UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934 (Amendment No.
)
Filed by the
Registrant
x
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Filed by a Party
other than the Registrant
o
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Check the
appropriate box:
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x
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Preliminary
Proxy Statement.
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o
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)).
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o
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Definitive Proxy
Statement.
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o
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Definitive
Additional Materials.
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o
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Soliciting
Material Pursuant to §240.14a-12.
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WPT
ENTERPRISES, INC.
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(Name of
Registrant as Specified In Its Charter)
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(Name of Person(s) Filing
Proxy Statement, if other than the Registrant)
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Payment of
Filing Fee (Check the appropriate box):
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o
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No fee required.
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x
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Fee computed on
table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title of each
class of securities to which transaction applies:
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(2)
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Aggregate number
of securities to which transaction applies:
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(3)
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Per unit price
or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state how it
was determined):
The filing fee is calculated based on $13,800,000 of aggregate consideration.
The purchase price payable under the asset purchase agreement is $12,300,000,
less the amount of certain obligations of an affiliate of the buyer accruing
or paid to Registrant from July 10, 2009 through the close of the
transaction, as more fully described in Section 2.6 of the asset
purchase agreement. Such obligations are estimated to be $1,500,000. In
addition, the buyer will pay Registrant 5% of future gross gaming revenues
less certain taxes and 5% of other future gross revenues less certain taxes
and costs earned with the purchased assets in perpetuity, which payments are
to be at least $3,000,000.
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(4)
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Proposed maximum
aggregate value of transaction:
$13,800,000
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(5)
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Total fee paid:
$770.04
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o
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Fee paid
previously with preliminary materials.
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o
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Check box if any
part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or
Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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SPECIAL
MEETING OF STOCKHOLDERS—YOUR VOTE IS IMPORTANT
[ ], 2009
Dear
Fellow Stockholder:
You are cordially invited
to attend the Special Meeting of Stockholders of WPT Enterprises, Inc. (“the Company”)
which will be held at the Renaissance Hollywood Hotel, 1755 North Highland
Avenue, Hollywood, California 90028 at 10:00 a.m. on [ ], 2009.
The Company entered into
an asset purchase agreement with Peerless Media Ltd. dated as of August 24,
2009 pursuant to which the Company has agreed to sell to Peerless Media
substantially all of the Company’s operating assets, other than cash,
investments and certain other assets and Peerless Media has agreed to assume
specified Company liabilities. Peerless Media has agreed to pay the Company
$12.3 million for the purchased assets and assumed liabilities less the
amount of certain obligations of an affiliate of PartyGaming accruing or paid
to the Company from July 10, 2009 through the close of the asset sale, as more
fully described in Section 2.6 of the asset purchase agreement. In addition,
Peerless Media will pay the Company 5% of future gross gaming revenues less
certain taxes and 5% of other future gross revenues less certain taxes and
costs earned with the purchased assets in perpetuity. A copy of the asset
purchase agreement is attached as
Annex A
to the accompanying proxy statement and you are encouraged to read it in its
entirety. ElectraWorks Ltd. has guaranteed all of Peerless Media’s obligations
under the asset purchase agreement. Peerless Media and ElectraWorks are owned
by PartyGaming Plc. The purchase price will be reduced by the amount of certain
obligations of an affiliate of PartyGaming Plc accruing or paid to the Company
from July 10, 2009 through the close of the asset sale.
At the Special Meeting,
you will be asked to approve the sale of assets pursuant to the asset purchase
agreement. After careful consideration, our Board has unanimously approved the
asset purchase agreement and determined that the asset sale and the asset
purchase agreement are in the best interests of the Company and its
stockholders. Our Board unanimously recommends that you vote “FOR” the approval
of the asset sale. The proxy statement attached to this letter provides you
with information about the asset sale and the Special Meeting. I encourage you
to read the entire proxy statement carefully. You may also obtain additional
information about the Company from documents filed with the Securities and
Exchange Commission.
Your
vote is very important.
The asset sale cannot be completed unless the asset sale is approved by
the affirmative vote of the holders of a majority of the outstanding shares of
Company common stock entitled to vote. If you fail to vote on the asset sale,
the effect will be the same as a vote against the approval of the asset sale.
Please
complete, sign and date the enclosed proxy card and return it in the envelope
provided as soon as possible or submit a proxy through the Internet or by
telephone as described on the enclosed proxy card. This action will not limit
your right to vote in person if you wish to attend the Special Meeting and vote
in person.
Sincerely,
Steven
Lipscomb
Founder, Chief
Executive Officer and President
Neither
the Securities and Exchange Commission nor any state securities regulatory
agency has approved or disapproved the asset sale, passed upon the merits or
fairness of the asset sale or passed upon the adequacy or accuracy of the
disclosure in this proxy statement. Any representation to the contrary is a
criminal offence.
This proxy statement is
dated [ ], 2009 and is
first being mailed to stockholders on or about [ ], 2009.
WPT
Enterprises, Inc.
5700 Wilshire Boulevard, Suite 350
Los Angeles, California 90036
Notice of Special Meeting of
Stockholders to be Held on
[
],
2009
To the
Stockholders:
A Special Meeting of
stockholders of WPT Enterprises, Inc., a Delaware corporation, will be
held at the Renaissance Hollywood Hotel, 1755 North Highland Avenue, Hollywood,
California 90028 at 10:00 a.m. on [ ], 2009, for the following
purposes:
1.
To approve the sale of substantially all
of the Company’s operating assets other than cash, investments and certain
other assets, pursuant to the asset purchase agreement, dated as of August 24,
2009, by and between Peerless Media Ltd. and the Company, a copy of which is
attached as
Annex A
to the
accompanying proxy statement.
2.
To approve an amendment to the Company’s
Certificate of Incorporation to change the Company’s name to [ ] upon the close of the
asset sale
.
3.
To consider and vote upon an adjournment
of the Special Meeting, if necessary for a period of not more than
30 days, to solicit additional proxies if there are not sufficient votes
at the time of the Special Meeting to approve the asset sale.
Stockholders will also
consider and act on any other matters as may properly come before the Special
Meeting or any adjournment or postponement thereof, including any procedural
matters incident to the conduct of the Special Meeting.
The Board of Directors of
the Company has fixed [
], 2009 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Special Meeting and any adjournment
or postponement thereof. Only holders of record of shares of the Company’s
common stock at the close of business on the record date are entitled to notice
of, and to vote at, the Special Meeting. At the close of business on the record
date, the Company had [
] shares of common stock outstanding and entitled to vote.
The
Company’s Board of Directors unanimously recommends that you vote “FOR” the
three proposals.
Your vote is important, regardless of the number of shares of our common stock
you own. The approval of the asset sale requires the approval of the holders of
a majority of the outstanding shares of our common stock entitled to vote
thereon. The approval of the proposals to change our name to [ ] upon closing of the asset
sale and to adjourn the Special Meeting, if necessary for up to 30 days, to
solicit additional proxies requires the affirmative vote of a majority of the
shares present and entitled to vote.
Even if you plan to
attend the Special Meeting in person, we request that you complete, sign, date
and return the enclosed proxy and thus ensure that your shares will be
represented at the Special Meeting if you are unable to attend. If you sign,
date and mail your proxy card without indicating how you wish to vote, your
vote will be counted as a vote in favor of the approval of the asset sale. If
you do attend the Special Meeting and wish to vote in person, you may withdraw
your proxy and vote in person.
By
order of the Board of Directors
Adam
Pliska
General Counsel
and Secretary
YOUR
VOTE IS IMPORTANT.
WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED OR SUBMIT A
PROXY THROUGH THE INTERNET OR BY TELEPHONE AS DESCRIBED IN THE ENCLOSED PROXY
CARD. GIVING YOUR PROXY NOW WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ATTEND THE MEETING.
TABLE
OF CONTENTS (CONTINUED)
ii
QUESTIONS AND ANSWERS ABOUT
THE
SPECIAL MEETING AND THE ASSET SALE
The following section
provides answers to frequently asked questions about the Special Meeting and
the asset sale. This section, however, only provides summary information. For a
more complete response to these questions and for additional information,
please refer to “The Asset Sale”.
Q:
What proposals will be
voted on at the Company’s Special Meeting?
A:
The following proposals will be voted on
at the Special Meeting:
1.
The first proposal to be voted on is
whether to approve the sale of substantially all of the Company’s operating
assets other than cash, investments and certain other assets to Peerless Media
Ltd. (“Buyer”) pursuant to the terms of the asset purchase agreement, dated as
of August 24, 2009, which is referred to in this proxy statement as the
asset purchase agreement, attached as
Annex A
.
The assets the Company proposes to sell to Buyer consists of the Company’s
television library, including all related intellectual property rights, brand
names, trade names, certain assumed contracts and tangible personal property.
See “The Asset Sale” for a more detailed description of the transaction with
Buyer.
2.
The second proposal to be voted upon is
whether to approve an amendment to the Company’s Certificate of Incorporation
to change the Company’s name to [ ] upon the close of the asset
sale
.
3.
The third proposal to be voted on is
whether to adjourn the meeting, if necessary for a period of not more than
30 days, to solicit additional proxies if there are not sufficient votes
in favor of the first proposal.
Q:
What is the Company’s
Board of Directors’ recommendation with respect to the asset sale proposal?
A:
After careful consideration, the Board of
Directors has unanimously approved the asset sale and the asset purchase
agreement and has determined that it is advisable, fair to and in the best
interests of the Company’s stockholders. Accordingly, the Board unanimously
recommends that stockholders vote FOR the asset sale proposal.
Q:
Why does the Company’s
Board of Directors believe the asset sale is in the best interests of the
Company’s stockholders?
A:
The Company’s Board conducted a process
to consider strategic alternatives, the risks and challenges facing the Company
in the future as compared to the opportunities available to the Company in the
future, as well as the availability of strategic alternatives, and concluded
that the asset sale was the best alternative for seeking to maximize value to
stockholders. See “The Asset Sale—Reasons for the Asset Sale; Recommendation of
the Company’s Board of Directors” for more information.
Q:
What factors were
considered by the Company’s management and Board of Directors in deciding to
sell substantially all of the Company’s assets?
A:
The Company’s management and Board
considered a number of factors before deciding to enter into the asset purchase
agreement, including, but not limited to, the price to be paid including the
future participation in the revenues earned by Buyer, the strategic alternative
evaluation process that led to entering into the asset purchase agreement, the
World Poker Tour’s business prospects and the terms and conditions of the asset
purchase agreement. The Board also considered, and balanced against the
potential benefits of the asset sale, certain adverse factors. See “The Asset
Sale—Reasons for the Asset Sale; Recommendation of the Company’s Board of
Directors” for more information.
Q:
What is the asset sale?
A:
Buyer and the Company have entered into
the asset purchase agreement, which contains the terms and conditions of the
proposed sale of substantially all of the Company’s operating assets other than
cash, investments and certain other assets to Buyer. Under the asset purchase
agreement, the Company will sell to Buyer the Company’s television library,
including all related intellectual property rights, brand names, trade names,
certain assumed contracts and tangible personal property. Buyer will assume
from the Company specified liabilities including one of the two corporate
leases. In addition to a cash payment on
1
the close of the asset
purchase agreement, Buyer will also pay the Company 5% of future gross gaming
revenues less certain taxes and 5% of other future gross revenues less certain
taxes and costs earned with the purchased assets in perpetuity. The proposed
sale of assets and assumption of liabilities is referred to in this proxy
statement as the asset sale.
Q:
What assets and
liabilities are being retained?
A:
The Company is retaining its cash and
cash equivalents, investments in debt securities and put rights, certain other
investment and litigation rights, and future foreign sponsorship revenues from
the license of Season Seven of the World Poker Tour to PokerStars. We are also
retaining the lease liability on one of our two corporate facilities and all
employee obligations. Liabilities related to business activities conducted
prior to the close of the asset sale will also be retained.
Q:
Will Company stockholders
receive any distributions from the asset sale?
A:
The Company does not currently intend to
distribute any of the proceeds from the asset sale or the asset purchase
agreement to the Company’s stockholders.
Q:
Who is the purchaser?
A:
The purchaser of the Company’s assets is
Peerless Media Ltd. Buyer is a Gibraltar private limited company that is owned
by ElectraWorks Ltd. (“Parent”). Parent is also a Gibraltar private limited
company and Parent is owned by PartyGaming Plc (“PartyGaming”). Parent is
guaranteeing all of Buyer’s obligations under the asset purchase agreement. A
copy of the guaranty agreement is attached as
Annex B
to this proxy statement.
PartyGaming is a publicly
traded company on the London Stock Exchange. PartyGaming is the world’s leading
listed online gaming business. Regulated and licensed by the Government of
Gibraltar, PartyGaming has over 1,200 employees located in the head office and
operations centre in Gibraltar, a business process outsourcing operation in
India, and a marketing services subsidiary and multi-lingual customer service
operations in Europe. PartyGaming has customers throughout the world.
PartyGaming does not accept wagers or deposits for real money games from
customers located in the U.S.
Q:
Who is Parent?
A:
Parent is a Gibraltar private limited
company that is the principal operating subsidiary in the PartyGaming Plc group
of companies.
Q:
What is the purchase
price for the Company’s assets?
A:
Buyer has agreed to pay the Company
$12.3 million less the amount of certain obligations of an affiliate of
PartyGaming accruing or paid to the Company from July 10, 2009 through the
close of the asset sale, as more fully described in Section 2.6 of the
asset purchase agreement. Buyer will also assume specified Company liabilities
including one of our two corporate leases.
Buyer has also agreed to
pay the Company 5% of future gross gaming revenues less certain taxes and 5% of
other future gross revenues less certain taxes and costs earned with the
purchased assets in perpetuity. Buyer has agreed that the future gaming and
other revenue-based participation amount will be at least $3 million over
the three year period following the close of the asset purchase agreement, or
otherwise Buyer will make up the shortfall to $3 million at the end of the
period.
Q:
What will happen if the
Company’s stockholders approve the asset sale?
A:
If the Company’s stockholders approve the
asset sale set forth in the asset purchase agreement, the Company will
consummate the sale of assets subject to satisfaction or waiver of the closing
conditions set forth in the asset purchase agreement. The Company anticipates
that the asset sale will close promptly following the Special Meeting.
2
Q:
What will happen to the
Company after the asset sale?
A:
The Company’s Board has considered a
number of alternatives with respect to the use of the Company’s assets
following the completion of the asset sale. The Company will retain its cash
and investments and the other assets and liabilities that are not part of the
asset sale. The Company intends to use its cash and investments to acquire or
develop another business. The Company does not have any specific merger, asset
acquisition, reorganization or other business combination under consideration
or contemplation. We have not, nor has anyone on our behalf, had substantive
discussions, formal or otherwise, with respect to such a transaction. The
Company does not plan to limit itself to any particular industry or geographic
location in its efforts to identify prospective target businesses.
The Company does not
intend to go private or terminate its Securities Exchange Act of 1934 (“Exchange
Act”) reporting obligations. However, the Company may use cash to repurchase
blocks of common stock at negotiated prices in private transactions. In
addition, if the Company were to affect a reverse split of its common stock,
then cash could also be used to repurchase fractional shares.
In connection with the
proposed asset sale between the Company and Buyer, the name of the Company will
be changed to [
] and the Company plans to change its trading symbol to “[ ].”
Q:
What will happen if the
asset sale to Buyer is not approved or the asset sale is not completed for
other reasons?
A:
If the asset sale to Buyer is not
approved or if the Company does not complete the asset sale for other reasons,
the Company will continue to execute its current business strategy. If the
asset purchase agreement is otherwise terminated in certain circumstances, the
Company would be obligated to pay Buyer a $1 million termination fee
and/or to reimburse Buyer for the $1 million initial payment of the
purchase price.
Q:
What are the conditions
to closing the asset sale?
A:
The Company and Buyer must meet certain
conditions or waive them prior to the close of the asset sale. The Company’s
stockholders must approve the asset sale. The Company must also reaffirm the
representations and warranties that are contained in the asset purchase
agreement, no proceeding or litigation may have been initiated to prevent the
closing of the asset sale and other customary conditions must be met. Buyer
must also reaffirm the representations and warranties that are contained in the
asset purchase agreement, there can be no material adverse change in the
Company’s financial condition, assets, business or results of operations, and
other customary conditions must be met.
Q:
What are the material
U.S. federal income tax consequences of the asset sale?
A:
The Company will recognize a taxable gain
on the asset sale equal to the difference between the amount realized from the
asset sale and the adjusted tax basis of the assets sold and liabilities
assumed. The Company expects to have sufficient federal net operating losses to
offset the gain expected to be realized from the asset sale for regular federal
income tax purposes. The Company will pay federal alternative minimum tax on
the gain on asset sale. The Company will not be able to use California net
operating losses to offset the gain from the asset sale because California
suspended the use of net operating losses in 2009. The Company expects to pay
California regular income tax on the gain on asset sale.
The Company does not
expect that the asset sale will result in any federal or state income tax
consequences for its stockholders since they will not receive any of the
proceeds from the asset sale.
Q:
Do the Company’s
stockholders have any appraisal rights in connection with the asset sale?
A:
No. The Company’s stockholders do
not have appraisal rights in connection with the asset sale.
Q:
What happened to the
asset purchase agreement with Gamynia Limited?
A:
The Company entered into an asset
purchase agreement with Gamynia Limited (“Gamynia”) on July 28, 2009.
Subsequently, Peerless Media submitted an alternative acquisition proposal to
the Company’s Board of Directors. The Company’s Board concluded that the
alternative acquisition proposal with Peerless Media was financially superior
to the Gamynia asset purchase agreement and, on August 21, 2009, the
Company terminated the Gamynia asset purchase agreement. A $1 million
Gamynia asset purchase agreement termination fee was paid to Gamynia.
3
Q:
What vote is required to
approve the asset sale?
