Atari 2009 Annual Report Download - page 121

ANNUAL FINANCIAL REPORT – REGISTRATION DOCUMENT
121
Within the scope of this partnership, and to bring together all the distribution subsidiaries concerned within Namco
Bandai Partners, in January 2009 Atari sold its interests in its two directly-held distribution subsidiaries Atari Brasil and
Atari Italia to Namco Bandai Partners.
In March 2009, Atari Europe announced that in accordance with the terms of the strategic partnership agreement entered
into with Namco Bandai, it intended to exercise its option to sell its 66% interest in Namco Bandai Partners to Namco
Bandai.
1.5. Expansion of the Group’s online publishing operations
In September 2008, Atari announced the creation of a new in-house game development studio placed under the creative
and production leadership of Paulina Bozek, one of the games industry‟s most pioneering and successful producers. The
new studio will focus on innovating and developing mass-market consumer games and services for online-enabled
devices including PCs and games consoles.
1.6. Acquisition of Cryptic Studios
On December 8, 2008, the Company signed a Stock Purchase and Transfer Agreement subject to US law relating to the
acquisition of Cryptic Studios Inc. (“Cryptic”) by Atari. Cryptic is a California-based publisher of Massively Multiplayer
Online (“MMO") games.
Under the terms of the agreement, all of Cryptic‟s shares held by the company‟s shareholders have been transferred to
Atari and all Cryptic stock options have been cancelled.
As consideration, Atari has undertaken to pay a maximum amount estimated at USD 75.1 million (approximately
€59.1 million), based on the benchmark Atari share price. This amount breaks down as follows:
 A USD 27.6 million cash payment (approximately €21.7 million), of which USD 26.5 million payable on
completion of the transaction and USD 1.1 million payable on March 1, 2011.
 A potential earn-out payment representing a maximum estimated amount of USD 27.5 million (approximately
€21.6 million), determined based on the achievement of targets for online revenue generated by the Champions
Online and Star Trek Online video games. This earn-out payment will be made in cash and newly-issued Atari
ordinary shares, based on a contractually pre-defined number of shares which will depend on the level of
revenue targets reached (there is no settlement option). The earn-out is partly payable in October 2010 (in cash
only) and partly in March 2011 (in cash and newly-issued Atari shares).
 A bonus representing a maximum amount of USD 20 million (approximately €15.7 million), if online revenue
generated by the Champions Online and Star Trek Online video games exceeds the targets set by Cryptic. Half
of the bonus is payable before the end of November 2010, and the balance before mid-May 2011. At the
discretion of Atari, the bonus will be paid in cash, new Atari ordinary shares, or in cash and new Atari shares.
The number of Atari shares will be determined based on the price of the Atari share on the payment date.
The Stock Purchase and Transfer Agreement includes the customary warranties as well as specific non-commitment
warranties for (i) the three shareholders selling their Cryptic shares and (ii) the Chief Executive Officer of Cryptic, who all
hold stock options.
Furthermore, the Stock Purchase and Transfer Agreement provides for the early payment of the earn-out and bonus in
the event of one of the following occurrences:
 a change in control of Cryptic;
 a change in control of the Company, if this affects the ability of the Company (or merging entity, in the event of a
merger) to observe the Company's obligations under the Stock Purchase and Transfer Agreement; and
 breach by the Company of certain commitments provided for in the Stock Purchase and Transfer Agreement, in
particular the financing of Cryptic's working capital up to a ceiling of USD 17.5 million (this amount may be
adjusted subject to certain conditions), until the release of the Champions Online and Star Trek Online games, as
well as a commitment on the sale terms and conditions for games on the market and the retention of Cryptic's key
assets and personnel necessary for the development of the games.
The Stock Purchase and Transfer Agreement provides that in the event of the deregistration of the Company's shares
before the payment of the earn-out and not subsequent to a change in control of the Company in favor of a financial
investor, the earn-out and bonus may be paid in a single cash payment at the discretion of the beneficiaries.
Based on the Company‟s most recent estimates at March 31, 2009, the initial cash payment and the entire earn-out was
recognized in the amount of USD 45.3 million (i.e., €34.6 million), before taking into account transaction costs.
In order to finance the purchase of Cryptic and meet Cryptic‟s working capital requirements, on December 3, 2008 Atari‟s
Board of Directors authorized a €30 million shareholder loan granted to Infogrames by BlueBay bearing annual interest
of 15%. This loan was repaid by the Company on January 13 and January 23, 2009, and fees totaling 3% of the amount
of the loan were paid to BlueBay.
1.7. Issue of bonds redeemable for new or existing shares with stock warrants attached (ORANE-BSA) for
€40.5 million
In January 2009, Atari issued €40.5 million worth of bonds redeemable for new or existing shares with stock warrants
attached (ORANE-BSA).
This issue enabled the Company to finance: