
performance of Lazer-Tron and Acclaim and that neither the management of
Lazer-Tron, nor the management of Acclaim, has any information or beliefs that
would make the projections misleading.
Our opinion is based upon analysis of the foregoing factors in light of our
assessment of general economic, financial and market conditions as they exist
and as they can be evaluated by us as of the date hereof.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the per share consideration to be received by the shareholders
of Lazer-Tron in the Transaction is fair to the shareholders of Lazer-Tron from
a financial point of view.
Very truly yours,
VAN KASPER & COMPANY
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant provides that any person
may be indemnified against all expenses and liabilities to the fullest extent
permitted by the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of Delaware, the law of the
state in which the Registrant is incorporated, empowers a corporation within
certain limitations to indemnify any person against expenses, including
attorney's fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any suit or proceeding to which he
is a party by reason of the fact that he is or was a director, officer, employee
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, as long as he acted in
good faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the corporation. With respect to any criminal
proceeding, he must have had no reasonable cause to believe his conduct was
unlawful.
The Registrant also has in effect directors' and officers' liability
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as a part of this Registration Statement:
EXHIBIT NO. DESCRIPTION
----------- ---------------------------------------------------------------
2 -- Agreement and Plan of Merger, dated as of March 22, 1995 by and
among Acclaim Entertainment, Inc., Acclaim Arcade Holdings,
Inc. and Lazer-Tron Corporation(1)
2.1 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
June 15, 1995*
2.2 -- Amendment No. 2 to Agreement and Plan of Merger dated as of
July 24, 1995 (included as Exhibit A to the Supplement to the
Prospectus/Proxy Statement that is included as a part of this
Registration Statement)
4 -- Specimen form of Acclaim Entertainment, Inc. Common Stock
Certificate*
5 -- Opinion of Rosenman & Colin*
8 -- Opinion of Fenwick & West*
23(a) -- Consent of Grant Thornton LLP
23(b) -- Consent of Ernst & Young LLP
23(c) -- Consent of Rosenman & Colin (included in Exhibit 5)*
23(d) -- Consent of Fenwick & West (included in Exhibit 8)*
23(e) -- Consent of Van Kasper
24 -- Power of Attorney (included on page II-3 to the Registration
Statement filed on April 27, 1995)*
------------------
* Previously filed.
(1) Incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated
March 31, 1995.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
II-1
(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;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this registration statement through the date of
responding to the request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(9) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act, and will be governed by the final
adjudication of such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Post-Effective Amendment No. 1 to the
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Nassau and State of New
York on August 9, 1995.
ACCLAIM ENTERTAINMENT, INC.
By /s/ GREGORY E. FISCHBACH
------------------------------
Gregory E. Fischbach
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 1 to the Registration Statement on Form S-4
has been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
-------------------------- ---------------------------------------- --------------
GREGORY E. FISCHBACH Co-Chairman; Chief Executive August 9, 1995
-------------------------- Officer; Director
Gregory E. Fischbach
*JAMES SCOROPOSKI Co-Chairman; Senior Executive Vice August 9, 1995
-------------------------- President; Treasurer; Secretary;
James Scoroposki Director
*ROBERT HOLMES President; Chief Operating Officer; August 9, 1995
-------------------------- General Manager;
Robert Holmes
*BERNARD J. FISCHBACH Director August 9, 1995
--------------------------
Bernard J. Fischbach
*MICHAEL TANNEN Director August 9, 1995
--------------------------
Michael Tannen
*ROBERT H. GROMAN Director August 9, 1995
--------------------------
Robert H. Groman
*JAMES SCIBELLI Director August 9, 1995
--------------------------
James Scibelli
--------------------------
Bruce Ravenel Director
*ANTHONY R. WILLIAMS Executive Vice President; Chief August 9, 1995
-------------------------- Financial and Accounting Officer
Anthony R. Williams
------------------
* Signed by Gregory E. Fischbach pursuant to a Power of Attorney dated April 26,
1995 included on Signature Page to the Registration Statement filed April 27,
1995.
II-3
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------
2 -- Agreement and Plan of Merger, dated as of March 22, 1995, by and
among Acclaim Entertainment, Inc., Acclaim Arcade Holdings, Inc.
and Lazer-Tron Corporation(1).
2.1 -- Amendment No. 1 to Agreement and Plan of Merger dated as of June
15, 1995.*
2.2 -- Amendment No. 2 to Agreement and Plan of Merger dated as of July
24, 1995 (included as Exhibit A to the Supplement to the
Prospectus/Proxy Statement included as a part of this Registration
Statement).
4 -- Specimen form of Acclaim Entertainment, Inc. Common Stock
Certificate.*
5 -- Opinion of Rosenman & Colin.*
8 -- Opinion of Fenwick & West.*
23(a) -- Consent of Grant Thornton LLP.
23(b) -- Consent of Ernst & Young LLP.
23(c) -- Consent of Rosenman & Colin (included in Exhibit 5).*
23(d) -- Consent of Fenwick & West (included in Exhibit 8).*
23(e) -- Consent of Van Kasper.
24 -- Power of Attorney (included on page II-3 to the Registration
Statement filed on April 27, 1995).*
------------------
* Previously filed.
(1) Incorporated by reference to Exhibit 2 to Current Report on Form 8-K dated
March 31, 1995.
EX-23.(A)
2
CONSENT OF GRANT THORNTON LLP
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated October 20, 1994, accompanying the
consolidated financial statements and schedules of Acclaim Entertainment, Inc.
and Subsidiaries included in the Annual Report on Form 10-K for the year ended
August 31, 1994, which is incorporated by reference in the Registration
Statement and Prospectus on Post-effective Amendment No. 1 to Form S-4. We
consent to the incorporation by reference in the Registration Statement and
Prospectus of the aforementioned report and to the use of our name as it appears
under the captions 'Acclaim--Selected Consolidated Financial Data' and
'Experts.'
GRANT THORNTON LLP
New York, New York
August 7, 1995
EX-23.(B)
3
CONSENT OF ERNST & YOUNG LLP
EXHIBIT 23(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions 'Lazer-Tron
Selected Financial Data' and 'Experts' and to the use of our report dated July
27, 1994 included in the Proxy Statement of Lazer-Tron Corporation which is made
a part of the Registration Statement (Form S-4 No. 33-58883), as amended by
Post-Effective Amendment No. 1, and related Prospectus of Acclaim Entertainment,
Inc. for the registration of Acclaim Entertainment, Inc.'s common stock to be
issued in connection with the merger of Acclaim Entertainment, Inc. and
Lazer-Tron Corporation.
ERNST & YOUNG LLP
San Jose, California
August 4, 1995
EX-23.(E)
4
CONSENT OF VAN KASPER
EXHIBIT 23(e)
[LETTERHEAD]
CONSENT OF VAN KASPER & COMPANY
We consent to the reference to our firm under the captions 'Opinion of
Financial Advisor' and 'Experts' and to the use of our Opinion dated July 28,
1995 included in the Proxy Statement of Lazer-Tron Corporation, as amended by
the First Supplement thereto, which is made a part of the Registration Statement
on Form S-4 and related Prospectus/Proxy Statement, as amended, of Acclaim
Entertainment, Inc. ('Acclaim') and Lazer-Tron Corporation ('Lazer-Tron') in
connection with the special meeting of Lazer-Tron shareholders and the
registration of Acclaim's common stock to be issued upon consummation of the
merger of a wholly-owned subsidiary of Acclaim and Lazer-Tron.
VAN KASPER & COMPANY
Los Angeles, California
August 4, 1995