A:
The proposal to approve the asset sale to
Buyer requires the affirmative vote of holders of a majority of the Company’s
outstanding shares in order to be approved by stockholders. An abstention or “broker
non-vote” will have the effect of a vote against the proposal to approve the
asset sale. Buyer and certain of the Company’s directors, executive officers
and their affiliates entered into stockholder voting agreements to vote their
shares of Company common stock in favor of approval of the asset sale and
against the approval or adoption of any alternative transactions. These
directors, executive officers and their affiliates together own or control an
aggregate of approximately 39% of the Company’s outstanding common stock. The
form of stockholder voting agreement is attached to this proxy statement as
Annex C
.
Q:
What happens if we do
not have a quorum or enough affirmative votes at the Special Meeting?
A:
If we do not have a quorum at the Special
Meeting or if we do not have sufficient affirmative votes in favor of the two
proposals, we may seek to adjourn the Special Meeting to a later time to permit
further solicitation of proxies if necessary to obtain additional votes in
favor of the foregoing items. We may seek to adjourn the Special Meeting
without notice, other than by the announcement made at the Special Meeting.
Under our Bylaws, we can adjourn the Special Meeting by approval of the holders
of a majority of the shares of our common stock present in person or
represented by proxy at the Special Meeting and entitled to vote. We are
soliciting proxies to vote in favor of the adjournment of the Special Meeting,
regardless of whether a quorum is present, if necessary to provide additional
time of up to 30 days to solicit votes in favor of approval of the asset sale.
If adjourning the Special Meeting does not enable a quorum to be established,
the proposals will not pass. Further, if adjourning the Special Meeting does
not enable us to attract sufficient affirmative votes in favor of one or more
of the proposals, such proposals will not pass.
Q:
Why am I receiving this
proxy statement?
A:
You are receiving this proxy statement
because you have been identified as a Company stockholder as of the record date
for the Special Meeting, and thus you are entitled to vote at the Special
Meeting. This document serves as a proxy statement of the Company, used to
solicit proxies for the Company’s Special Meeting of stockholders. This
document contains important information about the asset sale and the Special
Meeting of stockholders, and you should read it carefully.
Q:
Who is soliciting my
proxy?
A:
This proxy is being solicited by the
Company’s Board of Directors.
Q:
What do I need to do
now?
A:
The Company urges you to read this proxy
statement carefully, including its annexes, and to consider how the proposed
asset sale affects you.
You may provide your
proxy instructions in one of three different ways. First, you can mail your
signed proxy card in the enclosed return envelope. Alternatively, you can
provide your proxy instructions via touch-tone telephone by dialing the
toll-free telephone number on your proxy card or voting instruction form. You
may also provide your proxy instructions via the Internet by following the
instructions on your proxy card or voting instruction form.
Please provide your proxy
instructions only once and as soon as possible so that your shares can be voted
at the Special Meeting of stockholders.
Q:
What happens if I do not
return a proxy card or otherwise provide proxy instructions?
A:
The failure to return your proxy card or
otherwise provide proxy instructions will have the same effect as voting
against approval of the asset sale, and your shares will not be counted for
purposes of determining whether a quorum is present at the Special Meeting.
Q:
May I vote in
person?
A:
If your shares of Company common stock
are registered directly in your name with the Company’s transfer agent, you are
considered with respect to those shares to be the stockholder of record, and
the proxy materials and proxy card are being sent directly to you. If you are a
Company stockholder of record, you may attend the Special Meeting of
stockholders to be held on [
], 2009 and vote your shares in person, rather than signing and
returning your proxy.
4
If your shares of common
stock are held in a brokerage account or by another nominee, you are considered
the beneficial owner of shares held in “street name,” and the proxy materials
are being forwarded to you together with a voting instruction card. As the
beneficial owner, you are also invited to attend the Special Meeting. Since a
beneficial owner is not the stockholder of record, you may not vote these
shares in person at the Special Meeting unless you obtain a “legal proxy” from
the broker, trustee or nominee that holds your shares, giving you the right to
vote the shares at the meeting.
Q:
If my Company shares are
held in “street name” by my broker, will my broker vote my shares for me?
A:
Your broker will not be able to vote your
shares without instructions from you. You should instruct your broker to vote
your shares, following the procedure provided by your broker.
Q:
May I change my
vote after I have submitted a proxy or provided proxy instructions?
A:
Stockholders of record, other than those
stockholders who have executed a voting agreement, may change their vote at any
time before their proxy is voted at the Special Meeting. Stockholders of record,
other than stockholders who have executed a voting agreement, can do this in
one of three ways. First, a stockholder of record can send a written notice
stating that the stockholder would like to revoke its proxy. Second, a
stockholder of record can submit new proxy instructions either on a new proxy
card, by telephone or via the Internet. Third, a stockholder of record can
attend the Special Meeting and vote in person. Attendance alone will not revoke
a proxy. If a stockholder of record has instructed a broker to vote its shares,
the stockholder must follow the directions received from its broker to change
those instructions.
Q:
Who is paying for this
proxy solicitation?
A:
The Company will pay the cost of
soliciting proxies, including the printing, mailing and filing of this proxy
statement, the proxy card and any additional information furnished to
stockholders. The Company has engaged The Altman Group, a proxy solicitation
firm, to solicit proxies from stockholders. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries who are record
holders of Company common stock for the forwarding of solicitation materials to
the beneficial owners of common stock. The Company will reimburse these
brokers, custodians, nominees and fiduciaries for reasonable out-of-pocket
expenses they incur in connection with the forwarding of solicitation
materials.
Q:
Who can help answer my
questions?
A:
If you would like additional copies,
without charge, of this proxy statement or if you have questions about the
asset sale, including the procedures for voting your shares, you should contact
either:
|
The Altman Group
1200 Wall Street West, 3
rd
Floor
Lyndhurst, NJ 07071
[( ) - ]
[( ) - ] (toll free)
|
Investor Relations
WPT Enterprises, Inc.
5700 Wilshire Blvd., Suite 350
Los Angeles, California 90036
(323) 330-9900
|
5
SUMMARY OF THE ASSET SALE
This
summary highlights selected information from this proxy statement and may not
contain all of the information that is important to you. To better understand
the asset sale and the other proposals being considered at the Special Meeting,
you should read this entire proxy statement carefully, including the asset
purchase agreement, attached as Annex A, and the other documents to which
you are referred herein. See “Where You Can Find More Information” on page 95
of this proxy statement. Page references are included in parentheses to
direct you to a more detailed description of the topics presented in this
summary.
Information
about the Parties
WPT
Enterprises, Inc.
5700 Wilshire Blvd., Suite 350
Los Angeles, California 90036
(323) 330-9900
We
create internationally branded entertainment and consumer products driven by
the development, production and marketing of televised programming based on
gaming themes. Our current season of the World Poker Tour, or WPT
®
television
series - Season Seven, based on a series of high-stakes poker tournaments,
currently airs on Fox Sports Net (“FSN”) in the U.S., and has been licensed for
broadcast globally. In January 2008, we launched ClubWPT.com, an
innovative subscription-based online poker club targeted to the estimated 60
million poker players in the U.S., which is currently offered in
38 states. Through November 2008, we offered a real-money online
gaming website which prohibited wagers from players in the U.S. and other
restricted jurisdictions. We also license our brand to companies in the
business of poker equipment and instruction, apparel, publishing, electronic
and wireless entertainment, DVD/home entertainment, casino games and giftware
and are engaged in the sale of corporate sponsorships. Through March 2009,
we developed and marketed online and mobile games supporting the WPT China
National Traktor Poker Tour
TM
.
We operate our business
through four business segments, WPT Studios, WPT Online, WPT Global Marketing
and WPT China, described in greater detail below:
WPT
Studios
, our
multi-media entertainment division, generates revenue through domestic and
international television licensing, domestic and international television
sponsorship, as well as host fees from casinos and card rooms that host our
televised events.
WPT
Online
includes
the online poker club ClubWPT.com that generates revenue from subscriptions,
which began operations in January 2008, our international poker and casino
real money gaming websites which were terminated in November 2008 and an
online merchandise store.
WPT
Global Marketing
includes branded consumer products, sponsorships and event management. Branded
consumer products generate revenue from the licensing of our brand to companies
seeking to use the World Poker Tour brand and logo in the retail sales of their
consumer products. Sponsorship and event management generates revenue through
corporate sponsorship and management of televised and live events.
WPT
China
produced
third-party branding at WPT China National Traktor Poker Tour events, licensed
the television broadcast of the WPT China National Traktor Poker Tour and
marketed the popular Chinese national card game “Tuo La Ji” or “Traktor Poker”™
in online and mobile games. This segment was shut down in March 2009.
Buyer:
|
Parent:
|
Peerless Media Ltd.
|
ElectraWorks Ltd.
|
Suite 711
|
Suite 711
|
Europort
|
Europort
|
Gibraltar
|
Gibraltar
|
00350 200 40126
|
00350 200 40126
|
Buyer and Parent are
Gibraltar private limited companies and Buyer is a subsidiary of Parent. Parent
is the principal operating subsidiary in the PartyGaming Plc group of
companies.
PartyGaming is the world’s
leading listed online gaming business. PartyGaming offers a variety of games
through an integrated Party-branded platform and through a number of secondary
brands and alliances with blue
6
chip companies. Through a
unique operating platform, adults can tune in to a broad range of games, using
multiple languages, multiple-currency options and with the tools to ensure they
have fun and play within their means.
PartyGaming listed on the
London Stock Exchange in June 2005. Regulated and licensed by the
Government of Gibraltar, PartyGaming has over 1,200 employees located in
the head office and operations centre in Gibraltar, a business process
outsourcing operation in India, and a marketing services subsidiary and
multi-lingual customer service operations in Europe. PartyGaming has customers
throughout the world. PartyGaming does not accept wagers or deposits for real
money games from customers located in the U.S.
Summary
of the Asset Sale
If the asset sale is
completed, the Company will sell to Buyer substantially all of the Company’s
operating assets other than cash, investments and certain other assets. Under
the asset purchase agreement, the Company will sell to Buyer the Company’s:
·
television library, including all related
intellectual property rights;
·
brand names;
·
trade names;
·
certain assumed contracts; and
·
tangible personal property.
Buyer will assume from
the Company specified liabilities including one of the two corporate leases.
Buyer has agreed to pay
the Company for our operating assets:
·
$12.3 million less the amount of
certain obligations of an affiliate of PartyGaming accruing or paid to the
Company from July 10, 2009 through the close, as more fully described in Section 2.6
of the asset purchase agreement; and
·
5% of future gross gaming revenues less
certain taxes and 5% of other future gross revenues less certain taxes and
costs earned with the purchased assets in perpetuity.
$1 million of the
purchase price was delivered by Buyer upon the execution of the asset purchase
agreement and the balance shall be delivered at the close of the asset sale.
Buyer has agreed that the future gaming and other revenue-based participation
amount will be at least $3 million over the three year period following
the close of the asset purchase agreement, or otherwise Buyer will make up the
shortfall to $3 million at the end of the period.
The Company is not
selling its:
·
cash and cash equivalents;
·
investments in debt securities and put
rights;
·
certain other investment and litigation
rights;
·
future foreign sponsorship revenues from
the license of Season Seven of the World Poker Tour to PokerStars;
·
lease liability on one of our two
corporate facilities; and
·
all employee obligations.
A copy of the asset
purchase agreement is attached as
Annex A
to this proxy statement and a copy of the guaranty agreement is attached as
Annex B
to this proxy statement. You
are encouraged to read the asset purchase agreement and the guaranty agreement
in their entirety because they are the legal documents that govern the asset
sale.
7
Recommendation
of Our Board of Directors (see page 24)
The Company’s Board
believes that the sale of substantially all of the Company’s operating assets
as described in this proxy statement is advisable, fair to, and in the best
interests of the Company and its stockholders and has unanimously approved the
asset sale. The Company’s Board unanimously recommends that Company
stockholders vote “FOR” Proposal Nos. 1, 2 and 3 to approve the asset
sale.
Reasons
for the Asset Sale (see page 36)
The Company’s Board
considered a number of factors before deciding to enter into the asset purchase
agreement, including, but not limited to, the consideration to be received, the
strategic alternative evaluation process that led to entering into the asset
purchase agreement, the World Poker Tour’s business prospects and the terms and
conditions of the asset purchase agreement. The Board also considered, and
balanced against the potential benefits of the asset sale, certain adverse
factors. See “The Asset Sale—Reasons for the Asset Sale; Recommendation of the
Company’s Board of Directors” for more information.
Overview
of the Asset Purchase Agreement (see page 40)
Buyer and the Company
entered into the asset purchase agreement, dated as of August 24, 2009,
pursuant to which the Company will, subject to specified terms and conditions,
including approval of the asset sale by the Company’s stockholders at the
Special Meeting, sell substantially all of the Company’s operating assets other
than cash, investments and certain other assets to Buyer. Buyer will assume
from the Company specified liabilities including one of the two corporate
leases. Buyer has agreed to pay the Company $12.3 million, less the amount of
certain obligations of an affiliate of PartyGaming accruing or paid to the
Company from July 10, 2009 through the close of the asset sale, as more
fully described in Section 2.6 of the asset purchase agreement. Buyer has
also agreed to pay the Company 5% of future gross gaming revenues less certain
taxes and 5% of other future gross revenues less certain taxes and costs earned
with the purchased assets. Buyer has agreed that the future gaming and other
revenue-based participation amount will be at least $3 million over the
three year period following the close of the asset purchase agreement, or
otherwise Buyer will make up the shortfall to $3 million at the end of the
period. Buyer has also assumed affirmative duties to generate such revenues.
Parent has guaranteed all of Buyer’s covenants, agreements and other obligations
under the asset purchase agreement.
No Solicitation of Conflicting Transaction (see page 42)
In the asset purchase
agreement, the Company has agreed not to, and to use reasonable efforts to
cause its subsidiaries, directors, officers, employees, affiliates, investment
bankers, attorneys, accountants and other advisors or representatives not to,
directly or indirectly:
·
initiate, solicit, or knowingly
facilitate or encourage the making, submission or announcement of any
inquiries, proposals or offers that constitute or could reasonably be expected
to lead to any other acquisition proposal;
·
approve, endorse or recommend, or
publically propose to approve or recommend, any other acquisition proposal;
·
enter into any merger agreement, letter
of intent, agreement in principle, share purchase agreement, asset purchase
agreement, share exchange agreement, option agreement or other similar
agreement related to any other acquisition proposal; or
·
propose to or enter into any agreement
related to any other acquisition proposal that requires the Company to abandon,
terminate or fail to consummate the asset purchase agreement, or propose to or
breach the Company’s obligations under the asset purchase agreement.
The Company also agreed
that prior to the Board changing its recommendation to approve the asset
purchase agreement, terminating the asset purchase agreement or entering into
another asset purchase agreement with another party, the Company would provide
Buyer with the opportunity to submit an amended written proposal and would
negotiate in good faith to make changes to the terms and conditions of the
asset purchase agreement that would result in the Board recommending that
Company stockholders approve the amended asset purchase agreement with Buyer.
8
Despite this no
solicitation of a conflicting transaction provision, the Company may, in
response to an unsolicited acquisition proposal that did not result from a
breach of the Company’s nonsolicitation obligations under the asset purchase
agreement prior to obtaining stockholder approval of the asset sale:
·
furnish information with respect to the
Company to any person making an acquisition proposal that the Company’s Board
determines in good faith, after consultation with outside legal counsel, is
reasonably likely to lead to a superior proposal, pursuant to a confidentiality
and standstill agreement not materially less restrictive than the
confidentiality and standstill agreement that the Company entered into with
Buyer; and
·
participate in discussions or
negotiations with the person making such an acquisition proposal regarding the
acquisition proposal.
However, the asset
purchase agreement provides that the Company’s Board may propose to or actually
withdraw, modify or qualify its recommendation with respect to stockholder
approval of the asset sale or approve or recommend any superior proposal if the
Company’s Board determines in good faith, after consultation with outside legal
counsel, that failure to do so would be inconsistent with its fiduciary
obligations under applicable law. In addition, the Company’s Board may take any
action that is required under the Exchange Act and rules and regulations
of The Nasdaq Stock Market and any other securities exchange. The Board must
publically reaffirm its recommendation to support stockholder approval of the
asset purchase agreement within five days of a request by Buyer to do so.
Conditions to the Completion of the Asset Sale (see page 44)
The Company expects to
complete the asset sale after all the conditions to the asset sale in the asset
purchase agreement are satisfied or waived, including stockholder approval of
that asset sale at the Special Meeting. The Company currently expects to
complete the asset sale in the fourth quarter of 2009. However, it is possible
that factors outside of the Company’s control could require the Company to
complete the asset sale at a later time or not to complete it at all.
The obligations of the
Company and Buyer to complete the asset sale are subject to the satisfaction or
waiver of several conditions set forth in the asset purchase agreement,
including the following:
·
the representations and warranties of
each party in the asset purchase agreement are true and correct in all material
respects as of the closing date of the asset sale;
·
the asset sale is approved by the Company
stockholders;
·
no suit, action, claim, proceeding or
formal investigation is brought by a governmental entity seeking to prevent the
completion of the asset sale and no injunction or other order or statute, rule,
regulation or executive order by any government entity prevents the completion of
the asset sale;
·
the bill of sale, assignment and
assumption agreement, escrow agreement, license agreement and legal opinion are
delivered; and
·
all required filings with governmental
agencies are made and approvals of the asset sale, if any, are obtained.
The obligation of Buyer
to complete the asset sale is also subject to the absence of a change that is
materially adverse to the Company’s financial condition, assets, business or
results of operations compared to the date the asset purchase agreement was
signed.
The asset purchase
agreement provides that any or all of the conditions described above may be
waived. The Company does not currently expect to waive any material condition
to the completion of the asset sale.
