Atari 2010 Annual Report Download - page 123

ANNUAL FINANCIAL REPORT – REGISTRATION DOCUMENT
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(€ millions) 3/31/2010 3/31/2009
Cash consideration 20.5 20.5
Earn-out 7.6 14.2
Directly attributable costs 2.7 2.7
Total acquisition cost 30.8 37.3
The acquisition cost for Cryptic Studios was determined provisionally. In accordance with the Company's accounting
principles and methods, securities acquired subject to an earn-out are estimated provisionally at their cost at the
transaction date. The initial cost is subsequently adjusted at each balance sheet date until the definitive acquisition price
has been determined.
For the purpose of determining the provisional cost of the shares in the financial statements, the Company has used the
amount shown in the consolidated financial statements, with the exception of the adjustment impact recognized in the
consolidated financial statements. Cash payments and direct costs denominated in foreign currencies have been
recorded for their equivalent amounts in euros at the transaction date. The earn-out has been recognized for its
estimated amount translated into euros at the balance sheet date.
As part of the acquisition of Cryptic Studios, on December 12, 2008 the Company issued 1,055,011 Category A
convertible bonds and 1,055,011 Category B convertible bonds, representing a total of 2,110,022 convertible bonds
(CBs), as consideration for the transfer of Cryptic Studios shares to the Company. The nominal value of the Category A
CBs is €407,122.9, or €0.386 per bond, and the nominal value of the Category B CBs is €407,122.9, or €0,386 per bond.
Each CB is automatically convertible into newly-issued shares of Atari common stock if certain targets are achieved for
online revenue generated by the Champions Online and Star Trek Online video games pursuant to the earn-out
mechanism applicable to the acquisition of Cryptic Studios. If all of the CBs were automatically converted this would
result in the issue of 1,888,007 new Atari shares, subject to the following conditions:
• the maximum number of new Atari shares that may be issued on the automatic conversion of the Category A
CBs will be determined based on the online revenue generated by Atari for the Champions Online video game
during a six-month period commencing in October 2009 (as set out in the May 2009 addendum to the
acquisition agreement), taking into account the cash settlement of an initial portion of the earn-out payment
representing a maximum of USD 7.5 million; and
• the total number of new Atari shares that may be issued on the automatic conversion of the Category B CBs will
be determined based on the online revenue generated by Atari for the Star Trek Online video game during a
six-month period commencing in March 2010.
As of March 31, 2010, the latest estimate of online sales of the Champions Online game caused the Company to cancel
the earn-out corresponding to the game’s performance.
At this point in time, based on the latest available estimates, only the earnout relating to the STO game is likely to
become payable, under the clause referred to above.
The Company also entered into the following commitments in connection with the acquisition of Cryptic Studios.
• Debt obligation granted to holders of Cryptic Studios stock options and a minority shareholder in relation to the
earn-out payment for the acquisition of Cryptic Studios
As part of the acquisition of Cryptic Studios, on December 12, 2008 the Company granted a debt obligation to the
holders of Cryptic Studios stock options as consideration for the cancellation of their options, giving rise to the same
rights as those granted to convertible bond holders in relation to the earn-out payment for the acquisition of Cryptic
Studios. In accordance with this obligation, the holders of the cancelled Cryptic Studios stock options are entitled to
receive a maximum of 407,603 new shares issued under an offering reserved for said option holders, to be paid up by
set-off. The exact number of new shares to be issued will be determined based on the revenue generated for the
Champions Online and Star Trek Online video games. The amount of the debt will be indexed to upward or downward
changes in the reference price for Atari shares between the completion date of the Cryptic Studios acquisition and the
settlement date (corresponding to March 1, 2011). In any event, the full payment of the portion of the earn-out payment
settled in new Atari shares would result in the issue by the Company of 407,603 new Atari shares.
The Cryptic Studios stock option holders have undertaken to take up the above-described rights issue which will be
submitted for approval at an Extraordinary Shareholders' Meeting to be held by the March 1, 2011 debt settlement date.
This will result in the issue of a maximum of 407,603 new shares of the Company and will be reserved for the
beneficiaries of the debt obligation. The issue will be paid up by offsetting the debt corresponding to the earn-out