Termination of the Asset Purchase Agreement (see page 46)
The asset purchase
agreement can be terminated under specified circumstances, which would prevent
the asset sale from being closed. If the close of the asset sale does not occur
by February 24, 2010, if the Company’s stockholders do not approve the
asset sale or if a governmental entity prohibits the asset sale, then either
party can terminate the asset purchase agreement. The Company may terminate the
asset purchase agreement if federal legislation is passed that would result in
the legalization of online gaming in the U.S. before the asset purchase
9
agreement is closed. In
addition, there are other circumstances where either the Company or Buyer can
terminate the asset purchase agreement.
Termination Fee (see page 47)
If the asset purchase
agreement is terminated under certain circumstances, the Company will be
required to pay Buyer a $1 million termination fee.
Reimbursement of Initial Payment (see page 47)
If the asset purchase
agreement is terminated under certain circumstances, the Company will be
required to reimburse Buyer $1 million for the initial payment of the
purchase price that was delivered by Buyer upon the execution of the asset
purchase agreement.
Indemnification (see page 50)
The Company and Buyer
have agreed to indemnify and hold each other harmless for damages and lost
profits as a result of misrepresentation or breach of any representation or
warranty or the failure to fulfill and observe any covenant or agreement contained
in the asset purchase agreement. The representations and warranties extend for
various periods depending on the nature of the claim. An escrow account will be
established and Buyer will pay 20% of the future revenues due to the Company
into the escrow account for two years to secure the Company’s indemnification
obligations to Buyer. Damages must exceed $150,000 before the Company is
required to pay the claims and the aggregate damages may not exceed
$9 million. Any controversy, dispute or claim regarding the asset purchase
agreement, including a claim about misrepresentation or breach of any
representation or warranty is to be settled by arbitration.
Material
U.S. Federal Income Tax Consequences of the Asset Sale (see page 39)
The Company will recognize
a taxable gain on the asset sale equal to the difference between the amount
realized from the asset sale and the adjusted tax basis of the assets sold and
liabilities assumed. The Company expects to have sufficient federal net
operating losses to offset the gain expected to be realized from the asset sale
for regular federal income tax purposes. The Company will pay federal
alternative minimum tax on the gain on asset sale. The Company will not be able
to use California net operating losses to offset the gain from the asset sale
because California suspended the use of net operating losses in 2009. The
Company expects to pay California regular income tax on the gain on asset sale.
The Company does not
expect that the asset sale will result in any federal or state income tax
consequences for its stockholders since they will not receive any of the
proceeds from the asset sale.
Required
Approvals (see page 39)
Corporate approval of the
asset sale requires the affirmative vote of the holders of a majority of the
Company’s outstanding common stock in favor of the asset sale. Not voting, or
abstaining on the vote, has the same effect as a vote against the asset sale.
In connection with the
execution of the asset purchase agreement, Buyer and certain directors,
executive officers and their affiliates entered into stockholder voting
agreements to vote their shares of Company common stock in favor of approval of
the asset sale and against the approval or adoption of any alternative
transactions. These directors, executive officers and their affiliates also
granted to Buyer a proxy to vote their shares of Company common stock in favor
of approval of the asset sale and agreed not to transfer its shares of Company
common stock prior to the expiration of the stockholder voting agreements.
These directors, executive officers and their affiliates together own or
control an aggregate of approximately 39% of the Company’s outstanding common
stock. The form of stockholder voting agreement is attached to this proxy
statement as
Annex C
.
The asset sale is subject
to the absence of any action commenced before any governmental authority
challenging the transaction. No filings are required to be made under the
Hart-Scott-Rodino Act in connection with the asset sale.
Anticipated
Accounting Treatment (see page 39)
For financial reporting
purposes, the Company will report a gain from the asset sale based on the
amount of the net proceeds received by the Company and the net book value of
the assets sold. If the asset sale had closed on June 28, 2009 and had the
Company received a $9.8 million payment at closing (this assumes that the
10
$12.3 million
purchase price is reduced by $1.5 million in sponsorship revenue earned by
the Company from PartyGaming for the period from July 10, 2009 until the
close of the asset sale and accounts for the $1.0 million asset purchase
agreement termination fee that was paid to Gamynia), the gain on the asset
sale, net of income taxes, would have been approximately $6.2 million.
Appraisal
Rights (see page 39)
Holders of the Company
common stock are not entitled to appraisal rights in connection with the asset
sale.
11
RISK FACTORS
In
addition to the other information included in this proxy statement, including
the matters addressed in the section entitled “Cautionary Statement Regarding
Forward-Looking Information” beginning on page 23, you should carefully
consider each of the risks described below before deciding whether to vote for
approval of the asset sale. You should also read and consider the other
information in this proxy statement. See the section entitled “Where You Can
Find More Information” beginning on page 95.
Risks
Related to the Asset Sale
If the Company fails to complete the asset sale, it may not
be able to successfully complete another strategic transaction.
The consummation of the
proposed asset sale with Buyer is subject to a number of closing conditions,
including that the Company’s stockholders approve the asset sale. The
obligation of Buyer to complete the transaction is also subject to the absence
of a change in circumstances that are materially adverse to the Company’s
financial condition, assets, business or results of operations. If the closing
conditions for the transaction are not satisfied, then the asset purchase
agreement can be terminated.
If the Company does not
complete the asset sale, it will review all options for continuing operations,
including seeking to identify and effect an alternative business combination,
sale of assets or another similar strategic transaction or transactions.
However, the Company may not be able to consummate such an alternative
transaction on favorable terms, if at all, and a third party may not offer to
purchase the Company’s assets for a price equal to or greater than the price
proposed to be paid by Buyer. If the Company is unable to successfully
consummate one or more alternative strategic transactions relating to its
business, the Company will continue to execute on its current business plan.
If we fail to complete the Asset Sale, the Company’s
business may be harmed.
The Company cannot
predict whether it will succeed in obtaining the approval of its stockholders,
or that the other conditions to close the asset sale will be satisfied. As a
result, the Company cannot guarantee that the asset sale will be completed.
Following the
Company’s public announcement of the asset sale, third parties may be unwilling
to enter into material agreements with the Company. New and existing customers
and business partners may prefer to enter into agreements with the Company’s
competitors because such customers and partners perceive that its relationships
are likely to be more stable. If the Company fails to complete the asset sale,
the failure to maintain existing relationships or enter into new relationships
may adversely affect the Company’s business, results of operations and
financial condition.
Pending the completion of the asset sale, the Company may
not make certain changes in the business and may not be able to enter into a
business combination with another party.
Covenants in the asset
purchase agreement impede the Company’s ability to enter into specified
transactions that are not in the ordinary course of business pending completion
of the asset sale. Existing and potential customers and vendors may not enter
into sales and purchases transactions until the ownership and management of the
business is clarified and employees and other key partners in the business may
choose to leave the business due to uncertainties inherent in the asset sale
process. Moreover, while the asset purchase agreement is in effect and subject
to limited exceptions, the Company is prohibited from soliciting, initiating,
encouraging, taking actions designed to facilitate any inquiries or the making
of any proposal or offer that could lead to, or entering into discussions or
negotiations with regard to, an acquisition proposal with any third party,
subject to specified exceptions. Any such acquisition proposal could be
favorable to the Company’s stockholders.
The Company will incur significant expenses in connection
with the asset sale and could be required to make significant payments if the
asset purchase agreement is terminated under certain conditions.
The Company could be
obligated to pay Buyer a $1 million termination fee and/or to reimburse
Buyer $1 million for the initial payment of the purchase price if the
asset purchase agreement is terminated under certain circumstances. In
addition, the Company expects to pay legal fees, accounting fees and proxy
costs whether the asset sale closes or not. Any significant expenses or payment
obligations incurred by the Company in connection with the asset sale could
adversely affect its financial condition and cash position.
12
If the asset sale disrupts the operations of the Company’s
business and prevents the Company from realizing intended benefits, the
business may be harmed.
The asset sale may
disrupt the Company’s business and prevent it from realizing intended benefits
as a result of a number of obstacles, such as: (i) the loss of key
employees, customers or business partners; (ii) the failure to adjust or
implement its business strategies; (iii) additional expenditures required
to facilitate the asset sale transaction; and (iv) the diversion of
management’s attention from the Company’s day-to-day operations.
Risks
Related to the Business after the Asset Sale
The Company will become a development stage company with
cash and investments, certain international sponsorship agreements and a
participation in future WPT and PPT brand revenues, but no operating history on
which investors can evaluate its ability to achieve stated business objectives.
After the asset purchase
agreement is closed, substantially all of the Company’s operating assets other
than cash, investments and certain other assets will be sold to Buyer. We will
then become a development stage company with no historic operating results. We
will generate revenues from the PokerStars international sponsorship agreements
and we will have general and administrative expenses to remain a public company
and to search for a new company to develop or acquire. There is no basis on
which to evaluate our ability to achieve our business objective of acquiring or
developing a new business. The Company does not have any specific merger, asset
acquisition, reorganization or other business combination under consideration
or contemplation and cannot guarantee that the Company will be able to
successfully consummate any such transaction. We have not, nor has anyone on
our behalf, had substantive discussions, formal or otherwise, with respect to
such a transaction.
Buyer or alternatively Parent may not honor all of their
obligations under the asset purchase agreement.
Buyer has made
significant representations, warranties and commitments to the Company about
various matters including the commitment to pay the Company 5% of future gross
gaming revenues less certain taxes and 5% of other future gross revenues less
certain taxes and costs earned with the purchased assets. Buyer has agreed that
the future gaming and other revenue-based participation amount will be at least
$3 million over the three year period following the close of the asset
purchase agreement, or otherwise Buyer will make up the shortfall to
$3 million at the end of the period. Buyer currently has no operations and
Parent has guaranteed all of Buyer’s obligations under the asset purchase
agreement. Buyer or alternatively Parent may not honor all of their obligations
under the asset purchase agreement.
You will not receive protections afforded stockholders of
certain blank check companies.
Until we acquire or
develop a business, we may be deemed to be a “blank check” company under U.S.
securities laws. Our cash and investments were not, however, obtained through
an initial public offering with the intention of being used to acquire or
develop a business like other blank check companies. Companies that complete an
initial public offering and have less than $5.0 million of net tangible assets
are regulated by Securities and Exchange Commission (“SEC”) Rule 419 that
is designed to protect stockholders in blank check companies. Accordingly,
Company stockholders will not receive the benefits or protections of that rule.
Among other things, this means that our common stock is immediately tradable;
at least 90% of the initial public offering proceeds are not held in an escrow
account; investments are not restricted to deposits under the Federal Deposit
Insurance Act, money market funds meeting the requirements of the Investment
Company Act of 1940 or investments that are direct obligations of or guaranteed
by the U.S.; investors will not have their investment refunded if they
disapprove of a proposed acquisition; we are not obligated to spend at lease
80% of the funds held in escrow for an acquisition; and we will have longer
than 18 months to complete a business combination.
Large blank check special
purpose acquisition companies that complete an initial public offering and have
more than $5.0 million of net tangible assets are also not protected by Rule 419.
These companies, however, during the initial public offering process usually
agree to restrictions in their certificate of incorporation that are similar to
restrictions contained in Rule 419. Among other things, large blank check
special purpose acquisition companies generally agree to place 85% or more of
the initial public offering proceeds in an escrow account; investments are
generally restricted to money market funds meeting the requirements of the
Investment Company Act of 1940 or short-term U.S. government securities such as
treasury bills; investors generally have their investment refunded if they
disapprove of a proposed acquisition; they are generally obligated to spend 80%
of the funds held in escrow for the acquisition and they generally have 18 to
24 months to complete a business combination. Our cash and investments
were not, however, obtained through an initial public offering with the
13
intention of being used
to acquire or develop a new business like large blank check special purpose
acquisition companies and we are not similarly restricted.
If our common stock becomes subject to the SEC’s penny stock
rules, broker-dealers may experience difficulty in completing customer
transactions and trading activity in our securities may be adversely affected.
If at any time we have
net tangible assets of $5.0 million or less and our common stock has a
market price per share of less than $5.00, transactions in our common stock may
be subject to the “penny stock” rules promulgated under the Exchange Act.
Under these rules, broker-dealers who recommend such securities to persons
other than institutional accredited investors must:
·
make a special written suitability
determination for the purchaser;
·
receive the purchaser’s written agreement
to a transaction prior to sale;
·
provide the purchaser with risk
disclosure documents that identify certain risks associated with investing in “penny
stocks” and that describe the market for these “penny stocks,” as well as a
purchaser’s legal remedies; and
·
obtain a signed and dated acknowledgment
from the purchaser demonstrating that the purchaser has actually received the
required risk disclosure document before a transaction in “penny stock” can be
completed.
If our common stock
becomes subject to these rules, broker-dealers may find it difficult to effect
customer transactions and trading activity in our securities may be adversely
affected. As a result, the market price of our securities may be depressed, and
you may find it more difficult to sell our securities.
Until the Company selects a particular industry or target
business with which to complete a business combination, you will be unable to
ascertain the merits or risks of the industry or business in which we may
ultimately operate.
After the close of the
asset sale, we intend to develop or acquire a company with principal business
operations in an industry that we believe will provide significant
opportunities for growth and we are not limited to any particular industry or
type of business. Accordingly, there is no current basis for you to evaluate
the possible merits or risks of the particular industry in which we may
ultimately operate or the target business or businesses with which we may
ultimately enter a business combination. Although we will evaluate the risks
inherent in a particular target business, we cannot assure you that all of the
significant risks present in that target business will be properly assessed.
Even if we properly assess those risks, some of them may be outside of our
control or ability to affect.
Resources will be expended in researching potential
acquisitions that might not be consummated.
The investigation of
target businesses and the negotiation, drafting and execution of relevant
agreements, disclosure documents, and other instruments will require
substantial management time and attention in addition to costs for accountants,
attorneys and others. If a decision is made not to complete a specific business
combination, the costs incurred up to that point for the proposed transaction
likely would not be recoverable. Furthermore, even if an agreement is reached
relating to a specific target business, we may fail to consummate the business
combination for any number of reasons including those beyond our control.
If an acquired business does not perform up to expectations,
our financial condition and results of operations may be negatively impacted.
In order to meet our
disclosure and financial reporting obligations under federal securities laws,
and in order to develop and seek to execute strategic plans for how we can
increase the revenues and/or profitability of a target business, realize
operating synergies or capitalize on market opportunities, we must conduct a
due diligence investigation of one or more target businesses. Intensive due
diligence is time consuming and expensive due to the operations, accounting,
finance and legal professionals who must be involved in the due diligence
process. Even if we conduct extensive due diligence on a target business with
which we combine, we cannot guarantee you that this diligence will surface all
material issues or that factors outside of the target business and outside of
our control will not later arise. If our diligence fails to identify issues
specific to a target business, industry or the environment in which the target
business operates, we may be forced to later write-down or write-off assets,
restructure our operations, or incur impairment or other charges that could
result in our reporting losses. Even
14
though these charges may
be non-cash items and not have an immediate impact on our liquidity, the fact
that we report charges of this nature could contribute to negative market
perceptions about us or our common stock. In addition, charges of this nature
may cause us to violate net worth or other covenants to which we may be subject
as a result of assuming pre-existing debt held by a target business or by
virtue of our obtaining debt financing.
If we are deemed to be an investment company, we may be
required to institute burdensome compliance requirements and our activities may
be restricted, which may make it difficult for us to complete a business
combination.
Rule 3a-2 of the
Investment Company Act of 1940 allows companies that have a bona fide intent to
engage primarily in a business other than that of investing in securities up to
a one year period to engage in that other business activity. This exception may
only be used once during a three-year period. We plan to seek the exemption
under Rule 3a-2 of the Investment Company Act of 1940 to avoid being
deemed to be an investment company.
We can invest our
investment portfolio in U.S. government securities and other investments that
qualify for an exception under Rule 3a-1 of the Investment Company Act of
1940 of the definition of what is an investment security if we believe that we
may be deemed to be an investment company. By qualifying under this exception,
we do not believe that our anticipated business activities will subject us to
the requirements of the Investment Company Act of 1940. One part of our current
investment portfolio, however, is a $3,850,000 investment in auction rate
securities and related rights to put the securities to the broker holding the
securities during the period June 30, 2010 to July 2, 2012 that could
be deemed an investment security under the Investment Company Act of 1940. We
may not be able to sell the auction rates securities and related put rights
near par value until June 30, 2010 and invest the proceeds in investments
that qualify for the exception under Rule 3a-1 of the Investment Company
Act of 1940.
We may be deemed to be an
investment company, as defined under Sections 3(a)(1)(A) and (C) of
the Investment Company Act of 1940, if, prior to the consummation of a business
combination, we are viewed as engaging in the business of investing in
securities or we own investment securities having a value exceeding 40% of our
total assets. If we are deemed to be an investment company under the Investment
Company Act of 1940, we may be subject to certain restrictions that may make it
difficult for us to complete a business combination, including:
·
restrictions on the nature of and
custodial requirements for holding our investments; and
·
restrictions on our issuance of
securities which may make it difficult for us to complete a business
combination.
In addition, we may have
imposed upon us burdensome requirements, including:
·
registration as an investment company;
·
adoption of a specific form of corporate
structure; and
·
reporting, record keeping, voting, proxy
and disclosure requirements and other rules and regulations.
If we become subject to
the Investment Company Act of 1940, compliance with these additional regulatory
burdens would require additional costs and expenses. There can be no assurance
that we are not deemed to be an investment company, as defined under
Sections 3(a)(1)(A) and (C) of the Investment Company Act of
1940 or that we will qualify for the exemptions under Rule 3a-1 or Rule 3a-2
of the Investment Company Act of 1940.
Nasdaq may determine that we are operating as a “public
shell” and may decide to subject us to delisting proceedings or additional and
more stringent continued listing criteria.
While Nasdaq has no
bright-line or qualitative test for determining whether a particular company is
a “public shell,” the exchange has expressed the opinion that the securities of
companies operating as “public shells” may be subject to market abuses or other
violative conduct that is detrimental to the interests of the investing public.
Nasdaq has defined a public shell as a company with no or nominal operations
and either no or nominal assets, assets consisting solely of cash and cash
equivalents, or assets consisting of any amount of cash and cash equivalents
and nominal other assets. Nasdaq may perform a facts and circumstances analysis
to determine whether they believe that the Company is a “public shell”. Listed
companies determined to be public shells by Nasdaq may be subject to delisting
proceedings or additional and more stringent continued listing criteria.
15
There can be no guarantee that we will quickly identify a
potential target business or complete a business combination.
The process to identify
potential acquisition targets, to investigate and evaluate the future business
prospects thereof and to negotiate an acceptable purchase agreement with one or
more target companies can be time consuming and costly. We will incur operating
losses, resulting from payroll, rent and other overhead and professional fees,
while we are searching for a business to develop or acquire.
We may issue shares of our capital stock or debt securities
to complete a business combination, which would reduce the equity interest of
our stockholders and could cause a change in control of our ownership.
Our Certificate of
Incorporation authorizes the issuance of up to 100 million shares of
common stock, par value $.001 per share, and 20 million shares of
preferred stock, par value $.001 per share. There are approximately
76 million authorized but unissued shares of our common stock available
for issuance (after appropriate reservation for the issuance of the shares upon
full exercise of our outstanding stock options). All of the 20 million shares
of preferred stock are available for issuance.
The issuance of
additional shares of our common stock or our preferred stock:
·
may significantly reduce the equity
interest of investors;
·
may subordinate the rights of holders of
common stock if we issue preferred stock with rights senior to those afforded
to our common stock;
·
will likely cause a change in control if
a substantial number of our shares of common stock are issued, which may
affect, among other things, our ability to use our net operating loss carry
forwards; and
·
may adversely affect the market price for
our common stock.
Similarly, if we issue
debt securities, it could result in:
·
default and foreclosure on our assets if
our operating revenues after a business combination are insufficient to repay
our debt obligations;
·
acceleration of our obligations to repay
the indebtedness (even if we make all principal and interest payments when due)
if we breach certain covenants that require the maintenance of certain
financial ratios or reserves without a waiver or renegotiation of that
covenant;
·
our immediate payment of all principal
and accrued interest, if any, if the debt security is payable on demand; and
·
our inability to obtain necessary
additional financing if the debt security contains covenants restricting our
ability to obtain such financing while the debt security is outstanding.
Risks
Related to the Current Business
In
addition to the other information contained in this proxy statement, you should
carefully consider each of the risks described below. Until the close of the
proposed asset sale with Buyer, the Company expects to continue to execute its
current business strategy. Except as specifically described below, the
following discussion of risks related to the Company does not reflect changes
to the Company’s business that may occur if it consummates the proposed asset
sale with Buyer.
Our broadcast agreement with FSN does not provide for any
broadcast fees to be paid to us, which could materially and adversely affect
our results of operations.
Over the years,
license fees received from U.S. broadcasters have been our most significant
source of revenue. Our distribution agreement with FSN to broadcast Season
Seven of the WPT television series does not provide for any license fees to be
paid to us for the broadcast rights. We generate fees from sponsors by
integrating sponsor logos and other advertising materials into our programs and
around the broadcast of the shows. The Season Seven sponsors are
FullTiltPoker.net in the U.S. and Mexico and PokerStars in Canada, certain
European countries, Mexico and South America. We recently sold Season Seven in
European countries that are not covered by the PokerStars agreement. In January 2009,
we entered into a distribution agreement with FSN to broadcast Season Eight of
the WPT television series on terms that are similar to the Season Seven
agreement. We do not yet have
16
any sponsors for Season
Eight. We may be required to pay the cost to produce Season Eight shows for FSN
and depending on the amount of sponsor revenues we are able to generate, the lack
of license fees in our Season Eight FSN agreement could have a material adverse
effect on our financial condition, results of operations and cash flows.
We have had broadcasting agreements with The Travel Channel,
Game Show Network (“GSN”) and Fox Sports Net. There is no assurance that FSN
will broadcast future seasons of the World Poker Tour, which would materially
and adversely affect our results of operations.
In September 2008,
we entered into an agreement with FSN to broadcast Season Seven of the WPT
television series. In January 2009, FSN agreed to broadcast Season Eight
of the WPT television series. If FSN elects to discontinue airing the WPT and
we cannot replace our FSN agreement with an agreement with a comparable U.S.
broadcaster, it may be difficult for us to obtain sponsorship funds, it will be
detrimental to the viability of the WPT brand and, consequently, would have a
material adverse effect on our financial condition, results of operations and
cash flows.
Our ClubWPT.com business is currently heavily dependent upon
television as a primary source for the generation of new subscribers and we
need to find a more cost effective marketing tool to generate new subscribers,
which if not achieved could materially and adversely affect our results of
operations.
We spent $927,000 in the
fourth quarter of 2008 and $220,000 in the first quarter of 2009 to produce 13
one-hour ClubWPT.com television shows to build awareness and drive traffic to
our online subscription website ClubWPT.com. We were disappointed with the rate
at which we converted ClubWPT.com television viewers to paying subscription
customers at ClubWPT. In order for the ClubWPT business to become a viable
business, we need to identify a more cost efficient marketing tool to generate
new subscribers for ClubWPT. The number of paid subscribers at ClubWPT was
constant throughout the second quarter of 2009 and increased in July 2009
as a result of a significant promotion by FSN. The number of paid subscribers
could decrease in future quarters due to the lack of current spending on
marketing for new players.
Our reliance on Centaurus Games, LLC (“Centaurus”) as a
third party systems provider is subject to system security risks and business
viability risks that could disrupt services provided to ClubWPT.com customers,
and any such disruption could reduce our revenue, increase our expenses and
harm our reputation.
Experienced computer
programmers and hackers may be able to penetrate Centaurus’ network security
and misappropriate confidential information, create system disruptions or cause
shutdowns. In addition, computer programmers and hackers may be able to develop
and deploy viruses, worms and other malicious software programs that attack
their products or otherwise exploit security vulnerabilities in their products.
As a result, we could lose existing or potential customers. Furthermore, we are
Centaurus’ primary source of revenue. If we or other Centaurus customers do not
provide sufficient business to them, they will face significant financial
pressures. In the fourth quarter of 2008 and the first and second quarters of
2009, Centaurus experienced a cash flow shortfall and we agreed to defer the
payment of certain amounts owed by Centaurus to us. It is possible that the
deferral of the payment of amounts owed by Centaurus to us will continue
throughout 2009. If Centaurus is not able to raise additional funding to
finance their business, or if we or other Centaurus customers are not able to
generate sufficient business for Centaurus, then Centaurus may not be able to
continue to be a viable vendor for us. Our efforts to address these risks could
result in business interruptions or delays, or the cessation of service and
result in the loss of existing or potential customers that would reduce our
revenues, increase our expenses and harm our reputation.
Rules and regulations governing sweepstakes, promotions
and giveaways vary by state and country and our compliance with these rules and
regulations could restrict or eliminate our ability to generate revenues at
ClubWPT.com which could materially and adversely impact the viability of this
business.
Changes in laws or
regulations in various states or countries over sweepstakes, promotions and
giveaways or a negative finding of law regarding the characterization of the
type of online activity carried out on ClubWPT.com could result in our
inability to obtain subscribers in those jurisdictions, which in turn could
significantly impact our ability to generate revenue.
17
We may incur additional
impairment charges to our auction rate securities
portfolio and we are dependent on UBS AG to repurchase these investments from
us.
As of June 28, 2009,
we had $3,900,000 of principal invested in auction rate securities. The types
of ARS investments that we own are backed by student loans, are guaranteed
under the Federal Family Education Loan Program and are AAA or Aaa rated. The
estimated fair value of our ARS holdings at June 28, 2009 was $3,455,000,
which reflects a $445,000 impairment loss.
We entered into an agreement with UBS that requires
UBS to buy our ARS at par value during the period June 30, 2010 to July 2,
2012. We have valued that right at $445,000 at June 28, 2009. We have
given UBS the right to sell our ARS before that period if they are able to find
a buyer that is willing to pay par value for our ARS. UBS has provided a
$2,661,000 line of credit to us, secured by the ARS held by them, which we drew
down in February 2009. At June 28, 2009, $2,647,000 was outstanding
under the line of credit.
UBS’s obligation to
repurchase our ARS is not secured by their assets and does not require UBS to
obtain any financing to support their performance obligations. UBS has
disclaimed any assurance that they will have sufficient financial resources to
satisfy their obligations and the obligations are not guaranteed by any other
party.
If
uncertainties in the capital and credit markets continue, these markets
deteriorate further or we experience any ratings downgrades on any ARS
investments in our portfolio, we may need to further impair the value of our
ARS portfolio, which could negatively affect our financial condition and
results of operations. We are also dependant on UBS to repurchase our ARS
portfolio at par value and that obligation is subject to performance risk on
the part of UBS.
Our success depends on our brands and any future brands we
may develop, and if the value of our brands were to diminish, our business
would be adversely affected.
Our success depends on
our World Poker Tour and Professional Poker Tour brands, which consist of a
portfolio of trademarks, service marks and copyrighted materials. Our portfolio
includes, but is not limited to, existing and future episodes of the televised
programming produced in connection with our existing and future brands and
certain elements of these episodes, trade names and other intellectual property
rights. In connection with our branding and licensing operations, we entered
into agreements with Brandgenuity LLC (“Brandgenuity”) and other licensing
agents in international territories to seek licensing opportunities for the WPT
brand. While specific contractual provisions require that the licensees brought
to us by Brandgenuity maintain the quality of our brand, we cannot be certain
that our licensees or their manufacturers and distributors will honor their
contractual obligations or that they will not take other actions that will
diminish the value of our brand prior to our ability to detect and prevent any
such actions.
There is a risk that we may not be able to protect the
format of our episodes, our current and future brands and our other proprietary
rights.
We are susceptible to
others imitating our television show format and other products and infringing
on our intellectual property rights. We currently believe that several
competitive poker-related television programs use exhibition methods and
technology that might infringe on one or more claims of our pending patent
applications. We have issued letters to some of the producers of these
programs, notifying them that we have intellectual property rights in such
technology and that we intend to vigorously enforce such rights in order to
protect our proprietary processes. These and other producers of poker-related
programming may be well established and may have significantly greater
resources than we do. Litigation may be necessary to enforce our intellectual
property rights and to determine the validity and scope of our proprietary
rights. Any litigation could result in substantial expense, may reduce our
profits and may not adequately protect our intellectual property rights upon
which we are substantially dependent. In addition, the laws of certain foreign
countries do not always protect intellectual property rights to the same extent
as the laws of the U.S. Imitation of our television show formats and other
products or infringement of our intellectual property rights could diminish the
value of our brands or otherwise adversely affect our revenues.
Any litigation or claims
against us based upon our intellectual property or other third party rights,
whether or not successful, could result in substantial costs and harm our
reputation. In addition, such litigation or claims could force us to do one or
more of the following: to cease exploitation of our television series and
related products or portions thereof that violate the potentially infringed
third party rights or intellectual property, which would adversely affect our
revenue; to negotiate a license from the holder of the intellectual property or
other
18
right alleged to have
been infringed, which license may not be available on reasonable terms, if at
all; or to modify our television series and related products or portions
thereof to avoid infringing the intellectual property or other rights of a
third party, which may be costly and time-consuming or impossible to
accomplish.
Early termination of our agreements with member casinos or
violation by member casinos of the restrictive covenants contained in these
agreements could negatively affect the size of telecast audiences and lead to
declines in the performance of our other lines of business.
We entered into written
agreements with all of the “member casinos” that host WPT tournament stops. The
WPT agreements were originally for a term of five years and, although some
member casinos have a bilateral option, most of the agreements provided us with
a unilateral option to renew on the same terms for another five years. In September 2004,
we exercised our right to renew most of these agreements. However, in each year
after its first year of participation, the member casino may elect to withdraw
its tournament from the WPT lineup and terminate the agreement by giving us
notice by a specified date or, if earlier, a specified length of time before
the date of the tournament, which is generally four to six months. While the
agreement is in effect and for varying periods of time thereafter, the member
casino is prohibited from televising the tournament itself, permitting any
third party to televise the tournament or licensing its name, trademarks or
likeness to any other party in conjunction with the telecast of a poker
tournament. If a significant number of these casinos were to terminate the
agreements and/or allow a competing company to telecast their tournaments after
their expiration for the restricted time period, this could result in a decline
in our future telecast audiences, which in turn would lead to declines in the
performance and success of our other lines of business. To date, twelve member
casinos that hosted WPT tour stops no longer participate as hosts of WPT
events. We replaced each of these venues with other tour stops and do not
believe that the change in tour venues has had a significant impact on the
quality of the tour or on our business. If one or more member casinos were to
breach the exclusivity provisions of their contracts with us by letting a
competing company telecast their tournaments within the restricted time period,
litigation may be necessary to enforce those rights. Any litigation could
result in substantial expense.
Termination or impairment of our relationships with key
licensing and strategic partners could adversely affect our revenues and
results of operations.
We have developed
relationships with key strategic partners in many areas of our business,
including poker tournament event sponsorship, merchandise licensing, corporate
sponsorship and international distribution. We hope to derive significant
income from our licensing arrangements and our agreements with our strategic
partners are vital to finding these licensing arrangements. If we were to fail
to manage our existing licensing relationships, this failure could have a material
adverse effect on our financial condition and results of operations. We would
also be materially adversely affected if we were to lose our rights under any
of our other key contracts or if the counterparty to any of these contracts
were to breach its obligations to us. We rely on a limited number of contracts
under which third parties provide us with services vital to our business.
These agreements include:
·
our agreement with PartyGaming, pursuant
to which PartyGaming agreed to pay us fees for sponsoring international
broadcasts of our programming in international territories, subject to certain
requirements regarding the type and amount of advertising and branding we are
able to provide them;
·
our agreement with Brandgenuity, pursuant
to which it negotiates third party consumer product licensing agreements; and
·
our agreement with Centaurus, pursuant to
which they operate and manage our online subscription website, ClubWPT.com.
If our relationship with
any of these or certain other third parties were to be interrupted, or the
services provided by any of these third parties were to be delayed or
deteriorate for any reason without being adequately replaced, our business
could be materially adversely affected. If we are forced to find a replacement
for any of these strategic partners, this could create disruption in our
business and may result in reduced revenues, increased costs or diversion of
management’s attention and resources.
In addition, while we
have significant control over our licensed products and advertising, we do not
have operational and financial control over these third parties, and we have
limited influence with respect to the manner
19
in which they conduct
their businesses. If any of these strategic partners experiences a significant
downturn in its business or were otherwise unable to honor its obligations to
us, our business could be materially disrupted.
The loss of the services of Steven Lipscomb or other key
employees or on-air talent, or our failure to attract key individuals could
adversely affect our business.
We are highly dependent
on the services of Steven Lipscomb, who is the creator and Executive Producer
of the WPT and PPT television series and currently serves as our President and
Chief Executive Officer. We do not currently have an employment contract with Mr. Lipscomb
and he may elect to decrease the level of his involvement with us or terminate
his employment with us altogether.
Our continued success is
also dependent upon retention of other key management executives and upon our
ability to attract and retain employees and on-air talent to implement our
corporate development strategy and our branding and licensing efforts. The loss
of some of our senior executives, or an inability to attract or retain other
key individuals, could materially adversely affect us. Growth in our business
is dependent, to a large degree, on our ability to retain and attract such
employees. We seek to compensate and provide incentives to our key executives,
as well as other employees, through competitive salaries, stock ownership and
bonus plans, but we can make no assurance that these programs will allow us to
retain key employees or hire new employees. In addition, our future success may
also be affected by the potential need to replace our key on-air talent.
Members of our Board of Directors own a large number of the
outstanding shares of our common stock and are able to significantly influence
our management and operations.
Three members of our
Board own 6,714,492 shares of our common stock, representing approximately 33%
of our voting power as of June 28, 2009. As a result, these three individuals
have a significant impact on the outcome of all matters requiring stockholder
approval, including the future merger, consolidation or sale of all or
substantially all of our assets. This concentrated ownership could discourage
others from pursuing a potential merger, takeover or other change of control
transaction. As a result, the return on investment in our common stock through
the market price of our common stock or ultimate sale of our business could be
adversely affected.
Our Board of Directors’ ability to issue undesignated
preferred stock and the existence of anti-takeover provisions may depress the
value of our common stock.
Our authorized capital
includes 20 million shares of undesignated preferred stock. Our Board has
the power to issue any or all of the shares of preferred stock, including the
authority to establish one or more series and to fix the powers, preferences,
rights and limitations of such class or series, without seeking stockholder
approval, subject to certain limitations on this power under Nasdaq listing
requirements. Further, as a Delaware corporation, we are subject to provisions
of the Delaware General Corporation Law regarding “business combinations.” We
may, in the future, consider adopting additional anti-takeover measures. The
authority of our Board to issue undesignated stock and the anti-takeover
provisions of Delaware law, as well as any future anti-takeover measures
adopted by us, may, in certain circumstances, delay, deter or prevent takeover
attempts and other changes in control of our Company that are not approved by
our Board. As a result, our stockholders may lose opportunities to dispose of
their shares at favorable prices generally available in takeover attempts or
that may be available under a merger proposal and the market price, voting and
other rights of the holders of common stock may also be affected.
Our quarterly results may fluctuate, causing fluctuation of
our stock price that may negatively affect the value of our common stock.
Under our sponsorship
agreements for the WPT and PPT, revenues are recognized as each episode is
aired. Therefore, our quarterly revenue can fluctuate significantly depending
on the number of episodes aired in any one quarter. In addition, the sales of
consumer products that utilize our licensed intellectual property vary greatly,
due to holiday seasons, school schedules and other outside factors. As a
result, our financial results can be expected to fluctuate significantly from
quarter to quarter, leading to volatility and a possible adverse effect on the
market price of our common stock.
20
Risks Related to the Current Industry
Our television programming may be unable to maintain a
sufficient audience for a variety of reasons, many of which are beyond our
control.
Television production is
a speculative business because revenues and income derived from television
depend primarily upon the continued acceptance of that programming by the
public, which is difficult to predict. Public acceptance of particular
programming is dependent upon, among other things, the quality of the
programming, the strength of networks on which the programming is telecast, the
promotion and scheduling of the programming and the quality and acceptance of
competing television programming and other sources of entertainment and
information. Popularity of programming can also be negatively impacted by
excessive telecasting of the programming beyond viewers’ saturation thresholds.
Our ability to create and sponsor our television programming
profitably may be negatively affected by adverse trends that apply to the
television production business generally.
Television revenues and
income may be affected by a number of factors, many of which are not within our
control. These factors include a general decline in television viewers, pricing
pressure in the television advertising industry, strength of the stations on
which our programming is telecast, general economic conditions, increases in
production costs and availability of other forms of entertainment and leisure
time activities. All of these factors, as well as others, may quickly change
and these changes cannot be predicted with certainty. Our future sponsorship
opportunities may also be adversely affected by these changes. Accordingly, if
any of these changes were to occur, the revenues we generate from television
programming could decline.
A decline in general economic conditions or the popularity
of our brand of televised poker tournaments could adversely impact our
business.
Because our operations
are affected by general economic conditions and consumer tastes, our future
success is unpredictable. The demand for entertainment and leisure activities
tends to be highly sensitive to consumers’ disposable incomes and thus a
decline in general economic conditions could, in turn, have a material adverse
effect on our business, operating results and financial condition and the price
of our common stock. An economic decline could also adversely affect our corporate
sponsorship business, sales of our branded merchandise and other aspects of our
business.
The continued popularity
of our type of poker entertainment is vital in maintaining the ability to
leverage our brand and develop products or services that appeal to our target
audiences, which, in turn, is important to our long-term results of operations.
Public tastes are unpredictable and subject to change and may be affected by
changes in the country’s political and social climate. A change in public
opinion could have a material adverse effect on our business, operating results
and financial condition and, ultimately, the price of our common stock.
The political or social climate regarding gaming and poker
could negatively impact our ability to negotiate future telecast license
arrangements and could negatively impact our chances of renewal.
Although the popularity
of poker, in particular, and gaming, in general, has continued to grow in the
U.S. and abroad, gaming has historically experienced backlash from various
constituencies and communities. Currently, the legal operational status of
Internet-based casinos and card rooms remains unclear in some countries. The
U.S. government has taken steps to curb activities that it believes constitutes
unlawful online gaming, through legislation such as the Unlawful Internet
Gambling Enforcement Act of 2006 and through arrests of off-shore online gaming
operators traveling in the U.S.
Based on the uncertain
regulatory environment surrounding the marketing and promotion of
Internet-based casinos and card rooms to viewers in the U.S., FSN, the Travel
Channel and GSN, which have final edit rights to the shows that they telecast,
have indicated that they will not display the “dot net” names or logos of
Internet-based casinos and card rooms in their telecasts, although they have
expressed a willingness to display names and logos from strictly play-for-free
websites and from our member casinos. However, if FSN, the Travel Channel and
GSN elect not to allow the display of “dot net” logos on the WPT, we may not be
able to attract other Internet-based casino sponsors or retain existing online
card rooms sponsoring our tour. Additionally, increased regulatory scrutiny on
Internet gambling sites may eliminate these sites as sources of advertising
revenue for television networks that exhibit poker-related programming, thereby
potentially impacting the value of such programming to these networks.
21
The television entertainment market in which we operate is
highly competitive and competitors with greater financial resources or
marketplace presence may enter our markets to our detriment.
We compete with
other poker-related television programming, including ESPN’s coverage of the “World
Series of Poker” and its “World Series of Poker” Circuit Events, NBC’s
exhibition of the National Heads-Up Poker Championship and Poker After Dark
television shows and GSN’s exhibition of the High Stakes Poker, among others.
These and other producers of poker-related programming may be well established
and may have significantly greater resources than we do. Based on the
popularity of these poker-related televised programs, we believe that
additional competing televised poker programs may currently be in development
or may be developed in the future. Our programming also competes for telecast
audiences and advertising revenue with telecasts of mainstream professional and
amateur sports, as well as other entertainment and leisure activities. These
competing programs and activities, and the brands that they build may decrease
the popularity of the WPT or PPT television series and dilute the WPT brand.
This would adversely affect our operating results and financial condition and,
ultimately, the price of our common stock.
Mixed signals from the United States Justice Department may
continue to create an unequal playing field in the U.S. poker market that may
adversely affect our ability to monetize our brands.
The United States
Department of Justice has publicly expressed its opinion that providing online
gaming services (including poker) to U.S. residents violates the Interstate
Wire Act of 1961 and perhaps other state and federal statutes. In the last
seven years, off-shore companies that provide online poker services have grown
a multi-billion dollar market in the U.S. These companies spend tens of
millions of dollars a month in the U.S. market to build their brands and the
businesses attached to those brands. The largest online businesses that take
bets in the U.S. have begun funding their own television shows and land-based
poker tours that are directly competitive with Company’s brands. If this trend
continues, the extensive resources of these online entities could have an
impact on the Company’s future ability to build its brands in the U.S. and
other markets.
22
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement, and
the documents to which the Company refers you in this proxy statement, contain
forward-looking statements about the Company’s plans, objectives, expectations
and intentions. Forward-looking statements include information concerning
possible or assumed future results of operations of the Company, the expected
completion and timing of the asset sale, the anticipated purchase price to be
received by the Company at the close of the asset sale, the participation in
gaming and other revenues earned on the future use by Buyer of the purchased
assets, other information relating to the asset sale, information relating to
the Company’s consideration of strategic alternatives should the asset sale not
be completed in a timely manner or at all, and any other statements about
management’s future expectations, beliefs, goals, plans or prospects. You can
identify these statements by words such as “expect,” “anticipate,” “intend,” “plan,”
“believe,” “seek,” “estimate,” “forecast,” “potential,” “contemplate,” “could,”
“would,” “may,” “will” and “can” or similar words. You should read statements
that contain these words carefully. They discuss the Company’s future
expectations or state other forward-looking information, and may involve known
and unknown risks over which the Company has no control, including, without
limitation:
·
the ability of the Company to complete
the proposed asset sale;
·
the satisfaction of the conditions to
consummate the asset sale, including the approval of the asset sale by the
Company’s stockholders;
·
the occurrence of any event, change or
other circumstance that could give rise to the termination of the asset
purchase agreement;
·
the outcome of any legal proceeding that
may be instituted against the Company or others following the announcement of
the asset purchase agreement;
·
the amount of the costs, fees and
expenses related to the asset sale;
·
indemnification amounts potentially
payable by the Company in connection with the asset sale;
·
the potential value created by the
proposed asset sale for the Company’s stockholders;
·
the Company’s results of operations,
financial condition and businesses, and the expected impact of the asset sale
on the Company’s financial and operating performance; and
·
general industry, market and competitive
conditions.
These and other risks are
described in greater detail in the section entitled “Risk Factors” beginning on
page 12 of this proxy statement. If one or more of these factors
materialize, or if any underlying assumptions prove incorrect, actual results,
performance or achievements may vary materially from any future results,
performance or achievements expressed or implied by these forward-looking
statements. In addition, any forward-looking statements in this proxy statement
represent the Company’s views only as of the date of this proxy statement and
should not be relied upon as representing the Company’s views as of any
subsequent date. The Company anticipates that subsequent events and
developments may cause its views to change. However, while the Company may
elect to update these forward-looking statements publicly at some point in the
future, the Company specifically disclaims any obligation to do so, except as
may be required by law, either as a result of new information, future events or
otherwise. The Company’s forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, joint ventures or
investments it may make. In particular, unless otherwise stated or the context
otherwise requires, the Company has prepared this proxy statement as if it were
going to remain an independent, standalone company. If the Company consummates
the asset sale, the descriptions of its strategy, future operations and
financial position, future revenues, projected costs and prospects and the plans
and objectives of management in this proxy statement may no longer be
applicable.
23
THE SPECIAL MEETING
The Company is furnishing
this proxy statement to you, as a stockholder of the Company, as part of the
solicitation of proxies by the Company’s Board for use at the Special Meeting
of stockholders and any adjournments or postponements of the Special Meeting.
Date,
Time and Place
The Special Meeting will
be held at the Renaissance Hollywood Hotel, 1755 North Highland Avenue,
Hollywood, California 90028 at 10:00 a.m. on [ ], 2009. This proxy statement is
first being furnished to the Company’s stockholders on or about [ ],
2009.
Purposes
of the Special Meeting
The purposes of the
Special Meeting are to consider and act upon the following matters:
1.
To approve the sale of substantially all of the
Company’s operating assets other than cash, investments and certain other
assets pursuant to the asset purchase agreement, dated as of August 24,
2009, by and between Buyer and the Company as described in this proxy
statement. A copy of the asset purchase agreement is attached as
Annex A
to this proxy statement.
2.
To approve an amendment to the Company’s Certificate
of Incorporation to change the Company’s name to [ ] upon the close of the
asset sale.
3.
To adjourn the Special Meeting, if necessary for a
period of not more than 30 days, to solicit additional proxies if there
are not sufficient votes in favor of the proposal to approve the asset sale.
Stockholders will also
consider and act on any other matters that may properly come before the Company
Special Meeting or any adjournment or postponement thereof.
Recommendation
of the Company’s Board of Directors
The Company’s Board
believes that the sale of substantially all of the operating assets of the
Company other than cash and investments pursuant to the asset purchase
agreement as described in this proxy statement is advisable, fair to, and in
the best interests of the Company and its stockholders and has unanimously
approved the asset sale. The Company’s Board unanimously recommends that Company
stockholders vote “FOR” Proposal No. 1 to approve the asset sale. Upon the
close of the asset sale, the Company has agreed with Buyer to change the
Company’s name and has selected the new name [ ]. The Company’s Board
unanimously recommends that the Company stockholders vote “FOR” Proposal No. 2
to approve an amendment to the Company’s Certificate of Incorporation to change
the Company’s name to [ ]
upon the close of the asset sale.
The Company’s Board has
determined and believes that adjourning the Special Meeting, if necessary, to
solicit additional proxies if there are not sufficient votes in favor of the
proposal to approve the asset sale is advisable, fair to, and in the best
interests of, the Company and its stockholders and has unanimously approved
such proposal. The Company’s Board unanimously recommends that stockholders
vote “FOR” Proposal No. 3 to adjourn the Special Meeting, if necessary, to
solicit additional proxies if there are not sufficient votes in favor of the
asset sale.
Record
Date and Voting Power
Only holders of record of
Company common stock at the close of business on the record date, [ ], 2009, are entitled to notice
of, and to vote at, the Special Meeting. There were approximately [ ] holders of record of the
Company common stock at the close of business on the record date. Because many
of such shares are held by brokers and other institutions on behalf of
stockholders, the Company is unable to estimate the total number of
stockholders represented by these record holders. At the close of business on
the record date, [ ] shares of
Company common stock were issued and outstanding. Each share of the Company’s
common stock entitles the holder thereof to one vote on each matter submitted
for stockholder approval. See “Principal Stockholders of the Company” on page 94
of this proxy statement for information regarding persons known to the Company’s
management to be the beneficial owners of more than 5% of the outstanding
shares of the Company’s common stock.
24
Voting
and Revocation of Proxies
The proxy accompanying
this proxy statement is solicited on behalf of the Company’s Board of Directors
for use at the Special Meeting.
If you are a stockholder
of record of the Company as of the record date referred to above, you may vote
in person at the Special Meeting or vote by proxy over the Internet, by
telephone or using the enclosed proxy card. Whether or not you plan to attend
the special meeting, the Company urges you to vote by proxy to ensure your vote
is counted. You may still attend the Special Meeting if you have already voted
by proxy.
If your shares are
registered directly in your name, you may vote:
·
Over the Internet.
Go to the website of the
Company’s vote tabulator, Wells Fargo Bank N.A. Shareholder Services, at
http://www.eproxy.com/WPTE and follow the instructions you will find there. You
must specify how you want your shares voted or your Internet vote cannot be
completed and you will receive an error message. Your shares will be voted
according to your instructions.
·
By Telephone.
Call 1-800-560-1965 toll-free
from the U.S. or Canada and follow the instructions. You must specify how you
want your shares voted and confirm your vote at the end of the call or your
telephone vote cannot be completed. Your shares will be voted according to your
instructions.
·
By Mail.
Complete, sign and date the
enclosed proxy card and mail it in the enclosed postage-paid envelope to Wells
Fargo Bank N.A. Shareholder Services. Your proxy will be voted according to
your instructions.
·
In Person at the
Meeting.
If
you attend the meeting, you may deliver your completed proxy card in person or
you may vote by completing a ballot, which will be available at the meeting.
If your shares are held
in “street name” for your account by a bank, broker or other nominee, you may
vote:
·
Over the Internet or By
Telephone.
You
will receive instructions from your bank, broker or other nominee if you are
permitted to vote over the Internet or by telephone.
·
By Mail.
You will receive instructions
from your bank, broker or other nominee explaining how to vote your shares.
·
In Person at the
Meeting.
Contact
the bank, broker or other nominee that holds your shares to obtain a proxy card
and bring it with you to the meeting.
A
broker’s proxy is
not
the form of
proxy enclosed with this proxy statement. You will not be able to vote shares
you hold in “street name” at the meeting unless you have a proxy from your
broker issued in your name giving you the right to vote the shares.
All properly executed
proxies that are not revoked will be voted at the Special Meeting and at any
adjournments or postponements of the Special Meeting in accordance with the
instructions contained in the proxy. If a stockholder executes and returns a
proxy and does not specify otherwise, the shares represented by that proxy will
be voted “FOR” Proposal No. 1 to approve the asset sale, “FOR” Proposal No. 2
to change the Company’s name to [ ] and “FOR” Proposal No. 3
to adjourn the Special Meeting, if necessary for a period of not more than 30
days, to solicit additional proxies if there are not sufficient votes in favor
of the asset sale proposal in accordance with the recommendation of the Company’s
Board.
Any Company stockholder
of record voting by proxy, other than those stockholders who have executed a
voting agreement, has the right to revoke the proxy at any time before the
polls close at the special meeting by sending a written notice stating that it
would like to revoke its proxy to the Secretary of the Company, by voting again
over the Internet or by telephone, by providing a duly executed proxy card
bearing a later date than the proxy being revoked or by attending the Special
Meeting and voting in person. Attendance alone at the Special Meeting will not
revoke a proxy. A beneficial owner of the Company’s common stock that holds
shares in “street name” must follow directions received from the bank, broker
or other nominee that holds the shares to change its voting instructions.
25
Quorum
and Required Vote
The presence, in person
or represented by proxy, at the Special Meeting of holders of a majority of the
shares of the Company’s common stock outstanding and entitled to vote at the
Special Meeting is necessary to constitute a quorum at the meeting. If the
Company’s stockholders do not vote by proxy or in person at the Special
Meeting, the shares of common stock of such stockholders will not be counted as
present for the purpose of determining a quorum. If a quorum is not present at
the Special Meeting, the Company expects that the Special Meeting will be
adjourned or postponed to solicit additional proxies. Abstentions and broker
non-votes will be counted as present for purposes of determining the existence
of a quorum. A “broker non-vote” occurs when a broker is not permitted to vote
because the broker does not have specific voting instructions from the
beneficial owner of the shares.
The affirmative vote of
holders of a majority of the outstanding shares of the Company’s common stock
as of the record date for the Special Meeting is required to approve Proposal No. 1
relating to the approval of the asset sale. A failure to submit a proxy card or
vote at the Company’s Special Meeting, or an abstention, vote withheld or “broker
non-vote” for the proposal to approve the asset sale will have the same effect
as a vote against the approval of the asset sale. The affirmative vote of the
holders of a majority of the Company’s common stock present in person or
represented by proxy at the Special Meeting is required to approve the change
in the Company’s name to [
] and the adjournment of the Special Meeting for a period of not more
than 30 days for the purpose of soliciting additional proxies to approve
Proposal No. 1 relating to the approval of the asset sale. A failure to
submit a proxy card or vote at the Special Meeting, or an abstention, vote
withheld or “broker non-vote” will have no effect on the outcome of the
proposals to change the Company’s name to [ ] and to adjourn the
Special Meeting for the purpose of soliciting additional proxies.
Solicitation
of Proxies
In addition to
solicitation by mail, the directors, officers, employees and agents of the
Company may solicit proxies from the Company’s stockholders by personal
interview, telephone, facsimile or other electronic means. The Company will pay
the costs of the solicitation of proxies from stockholders. Arrangements will
also be made with brokerage firms and other custodians, nominees and
fiduciaries who are record holders of the Company common stock for the
forwarding of solicitation materials to the beneficial owners of the Company
common stock. The Company will reimburse these brokers, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses they incur in connection
with the forwarding of solicitation materials.
The Company has retained
The Altman Group, a proxy solicitation firm, to assist in the solicitation of
proxies for this Special Meeting for a fee of approximately $6,000 plus reimbursement
of out-of-pocket expenses.
Delivery
of Proxy Materials to Households Where Two or More Stockholders Reside
As permitted by the
Exchange Act, only one copy of this proxy statement is being delivered to
stockholders residing at the same address, unless the Company’s stockholders
have notified the Company of their desire to receive multiple copies of the
proxy statement. This is known as householding.
The Company will promptly
deliver, upon oral or written request, a separate copy of this proxy statement
to any stockholder residing at an address to which only one copy was mailed.
Requests for additional copies of this proxy statement should be directed to:
Investor Relations, WPT Enterprises, Inc., 5700 Wilshire Blvd., Suite 350,
Los Angeles, CA 90036.
Other
Matters
As of the date of this
proxy statement, the Company’s Board does not know of any business to be
presented at the Special Meeting other than as set forth in the notice
accompanying this proxy statement. If any other matters should properly come
before the Special Meeting, or any adjournment or postponement of the Special
Meeting, it is intended that the shares represented by proxies will be voted
with respect to such matters in accordance with the judgment of the persons
voting the proxies.
26
THE ASSET SALE
Background
of the Asset Sale
The Company’s Board of
Directors has from time to time in recent years engaged with senior management
in strategic reviews and considered ways to enhance the Company’s performance
and prospects. These reviews have included the consideration of potential
transactions with third parties to further the Company’s strategic objectives
together with the potential benefits and risks of those transactions. These
strategic reviews have on several occasions included exploratory discussions
regarding potential financing transactions or strategic transactions, including
a formal process in early 2006 during which the Company hired Thomas Weisel
Partners LLC to openly explore alternative opportunities. That process
concluded in September 2006 with no formal offers for the Company.
In the fourth quarter of
2008, a member of the Company’s management provided publically-available data
to a number of current and prospective customers in order to develop business
opportunities. These companies were comparing the size of the Company’s market
capitalization to the amount of proposed WPT television sponsor arrangements
and new business venture commitments and they were concluding that it may make
more sense to consider purchasing the Company rather than to enter into the
proposed business opportunities. These conditions added to the challenge of the
sales process for the Company.
On January 6, 2009, Mr. Lipscomb
had a telephone call with the Chief Financial Officer of Company A, a
non-U.S. online poker company that is a customer of the Company. Mr. Lipscomb
described the WPT China business and asked if there was interest in entering
into a merger or acquisition transaction with WPT China. The Chief Financial
Officer of Company A said that they had recently looked at the China
business prospects and they decided not to invest in that market in the short
term. Mr. Lipscomb and the Chief Financial Officer then had a discussion
about the Company’s business including the international sponsorship of the WPT
television series. At the conclusion of this discussion, the Chief Financial
Officer of Company A asked if the Company would entertain a merger or
acquisition transaction. Mr. Lipscomb responded that the Company was
always open to proposals that would maximize stockholder value. Mr. Lipscomb
informed the Chief Financial Officer of Company A that the Company was
negotiating a non-U.S. online gaming brand licensing deal that would effectively
prevent a merger or acquisition transaction with another online gaming company
in the short to medium term. The Chief Financial Officer of Company A said
he would discuss the situation with the management and owners of
Company A.
On January 9, 2009,
the Chief Financial Officer of Company A told Mr. Lipscomb that the
management and owners of Company A had not yet made a decision about
making an offer for the Company. On January 19, 2009, the Chief Financial
Officer of Company A sent an email to Mr. Lipscomb again stating the
same information. He also asked if the proposed non-U.S online gaming brand
licensing deal would be extended to include the U.S. market. Mr. Lipscomb
then called the Chief Financial Officer of Company A and was informed that
the management and owners of Company A were not able at that time to
consider a business combination with the Company.
On January 27, 2009,
while attending the International Gaming Exposition to discuss merger and
acquisition options for WPT China with interested parties, Mr. Lipscomb
and members of the Company’s management met with the management of Buyer. In
addition to discussing merger and acquisition options for the WPT China
business, the discussion covered future television sponsorship of the WPT television
series and other ways of working together. At the conclusion of that
discussion, the management of Buyer said that it might make more sense for
Buyer to acquire the Company. The Company’s management said that the Company
was always open to opportunities that would maximize stockholder value. The
meeting ended with the management of Buyer asking for due diligence materials
in order to formulate an offer to buy the Company.
On January 27, 2009,
Mr. Lipscomb and members of the Company’s management met with the
management of Gamynia. The purpose of the meeting was to further ongoing
discussions aimed at licensing the WPT brand to Gamynia in exchange for a
percentage of online gaming revenues in the non-U.S. online poker market.
On January 28, 2009,
Mr. Lipscomb and members of the Company’s management met with the
management of Company D, a non-U.S. online gaming company. The purpose of
the meeting was to discuss the possibility of Company D entering into a
merger or acquisition transaction with WPT China. At the conclusion of those
discussions, Mr. Lipscomb met separately with the Chief Executive Officer
of Company D. During that meeting,
27
the Chief Executive
Officer of Company D expressed his interest in entering into a merger or
acquisition transaction with the Company. Mr. Lipscomb said that the
Company was negotiating a non-U.S. online gaming brand licensing deal that
would make such a transaction unlikely in the short or medium term but that the
Company’s Board was always interested in opportunities that could maximize
stockholder value. The Chief Executive Officer of Company D said that he
would consider such a transaction, but he doubted that he would be able to move
forward with such a transaction at the present time. The two Chief Executive
Officers’ spoke again on January 30, 2009. During that call, the Chief
Executive Officer of Company D again expressed his desire to find a way
for Company D to acquire the Company. On February 3, 2009, Mr. Lipscomb
sent an email to the Chief Executive Officer of Company D letting him know
that the non-U.S. online gaming brand licensing discussions were progressing
quickly and that he needed to let him know if broader discussions should take
place.
On January 30, 2009,
the Company’s Board held a telephonic meeting with management to review the
latest version of the 2009 budget. At the conclusion of the budget discussion, Mr. Lipscomb
updated the Board about the status of the ongoing negotiations with Gamynia to
license the Company’s brand in exchange for a share of non-U.S. online gaming
revenues, including the potential risks and rewards of such a deal. While Mr. Lipscomb
believed the deal could produce significant yearly net revenues, he expressed
the concern that it could also negatively impact the Company’s international
WPT television series sponsorship revenues. The deal could also restrict the
Company ability to enter into a merger or acquisition transaction with other
online gaming companies. Mr. Lipscomb also informed the Board about the
discussions with Buyer and Company A. The Board directed Mr. Lipscomb
to continue the brand licensing discussions with Gamynia and to provide due
diligence materials to Buyer.
Later that day, Mr. Lipscomb
received a telephone call from a Senior Partner in a media company,
Company E. The Senior Partner expressed in that call and in an email the
same day that he had an interest in receiving due diligence information about
the Company. From February 4, 2009 to April 23, 2009 the Company and
Company E engaged in numerous phone calls, meetings and emails where the
Company provided due diligence materials to Company E. On February 15,
2009, Mr. Lipscomb informed the Senior Partner of Company E that the
Company’s management did not want any representatives of Company E having
contact with WPT sponsors or potential sponsors because of the potential to
affect those relationships and the deals currently being discussed.
On February 9, 2009,
the Company provided due diligence materials to Buyer. On March 20, 2009,
the Company responded to due diligence questions raised by Buyer.
On February 10,
2009, the Company’s Audit Committee held one of its two quarterly meetings.
During that meeting, Mr. Lipscomb updated the three Board members that are
also Audit Committee members on the progress of the potential non-U.S. online
gaming brand licensing deal with Gamynia as well as the ongoing discussions
with Buyer and Companies A, D and E.
On February 17,
2009, the Company issued its fourth quarter earnings release and disclosed that
the Company was having discussions with current and potential customers about
strategic ways to maximize the value of the WPT brand in the U.S. and foreign
markets. The Company also disclosed that it had provided confidential
information to certain of these parties in order to facilitate the discussions,
that the Company was not able to predict the outcome of these discussions and
that no particular strategic alternative had been chosen.
On February 18,
2009, the Chief Executive Officer of Company F, a non-U.S. online poker
company that is a customer of the Company, attempted to contact Mr. Lipscomb
and Mr. Lipscomb asked him to call to discuss his interests. On February 25,
2009, Mr. Lipscomb sent an email to the Chief Executive Officer of
Company F letting him know that the non-U.S. online gaming brand licensing
deal was developing quickly. The Chief Executive Officer of Company F and Mr. Lipscomb
held a telephone call later that day and the Chief Executive Officer of
Company F asked Mr. Lipscomb if the Company would be open to an offer
to acquire the Company. Mr. Lipscomb let the Chief Executive Officer of
Company F know that the Board was always open to opportunities that would
maximize stockholder value. Later that day, the Chief Executive Officer of
Company F sent an email to Mr. Lipscomb offering to pay $3 to
$5 million for the Company’s assets and an earn out based on future
revenues
.
Mr. Lipscomb did
not receive the email until March 2, 2009.
On February 26, 2009,
the Company’s Board met with management to discuss the progress of the third
party discussions about WPT China. After completing this presentation, the
Board received an update regarding management actions to evaluate strategic
alternatives for the Company. Mr. Lipscomb discussed the progress the
28
Company is making in
transforming from a primarily licensed-based revenue company to a primarily
sponsor-based revenue company. He then discussed the risks facing a primarily
sponsor-based revenues company. He acknowledged the difficulty in making
multi-million dollar sponsor revenue deals when the market capitalization of
the Company was $6-8 million. Mr. Lipscomb then updated the Board
regarding the discussions with Buyer, Gamynia and Companies A, D and E.
On February 27,
2009, the Chief Financial Officer of Buyer called a member of the Company’s
management and told him that the board of directors of Buyer would be meeting
in early March 2009 and that, if his Board agreed, he may present an offer
to purchase the Company on March 6, 2009.
On March 2, 2009,
the Senior Partner in Company E and Mr. Lipscomb spoke about the
status of the due diligence performed by Company E and Mr. Lipscomb
updated the Senior Partner about the Company’s recent business results. The
Senior Partner in Company E told Mr. Lipscomb that a formal offer to
purchase certain of the Company’s assets would be sent to Mr. Lipscomb by March 6,
2009.
On March 4, 2009, Mr. Lipscomb
sent an email to the Chief Executive Officer of Company F with questions
about the details of the offer Company F made to acquire certain of the Company’s
assets. On March 5, 2009, Mr. Lipscomb and the Chief Executive
Officer of Company F spoke by telephone. In that conversation, Mr. Lipscomb
learned that Company F would need to raise cash from its stockholders to
fund the up front payment contained in the offer. The Chief Executive Officer
of Company F felt that he could raise the purchase price from his
stockholders and that he was open to creating a meaningful ongoing
participation in future operations of the World Poker Tour brand for the
Company. On March 16, 2009, due diligence information was sent to the
Chief Executive Officer of Company F.
On March 4, 2009, the
Company gave permission to Company E to make a proposal to acquire the
Company. On March 6, 2009, Company E emailed an offer letter to Mr. Lyle
Berman and Mr. Lipscomb. Company E offered to pay
$4 million at closing for certain of the Company’s assets and
$6 million over six years secured by the assets purchased by
Company E. Company E requested a 30 day exclusive period to negotiate
a transaction.
Mr. Lipscomb sent an
email to the Senior Partner of Company E on March 6, 2009 informing
him that the proposal would be discussed with Mr. Berman on March 10,
2009. On March 10, 2009, Mr. Lipscomb informed the Senior Partner of
Company E that the conversation with Mr. Lyle Berman was delayed until March 11,
2009. On March 11, 2009 Mr. Lyle Berman and Mr. Lipscomb spoke
about the offer made by Company E.
On March 11, 2009, Mr. Lipscomb
had a telephone call with Mr. Lyle Berman about the Company F offer. Mr. Berman
directed Mr. Lipscomb to provide due diligence to Company F,
investigate Company F’s ability to pay the upfront money contained in the
offer and evaluate the likelihood that Company F could deliver on any
potential upside from using the World Poker Tour brand. Due diligence was sent
to Company F on March 16, 2009.
On March 17, 2009, Mr. Lipscomb
informed the Senior Partner of Company E that he would speak to Mr. Bradley
Berman about the Company E offer. On March 17, 2009, Mr. Lipscomb
spoke with Mr. Bradley Berman about the Company E offer. Mr. Lipscomb
then emailed a counter offer to the Senior Partner of Company E.
The Senior Partner of
Company E called Mr. Lipscomb on March 18, 2009 to discuss the
counter offer. The Senior Partner of Company E informed Mr. Lipscomb
that he would respond to the counter offer. Mr. Lipscomb spoke with Mr. Lyle
Berman later that day. They discussed the offers made by Company E and
Company F. Mr. Lyle Berman directed Mr. Lipscomb to contact the
Senior Partner of Company E to determine if a structure could be created
where Company E and Company F each acquired certain of the Company’s
assets. Mr. Lyle Berman and Mr. Lipscomb also discussed the
prospective non-U.S. online gaming brand licensing deal with Gamynia. Later
that day, the Senior Partner of Company E and Mr. Lipscomb discussed
the possibility that Company E and Company F could each acquire
certain of the Company’s assets. The Senior Partner of Company E told Mr. Lipscomb
that he would consider this alternative structure.
On March 18, 2009,
the Chief Financial Officer of Buyer communicated the broad terms of a proposal
to a member of the Company’s management. Buyer was offering to acquire all of
the Company’s assets other than cash and investments for $7 million. The
Chief Financial Officer of Buyer said that this proposal was not a binding
offer and that the proposal was subject to the approval of the board of
directors of Buyer as well as the completion of due diligence. The terms of the
proposal were communicated to Mr. Lipscomb the same day. The
29
Chief Financial Officer
of Buyer contacted a member of the Company’s management later that day to
discuss due diligence issues. On March 19, 2009, Mr. Lipscomb
informed Mr. Lyle Berman of the proposal made by the Chief Financial
Officer of Buyer. Mr. Lyle Berman directed Mr. Lipscomb to see if
Buyer’s proposal could be improved.
On March 19, 2009,
the Chief Financial Officer of Buyer informed a member of the Company’s
management that due diligence questions would soon be sent to him. On March 20,
2009, Buyer requested and received due diligence information from the Company.
On March 31, 2009, members of Buyer’s management discussed due diligence
information with members of the Company’s management.
On March 19, 2009, a
member of the Company’s management had a conversation with a Director of
Gamynia regarding licensing the World Poker Tour brand for use in non-U.S.
online gaming. The member of the Company’s management informed the Director of
Gamynia that online gaming companies were making offers to purchase the Company’s
assets.
On March 23, 2009, a
Director of Gamynia called Mr. Lipscomb to discuss the proposed online
gaming brand licensing deal. The Director of Gamynia said Gamynia was still
very interested in making a non-U.S. online gaming brand licensing deal with the
Company, but that he was aware that the Company was having discussions
regarding strategic options that could make that brand license arrangement
impossible and he asked if he could join the bidders. Mr. Lipscomb told
the Director of Gamynia that the Board was always interested in offers that
could maximize stockholder value. Mr. Lipscomb then discussed the
potential challenges to generating sponsorship revenues from various online
gaming companies if the Company licensed its name to another online gaming
company. The Director of Gamynia said that he understood the business risk of a
brand licensing deal from the Company’s standpoint and he would work on a
proposal to acquire the Company’s assets.
On March 23, 2009,
the Senior Partner of Company E called Mr. Lipscomb to discuss the
counter offer made by Mr. Lipscomb on March 17, 2009. He informed Mr. Lipscomb
that Company E was revising their proposal to increase the amount paid at
closing to $5 million with $3 million paid over three years from
closing secured by the assets sold to Company E. In addition, the Company
would receive a 15% equity ownership in the company that acquired the Company’s
assets and $1 million if online poker is legalized in the U.S. within 18
months of the close. On March 24, 2009, the Senior Partner of
Company E called Mr. Lipscomb to discuss the revised offer made by
Company E on March 23, 2009. Mr. Lipscomb informed the Senior
Partner of Company E that the Company’s Board would consider the revised
offer on March 25, 2009.
On March 24, 2009, a
Director of Gamynia informed Mr. Lipscomb by email that he planned to send
an offer to purchase the Company’s assets the following morning. On March 25,
2009, a Director of Gamynia sent a non-binding offer to Mr. Lipscomb,
subject to due diligence, to purchase the Company’s assets. Gamynia offered to
pay $8 million at the close and a specified percentage of net online
gaming after tax profits of at least $3 million if online gaming is
legalized in the U.S. Gamynia would also pay the Company a percentage of
non-gaming revenues for five years.
On March 25, 2009,
the Company’s Board held a telephonic meeting with the Company’s management.
One item on the agenda for the meeting was an update of management actions to
evaluate strategic alternatives for the Company. Mr. Lipscomb explained
the proposals submitted by Buyer, Gamynia and Companies E and F to the
Board. Mr. Lipscomb also explained the proposed non-U.S. online gaming
brand license deal with Gamynia. The Board and management deliberated the risks
and rewards of the various proposals. The Board directed management to see if
the asset acquisition proposals could be improved. At the same time, the Board
directed management to negotiate the terms of a non-U.S. online gaming brand
licensing deal with Gamynia.
After the Board call, Mr. Lipscomb
called the Senior Partner of Company E and let him know that the
Company E revised proposal was better, but that the Board concluded that
the offer was not yet adequate. Mr. Lipscomb agreed to meet with the
Senior Partner of Company E.
After the Board call, Mr. Lipscomb
also spoke with a Director of Gamynia expressing the Board’s decision to
evaluate the terms of the non-U.S. online gaming brand licensing deal prior to
negotiating an asset sale with Gamynia. Mr. Lipscomb told the Director of
Gamynia that the Company would provide comments on the proposed brand license
agreements prepared by Gamynia as soon as possible.
On April 4, 2009,
the Company’s management sent comments to Gamynia on the proposed non-U.S.
online gaming brand license agreements prepared by Gamynia.
30
On April 6, 2009, a
member of the Company’s management met with management of Company G, a
non-U.S. online gaming company that is a customer of the Company. During those
discussions, a member of Company G’s management asked the member of the
Company’s management why Company G should not buy the Company. After
contemplating the thought for a period of time, the Company G
representative said that he would not be interested in acquiring the Company
but would rather benefit from making television sponsorship arrangements that
help build his brand.
On April 6, 2009, Mr. Lipscomb
received an email from a Director of Gamynia asking for a phone conversation
about the proposed non-U.S. online gaming brand license agreements prepared by
Gamynia. On April 8, 2009, Mr. Lipscomb spoke with a Director of
Gamynia. The Director of Gamynia expressed his belief that there were
fundamental issues that may make it hard to conclude the non-U.S. online gaming
brand license agreement. The Director of Gamynia suggested an asset purchase
transaction might be better for both companies. The Director of Gamynia said
that he would let Mr. Lipscomb know what they were going to do.
Mr. Lipscomb met
with two of the Senior Partners of Company E on April 7, 2009. Mr. Lipscomb
told the two Senior Partners that the Board’s plan was to come back to them
with a definitive response from the Board very soon that would either say the
Board was not interested in their proposal or provide an outline of a deal that
the Board believed they could support. The two Senior Partners of
Company E asked Mr. Lipscomb if they could discuss their proposal
with Mr. Lyle Berman and Mr. Bradley Berman.
On April 9, 2009,
two of the Senior Partners of Company E spoke with Mr. Lipscomb, Mr. Lyle
Berman and Mr. Bradley Berman about the Company E proposal and their
plans for the business after the asset sale closed.
On April 9, 2009, a
Director of Gamynia sent an asset purchase proposal to Mr. Lipscomb.
Gamynia offered to pay $8 million for the Company’s assets other than cash
and investments. Gamynia also offered to pay the Company 5% of future
non-gaming brand revenues, as defined.
On April 10, 2009, Mr. Lipscomb
called the Chief Financial Officer of Buyer and left a message for him that he
planned to discuss Buyer’s offer with the Board. The Chief Financial Officer of
Buyer returned the telephone call during the Board meeting but did not speak to
Mr. Lipscomb.
On April 10, 2009,
the Company’s Board met with management to discuss strategic alternatives. Mr. Lipscomb
described the new issues that appeared to stand in the way of a non-U.S. online
gaming brand licensing deal with Gamynia. The Board then discussed the state of
the Company’s business and the risks and rewards of potential alternatives. The
Board then discussed the proposals made by Buyer, Gamynia and Companies E
and F. The Board then concluded that Gamynia’s and Company E’s proposals
were the most attractive and the most likely to result in a completed
transaction. Mr. Lipscomb then informed the Board that Mr. Lyle
Berman had asked him to prepare two counter offers to present to Gamynia and
Company E. Mr. Lipscomb then described the major terms of the
proposed two counter offers and the Board directed Mr. Lipscomb to present
the two counter offers to the two companies.
After the Board meeting, Mr. Lipscomb
and a member of the Company’s management called the Chief Financial Officer of
Buyer. The Chief Financial Officer of Buyer said that he was not authorized to
increase their prior offer.
On April 10, 2009, Mr. Lipscomb
sent the counter offer discussed in the April 10, 2009 Board meeting to
the Senior Partner in Company E. On April 11, 2009, Mr. Lipscomb
met with the Senior Partner in Company E to discuss the counter offer.
During the week of April 13, 2009, Mr. Lipscomb spoke by telephone
and communicated by email a number of times with the Senior Partner in
Company E and with Mr. Lyle Berman regarding the counter offer. On April 22,
2009, the Senior Partner in Company E met with a member of the Company’s
management to discuss due diligence information and potential employment if
Company E acquired the Company’s assets.
On April 11, 2009, Mr. Lipscomb
sent the counter offer discussed in the April 10, 2009 Board meeting to a
Director of Gamynia. The Director of Gamynia responded to the counter offer the
same day and asked for clarification of certain points. Mr. Lipscomb then
had a number of conversations with the Director of Gamynia to negotiate certain
aspects of the Company’s ongoing participation in gaming and non-gaming
revenues.
On April 13, 2009,
the Company provided due diligence materials to Gamynia and to a new interested
party, Company H, a non-U.S. online gaming company that is a customer of
the Company.
31
On April 20, 2009,
the Chief Financial Officer of Buyer sent a message to a member of the Company’s
management asking for a meeting. On April 21, 2009, the Chief Executive
Officer and the Chief Financial Officer of Buyer met with a member of the
Company’s management and were informed that Buyer’s offer needed to be
increased if Buyer wanted to be a viable bidder for the Company.
On April 23, 2009
the Chief Financial Officer of Buyer informed Mr. Lipscomb that Buyer’s
offer was increased to $7.5 million at the close of the asset sale and
$1.5 million one year after the closing subject to the achievement of
agreed operational targets.
On April 24, 2009,
the Chief Financial Officer of Buyer had a conference call with Mr. Lyle
Berman, Mr. Lipscomb and members of the Company’s management. In that
call, the Chief Financial Officer of Buyer described the reasons why his offer
should be accepted. Mr. Lipscomb informed the Chief Financial Officer of
Buyer that their offer would be carefully considered by the Company’s Board.
On April 24, 2009, a
Director of Gamynia met with Mr. Lyle Berman, Mr. Lipscomb and
members of the Company’s management to discuss the Board’s counter offer. Later
that evening, Mr. Lipscomb met separately with the Director of Gamynia to
negotiate certain aspects of the Company’s ongoing participation in gaming and
non-gaming revenues. Mr. Lipscomb then asked the Director of Gamynia to
consider improving their offer in order to meet the Board’s expectations.
On April 24, 2009,
the two Senior Partners of Company E met with Mr. Lyle Berman, Mr. Lipscomb
and members of the Company’s management. The two Senior Partners of Company E
presented a revised offer for the Company’s assets. Company E offered to
pay $6 million at closing of the asset purchase and $3 million over
three years thereafter secured by the assets sold to Company E.
Alternatively, Company E offered to pay $5 million at the close of
the asset purchase, $3.99 million over three years and $500,000 in year
four thereafter secured by the assets sold to Company E. In addition, the
Company would receive 25% of the equity in the entity formed by Company E
to acquire the Company’s assets. Company E wanted to escrow a portion of
the proceeds until a U.S. sponsor for Season Eight of the WPT television series
was signed.
Mr. Lipscomb met
with the two Senior Partners of Company E on April 25, 2009 and again
with one of the two Senior Partners of Company E later that day. In those
meetings, the two Senior Partners of Company E said that if it would make
a difference, the Company might be able to get more equity in exchange for
lowering the upfront cash payment. Members of the Company’s management also
separately met with the two Senior Partners of Company E to discuss
possible employment if Company E purchased the Company’s assets. From April 25,
2009 to May 19, 2009, Mr. Lipscomb spoke regularly with one of the
two Senior Partners of Company E updating him on the Board’s
decision-making process. In addition, Company E provided offer materials
to Mr. Lipscomb for inclusion in a Board presentation that Mr. Lipscomb
was preparing.
On April 25, 2009, a
Director of Gamynia met with Mr. Lipscomb and the Director proposed a
revised offer to purchase the Company’s assets. He proposed to pay
$9 million for the Company’s assets other than cash and investments. He
also proposed to pay 4% of future online gaming revenues and 5% of future sponsorship
and other revenues, as defined, to the Company and to allow the Company to
receive the payments from certain existing sponsorship contracts. He also
proposed the terms for a break up fee and a right to terminate the agreement if
online gaming is legalized in the U.S. before the asset purchase is completed.
On May 4, 2009, Mr. Lipscomb
met with the Chief Executive Officer of Company H to discuss strategic
options for the two companies.
On May 10, 2009,
Gamynia sent the Company a draft of the proposed asset purchase agreement. On May 15,
2009, Company management provided comments on the proposed asset purchase
agreement to Gamynia.
On May 20, 2009, the
Company’s Board and management met after the annual stockholders’ meeting.
Management updated the Board on financial and business results for the first
four months of 2009 and the prospects for each of the Company’s business units.
Management and the Board also discussed long term prospects for the Company’s
business and its competitors. The Board then met separately without management
to discuss the offers made by Buyer, Gamynia and Company E. The Board then
directed Mr. Lipscomb to see if an asset purchase agreement with Gamynia
could be negotiated. The Board also instructed Mr. Lipscomb to inform
Company E that their offer was not likely to result in a completed
transaction and to see if Gamynia could improve their offer. Later that day, Mr. Lipscomb
informed a Senior Partner of Company E that the Board
32
concluded that their
offer was not likely to result in a completed transaction. Mr. Lipscomb
also sent an email to the Chief Financial Officer of Buyer to see if they could
improve their offer.
From May 20 to June 1,
2009, Mr. Lipscomb had numerous emails and phone calls with a Director of
Gamynia to coordinate a meeting to negotiate the asset purchase agreement. On May 23,
2009, the Company delivered due diligence materials to Gamynia.
On May 25, 2009, the
Chief Financial Officer of Buyer called a member of the Company’s management to
discuss the Board’s concerns about Buyer’s offer and the Chief Financial
Officer was asked to call Mr. Lipscomb. On May 25, 2009, the Chief
Financial Officer of Buyer sent a revised offer to Mr. Lipscomb. Buyer offered
to pay $12 million for the Company’s operating assets or alternatively,
$9 million and 5% of future subscription gaming, sponsorship and other
revenues for a limited number of years.
On May 26, 2009, Mr. Lipscomb
had two conversations with executive management at Buyer to negotiate the terms
of their offer. Buyer agreed to include all gaming revenues in the future 5%
revenue participation. Buyer also agreed to decrease the proposed termination
fee to $1 or $2 million and they would guarantee an additional
$3 million in future revenue participation. Other transaction terms were
also negotiated.
Later that day, the
Company’s Board met to discuss the status of the negotiations of the asset
purchase agreement with Gamynia and the status of the offer made by Buyer. The
Board instructed Mr. Lipscomb to continue to negotiate the asset purchase
agreement with Gamynia and to see if the terms of an agreement with Buyer could
be further defined. On May 26, 2009, Mr. Lipscomb sent an email to
the executive management at Buyer outlining the proposed terms of an asset sale
that the Board felt could result in a completed transaction. Among the many
detail terms proposed, Mr. Lipscomb proposed a $9 million purchase
price and a 5% participation in future gaming, sponsorship and other revenues.
On May 29, 2009, Mr. Lipscomb
received a counter offer from the Chief Financial Officer of Buyer. The terms
of the counter offer were similar to the offer Buyer made on May 25, 2009,
except that the termination fee was reduced to $2 million. On June 1,
2009, Mr. Lipscomb exchanged emails with the executive management of Buyer
regarding how long their offer was effective. Later that day, Mr. Lipscomb
sent an email to the executive management of Buyer to clarify the terms of the
counter offer that Buyer made. On June 3, 2009 Mr. Lipscomb exchanged
emails with the executive management of Buyer clarifying the terms of Buyer’s
offer. On June 4, 2009, Mr. Lipscomb sent an email to the Chief
Financial Officer of Buyer asking that the Board be given until June 12,
2009 to respond to their counter offer.
From June 2 to June 8,
2009, the Company’s management negotiated the terms of the asset purchase
agreement with Gamynia. On June 5, 2009, a draft of the asset purchase
agreement with Gamynia was sent to the Company’s Board along with a list of
unresolved issues. On June 8, 2009, Mr. Lipscomb sent a list of
unresolved issues to the executive management of Gamynia. From June 9 to June 12,
2009, Mr. Lipscomb and executive management of Gamynia negotiated the
unresolved issues.
On June 9, 2009, the
Company’s Board met to discuss the status of the negotiation of the asset
purchase agreement with Gamynia and the status of the offer by Buyer. The Board
directed Mr. Lipscomb to continue to negotiate the asset purchase
agreement with Gamynia and to complete the negotiations, if possible, before
the June 12, 2009 expiration of Buyer’s offer.
On June 11, 2009, Mr. Lipscomb
and a Director of Gamynia exchanged emails about how to resolve open issues.
Later that day, the Company’s Board met to discuss the status of the
negotiation of the asset purchase agreement with Gamynia and the status of the
offer by Buyer.
On June 12, 2009, Mr. Lipscomb
received an email from the Chief Financial Officer of Buyer proposing changes
to their previous offer. Later that day, Mr. Lipscomb forwarded the terms
of the revised offer to the Company’s Board along with a proposed response to
the revised offer. From June 12 to June 13, 2009, Board members
considered the proposed communication and then authorized Mr. Lipscomb to
inform the Chief Financial Officer of Buyer that they rejected the revised
offer. Mr. Lipscomb communicated the Board’s decision to the executive
management of Buyer on June 12, 2009.
From June 12 to June 18,
2009, Mr. Lipscomb and the executive management of Gamynia discussed the
unresolved issues. On June 21, 2009 the Director of Gamynia sent Mr. Lipscomb
an email about the unresolved issues and the Company and Gamynia did not
communicate further until July 2, 2009.
33
On June 25, 2009,
the Company’s Board met to discuss the status of the negotiation of the asset
purchase agreement with Gamynia and the status of the offer by Buyer.
From June 13 to June 29,
2009, the Company’s management and the Chief Financial Officer of Buyer had a
number of conversations about Buyer’s offer. On June 30, 2009, Mr. Lipscomb
send a summary of the terms of a proposed transaction with Buyer and a draft of
a proposed asset purchase agreement to the Chief Financial Officer of Buyer.
On July 2, 2009, a
Director of Gamynia informed Mr. Lipscomb that, rather than an asset
purchase arrangement with the Company, Gamynia preferred a joint venture
arrangement. On July 5, 2009, the Company’s management met with the
Director of Gamynia to discuss the proposed joint venture.
From July 3 to July 12,
2009, the Company’s management met with the executive management of Buyer to
negotiate the terms of an asset purchase agreement. On July 9, 2009, the
Company’s Board met to discuss the status of the negotiation of the asset
purchase agreement with Buyer and they were informed that the asset purchase
agreement was nearly fully negotiated. After the Board meeting, the Chief
Financial Officer of Buyer informed the Company’s management that they would
need a two week delay prior to signing the asset purchase agreement to seek
information from a U.S. Government agency. On July 13, 2009, the
Company’s Board met to discuss the status of the asset purchase agreement with
Buyer. From July 14 to July 27, 2009, the Company’s management and
the executive management of Buyer regularly spoke about the status of the
communications with a U.S. Government agency.
From July 22 to July 24,
2009, the Company’s management and the executive management of Gamynia
negotiated the unresolved issues in the asset purchase agreement. A fully
negotiated asset purchase agreement with Gamynia was then delivered to the
Company’s Board. On July 24, 2009, the Company’s Board met to discuss the
two asset purchase agreements with Buyer and Gamynia. The Board then directed
management to execute an asset purchase agreement with the first company
willing to sign their agreement.
On July 24, 2009, Mr. Lipscomb
met with the executive management of Company I, an online gaming company
that is not a customer of the Company. The purpose of the meeting was to
discuss potential business opportunities with Company I. In those
conversations, the executive management of Company I learned about the
strategic alternative process that the Company had previously announced to
stockholders. From July 25 to July 28, 2009, the Company had some
preliminary discussions with the executive management of Company I. On July 29,
2009, a member of the Company’s management informed the President of
Company I that the Company had signed an asset purchase agreement.
From July 25 to July 28,
2009, the Company’s management and Gamynia completed the documentation of the
asset purchase agreement and on July 28, 2009, Gamynia and the Company
executed the asset purchase agreement.
On July 27, 2009, Mr. Lipscomb
informed the executive management of Buyer that the Company’s Board had
directed the Company’s management to sign the asset purchase agreement with the
first company willing to complete the transaction. On July 29, 2009, Mr. Lipscomb
informed the executive management of Buyer that an agreement with Gamynia had
been signed. On July 31, 2009, the Company’s Board met to discuss claims
raised by Buyer’s attorneys regarding Company’s right to enter into an
agreement with Gamynia. The Board instructed management to move ahead with the
process.
On August 6, 2009, Mr. Lipscomb
informed the President of Company I that he could not communicate further
with him and directed him to the Company’s Current Report on Form 8-K
regarding the Gamynia deal. On August 7, 2009 Mr. Lipscomb did not
return a call from the President of Company I and directed him by email to
the Company’s Current Report on Form 8-K regarding the Gamynia
transaction. Also on August 7, 2009, Mr. Lipscomb informed the Chief
Executive Officer of Buyer that they could no longer communicate due to the
signing of the asset purchase agreement with Gamynia. On August 10, 2009, Mr. Lipscomb
again informed the President of Company I that they could no longer
communicate due to the signing of the asset purchase agreement with Gamynia.
On August 6, 2009,
the Chief Financial Officer of Buyer informed Mr. Lipscomb that Buyer
intended to make another offer to purchase the Company’s assets. On August 7,
2009, Mr. Lipscomb received a revised offer from Buyer for certain of the
Company’s assets. Buyer offered to execute the negotiated asset purchase
agreement and to raise the cash payment at closing by $1 million. The
revised offer highlighted the reasons why Buyer’s
34
Board believed that the
revised offer was superior to the asset purchase agreement with Gamynia. On August 8,
2009, the Company’s Board met to review Buyer’s revised offer and to compare
the revised offer to the asset purchase agreement with Gamynia. The Company’s
Board concluded that Buyer’s revised offer was reasonably likely to result in
an alternative acquisition proposal that was superior to the asset purchase
agreement with Gamynia and the Company’s Board directed Company management to
inform Gamynia of the receipt of the revised offer and the Board’s conclusions
about the revised offer. On August 9, 2009, the Company notified Gamynia
of the receipt of the revised offer and the conclusions reached by the Company’s
Board.
From August 10 to August 12,
2009, Company executive management and executive management of Gamynia
discussed various matters concerning the process to follow when the Company
receives an alternative acquisition proposal. Over the same period, Company executive
management and executive management of Buyer discussed various matters
concerning the process to follow when the Company receives an alternative
acquisition proposal and Buyer clarified various aspects of their revised
proposal.
On August 12, 2009,
Company I sent Mr. Lipscomb an offer to purchase certain of the
Company’s assets. The offer was conditioned upon diligence to be performed by
Company I, agreement of final transaction documentation and Company I
board approval. The proposal was for $18 million at the close of the asset
purchase agreement, and 4% of online gaming revenues and 5% of sponsorship and
other revenues for five years. Later that day, the Company’s Board met to
discuss Company I’s offer and other matters related to Buyer’s revised offer.
The Company’s Board directed management to prepare a financial analysis of the
projected cash flows from the asset purchase agreement with Gamynia, the
revised offer by Buyer and the offer by Company I. The financial analysis
of the projected cash flows of the three proposals was sent to the Company’s
Board later that day.
On August 13, 2008,
Buyer resolved a difference in interpretation of its revised offer by
increasing the purchase price from $11.9 to $12.3 million. Buyer also
delivered the proposed signed asset purchase agreement to the Company as a
gesture of good faith. Later that day, the Company’s Board met to discuss the
financial analysis of the projected cash flows of the three proposals and to
hear presentations from senior executives of Buyer and Gamynia about their
plans to generate future revenues using the Company’s brands. The Company’s
Board concluded that Buyer’s recently revised offer was superior to the asset
purchase agreement with Gamynia as well as the alternative offer from Company I
and the Company’s Board directed Company management to inform Gamynia,
Company I and Buyer of their conclusions. The Board’s discussion of the
offer from Company I involved a lengthy financial analysis and
consideration of, among other things, (i) the five year revenue period, as
compared to the indefinite revenue period under the offer from Buyer and
Gamynia, (ii) Company I’s ability to exploit the purchased assets and
generate future revenues for the Company, as compared to the other bidders, and
(iii) the likelihood of completing a transaction. On August 14, 2009,
the Company sent a copy of Buyer’s recently revised offer and a copy of the
negotiated asset purchase agreement with Buyer to Gamynia. Later that day, the
Company informed Buyer of the process that was underway with Gamynia.
On August 15, 2009, Mr. Lipscomb
received multiple attempts from the President of Company I to enquire
about the Board’s response. Mr. Lipscomb responded in writing apologizing
for the formality of the process and telling him that a formal response was
being drafted by counsel. The Board’s conclusion about Company I’s
alternative acquisition proposal was communicated by the Company’s outside
counsel to Company I on August 16, 2009. On August 17, 2009, the
Company received a letter from Company I asking for more information
regarding the Board’s deliberations. The Company’s outside counsel responded to
Company I and indicated that the Company was unable to provide more
information regarding the Board’s deliberations.
On August 17, 2009,
a Director of Gamynia informed Mr. Lipscomb that Gamynia was not likely to
increase their acquisition proposal to be competitive with Buyer’s acquisition
proposal. The Company delivered a notice of termination of the asset purchase
agreement with Gamynia on August 21, 2009. Gamynia subsequently
acknowledged the termination of the asset purchase agreement with Gamynia. The
Company entered into the asset purchase agreement with Buyer, dated as of August 24,
2009.
35
Reasons
for the Asset Sale; Recommendation of the Company’s Board of Directors
In the last few years,
the Company experienced a significant transformation of its business from a
primarily U.S. centric network television license business to a non-U.S.
centric sponsored television business. The transformation began with declining
U.S. license fees for the WPT television series in Seasons Five and Six as a
result of the lucrative online gaming market making television a loss leader for
online player signups. Currently, a U.S. facing online information site
sponsors Season Seven in the U.S. market and an online gaming company sponsors
Season Seven in Canada, certain European countries, Mexico and South America.
Television sponsor fees were 59% of the Company’s total revenues in the six
months ended June 28, 2009. Knowing that future revenues would be
dominated by the online industry, the Company attempted to enter the lucrative
online poker and casino gaming business from 2005 to 2008. Three different
attempts were unsuccessful because of the significant handicap placed on the
Company due to its risk profile as a U.S. public company with gaming licenses.
As a part of its long-term online strategy, the Company developed an online and
mobile poker gaming business in China. In 2008, the Company’s Board of
Directors was informed by management that without a major alliance with one of
the large online brands, the Company likely did not have the resources or the
risk profile to be successful in the now very competitive and maturing global
online poker and gaming markets. Facing the reality that excluding a gain on
the sale of a minority interest in another company in 2006, the Company lost
money from 2005 to 2008 and the first quarter of 2009, the Company downsized
operations, exited unprofitable businesses and increased foreign sponsorship
revenues that resulted in the Company having positive cash flows from operating
activities of continuing operations in the first and second quarters of 2009. While
this strategy eliminated the Company’s losses, the new sponsorship model is by
its nature dependent on many things that are not within the Company’s control
in a volatile and quickly evolving marketplace. The Company has been searching
for a less risky, strategic way to continue growing the brands it has created
and disseminated for seven and a half years while generating revenue growth in
sponsorship, consumer products and online gaming.
The last few years has
also seen significant growth in the non-U.S. online poker and casino gaming
market. A small number of non-U.S. online gaming companies now control a large
percentage of the market. These online gaming companies have at times been
asked by the Company to pay sponsor fees that were larger than the Company’s
market capitalization at the time. This has complicated the sales process and
has resulted in a number of these companies making inquiries to see if they
could enter into a transaction to acquire the Company or certain or all of its
assets. The Company’s Board decided to provide confidential information to
certain of these companies. In addition, the Company made public disclosures on
February 17, 2009, April 22, 2009 and July 29, 2009 that
confidential information was being provided to customers and others in order to
facilitate strategic discussions. This disclosure had the effect of notifying
other interested parties that the Board was exploring strategic alternatives.
In connection with the
strategic discussions with interested parties, the Company received preliminary
indications of interest for the sale of the entire company or for the sale of
some or substantially all of the Company’s assets from several parties. After
careful review and consideration of the preliminary indications of interest for
either the Company or its assets, the Board directed management to determine
the best terms offered by the interested parties. Management then met with and
provided due diligence information to interested parties and attempted to
determine the best terms that were offered by each party. The terms offered by
three of the interested parties were considered by the Board and the Board
instructed management to negotiate the terms of an asset purchase agreement
with Gamynia and Buyer. The Board decided to sign an asset purchase agreement
with Gamynia because Buyer needed additional time to seek information from a
U.S. Government agency. Buyer later obtained information from a U.S. Government
agency and made a revised offer for certain of the Company’s assets. The
Company’s Board considered the asset purchase agreement with Gamynia and the
revised offer from Buyer and concluded that the revised offer from Buyer was
superior to Gamynia’s asset purchase agreement. Gamynia did not make revised
offer for the Company’s assets and the Company signed an asset purchase
agreement with Buyer.
The Board presently
intends to use the Company’s cash to buy or develop a new business and to
receive from Buyer future participation in the revenues earned with the
purchased assets. The Board determined that this alternative would provide the
Company’s stockholders with a greater potential opportunity to realize a return
on their investment for the long term.
The Board considered a
number of alternatives with respect to the Company’s remaining assets following
the completion of the asset sale, including 1) the liquidation of its remaining
assets, the discharge of its remaining
36
liabilities and the
distribution of remaining assets to the Company’s stockholders, 2) merging or
otherwise combining the remaining public entity with a private company and
using the value of the Company’s status as a public company and cash on hand to
secure an equity position in the newly combined corporate entity, or 3)
developing a new business.
In connection with the
asset sale, the name of the Company will be changed to [ ] and the Company plans to
change its trading symbol to “[ ].”
Following the close of the asset sale, the Company will relocate its
headquarters to the other office suite that is currently leased but is not used
by the Company in Los Angeles, California. The Company’s only remaining
employees after the close of the asset sale will be the Company’s current
President and Chief Executive Officer, Mr. Lipscomb and a small number of
support staff.
In the course of reaching
its decision to approve the asset purchase agreement and the asset sale, the
Company’s Board consulted with senior management and reviewed a significant
amount of information and considered a number of factors, including the
following:
·
the value of the consideration to be
received by the Company pursuant to the asset purchase agreement, as well as
the fact that the Company will receive the consideration in cash, which
provides certainty of value to the Company;
·
the asset sale is the result of an active
evaluation of strategic alternatives in which the Company had contact with most
of the large non-U.S. online gaming companies to assess potential interest;
·
the Boards’ belief that the asset sale
was more favorable to the Company’s stockholders than any other alternative
reasonably available to the Company and its stockholders, including the
alternative of remaining a stand-alone, independent company with continuing
operations and the proposals made by other parties during the Company’s
strategic alternative evaluation process, as well as the risks and
uncertainties associated with those alternatives;
·
the then current financial market conditions,
current and historical market prices, volatility and trading information with
respect to the Company’s common stock;
·
historical and current information
concerning the Company’s business, financial performance and condition,
operations and current industry, economic and market conditions, including the
Company’s prospects if it were to remain an independent company that managed
the WPT television series and the World Poker Tour and Professional Poker Tour
brands;
·
the financial and other terms and
conditions of the asset purchase agreement and the fact that they were the
product of negotiations between the parties; and
·
the terms of the asset purchase
agreement, including without limitation:
1.
the Company’s perpetual participation in
future gaming and other revenues that Buyer earns with the purchased assets;
2.
the affirmative duties Buyer accepts to
generate future revenues for the Company and the expressed intent of Buyer to
exploit the purchased assets;
3.
the Company retains significant revenues
from the PokerStars sponsorship agreements and significant working capital at
the close of the asset sale;
4.
the Company retains the right to the
potentially significant recovery from the Company’s ongoing litigation with
Deloitte & Touche, LLP;
5.
the assurance that any future Buyer
ownership change will not affect the Company’s ongoing revenue participation;
6.
the guarantee of Buyer’s obligations by a
company with significant assets;
7.
the ongoing liabilities and obligations
Buyer will assume and the impact that will have on the Company’s future risk
profile and underlying costs;
8.
procedures for resolution of disputes
with buyer;
9.
Buyer’s intent to keep key management
continuity with regards to existing businesses;
37
10.
the conclusion of the Board that the
requirement to pay Buyer a termination fee in the event that the asset purchase
agreement is terminated under certain circumstances was reasonable in light of
the benefits of the asset sale, the strategic alternatives evaluation process
conducted by the Company and commercial practice;
11.
the Board’s ability to terminate the
asset purchase agreement in order to accept a financially superior proposal
(subject to certain conditions contained in the asset purchase agreement and
the payment to Buyer of a termination fee); and
12.
the requirement that the asset sale be
approved by the holders of a majority of the Company’s common stock outstanding
on the record date.
In the course of its
deliberations, the Board also identified and considered a number of
uncertainties, risks and other potentially negative factors, including the
following:
·
the risk that the asset sale might not be
completed in a timely manner, or at all;
·
the Company will for some time become a
development stage company;
·
the restrictions on the conduct of the
Company’s business prior to completion of the asset sale, requiring the Company
to conduct its business only in the ordinary course, subject to specific
limitations or Buyer’s consent, which may delay or prevent the Company from
undertaking business opportunities that may arise pending completion of the
asset sale;
·
the conditions to the close of the asset
sale must be satisfied or waived;
·
the restrictions on the Board’s ability
to solicit or engage in discussions or negotiations with a third party
regarding specified transactions involving the Company and the requirement
that, in certain circumstances, the Company pay Buyer $1 million in the
event of a termination of the asset purchase agreement and, in certain
circumstances, reimburse Buyer $1 million for the initial payment of the
purchase price delivered by Buyer upon the execution of the asset purchase
agreement;
·
the risk of diverting management focus
and resources from other strategic opportunities and from operational matters
while working to implement the asset sale; and
·
the risk that the Company may be unable
to identify a suitable company with which to engage in a business combination
following the asset sale or that future operating results from that business
combination meet expectations.
The foregoing discussion
of the factors considered by the Company’s Board is not intended to be
exhaustive, but does set forth the principal factors considered by the Board.
The Board collectively reached the unanimous conclusion to approve the asset
purchase agreement and the asset sale in light of the various factors described
above, as well as other factors that each member of the Company’s Board felt
was appropriate. In view of the wide variety of factors considered by the Board
in connection with its evaluation of the asset sale and the complexity of these
matters, the Board did not consider it practical, and did not attempt, to
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision and did not undertake to make any specific
determination as to whether any particular factor, or any aspect of any
particular factor, was favorable or unfavorable to the ultimate determination
of the Board. Rather, the Board made its recommendation based on the totality
of information presented to, and the investigation conducted by, the Board. In
considering the factors discussed above, individual directors may have given
different weights to different factors.
After evaluating these
factors and consulting with its outside legal counsel, the Company’s Board
unanimously approved the asset purchase agreement and the asset sale and determined
that the asset sale is advisable, fair to and in the best interests of the
Company’s stockholders.
Accordingly, the
Board of Directors unanimously recommends that stockholders vote “FOR” the
asset sale proposal.
Buyer
and Parent
Buyer and Parent are
Gibraltar private limited companies and Buyer is a subsidiary of Parent. Parent
is the principal operating subsidiary in the PartyGaming Plc group of
companies.
PartyGaming is the world’s
leading listed online gaming business. PartyGaming offers a variety of games
through an integrated Party-branded platform and through a number of secondary
brands and alliances with blue
38
chip companies. Through a
unique operating platform, adults can tune into a broad range of games, using
multiple languages, multiple-currency options and with the tools to ensure they
have fun and play within their means.
PartyGaming listed on the
London Stock Exchange in June 2005. Regulated and licensed by the
Government of Gibraltar, PartyGaming has over 1,200 employees located in
the head office and operations centre in Gibraltar, a business process
outsourcing operation in India, and a marketing services subsidiary and
multi-lingual customer service operations in Europe. PartyGaming has customers
throughout the world. PartyGaming does not accept wagers or deposits for real
money games from customers located in the U.S.
Required
Approvals
Corporate approval of the
proposed asset sale requires the affirmative vote of the holders of a majority
of the Company’s outstanding common stock. Not voting, or abstaining on the
vote, has the same effect as a vote against the asset sale.
In connection with the
execution of the asset purchase agreement, Buyer and certain of the Company’s directors,
executive officers and their affiliates entered into stockholder voting
agreements to vote their shares of Company common stock in favor of approval of
the asset sale and against the approval or adoption of any alternative
transactions. The directors, executive officers and their affiliates also
granted to Buyer a proxy to vote their shares of Company common stock in favor
of approval of the asset sale and agreed not to transfer its shares of Company
common stock prior to the expiration of the stockholder voting agreements. The
directors, executive officers and their affiliates that entered into the
stockholder voting agreements are Mr. Lyle Berman and the Bradley Berman
Irrevocable Trust, Julie Berman Irrevocable Trust, Jessie Lynn Berman Irrevocable
Trust and Amy Berman Irrevocable Trust; Mr. Steven Lipscomb and the
Lipscomb Viscoli Children’s Trust; and Mr. Bradley Berman. These
directors, executive officers and their affiliates together own or control an
aggregate of approximately 39% of the Company’s outstanding common stock. The
form of stockholder voting agreement is attached to this proxy statement as
Annex C
.
The asset sale is subject
to the absence of any action commenced before any governmental authority
challenging the transaction. No filings are required to be made under the
Hart-Scott-Rodino Act in connection with the asset sale.
Material
U.S. Federal Income Tax Consequences of the Asset Sale
The Company will
recognize a taxable gain on the asset sale equal to the difference between the
amount realized from the asset sale and the adjusted tax basis of the assets
sold and liabilities assumed. The Company expects to have sufficient federal
net operating losses to offset the gain expected to be realized from the asset
sale for regular federal income tax purposes. The Company will pay federal
alternative minimum tax on the gain on asset sale. The Company will not be able
to use California net operating losses to offset the gain from the asset sale
because California has suspended the use of net operating losses in 2009. The
Company expects to pay California regular income tax on the gain on asset sale.
The Company does not
expect that the asset sale will result in any federal or state income tax
consequences for its stockholders since they will not receive any of the
proceeds from the asset sale.
Anticipated
Accounting Treatment
For financial reporting
purposes, the Company will report a gain from the asset sale based on the
amount of the net proceeds received by the Company and the net book value of
the assets sold. If the asset sale had closed on June 28, 2009 and had the
Company received a $9.8 million payment at closing (this assumes that the
$12.3 million purchase price is reduced by $1.5 million in
sponsorship revenue earned by the Company from PartyGaming for the period from July 10,
2009 until the close of the asset sale and accounts for the $1.0 million
asset purchase agreement termination fee that was paid to Gamynia), the gain on
the asset sale, net of income taxes, would have been approximately
$6.2 million.
Appraisal
Rights
Holders of the Company
common stock are not entitled to appraisal rights in connection with the asset
sale.
39
THE ASSET PURCHASE AGREEMENT
Buyer
and the Company entered into the asset purchase agreement as of August 24,
2009. The full text of the asset purchase agreement is attached as Annex A
to this proxy statement and is incorporated by reference into this proxy
statement. The Company urges you to read the asset purchase agreement in its
entirety for a more complete description of the terms and conditions of the
asset sale and related matters.
The
representations and warranties described below and included in the asset
purchase agreement and the guaranty agreement were made by the Company and
Buyer and Parent to each other as of a specific date. The assertions embodied
in those representations and warranties were made solely for purposes of the
asset purchase agreement and the guaranty agreement and may be subject to
important qualifications and limitations agreed to by the Company and Buyer and
Parent in connection with negotiating the terms of the asset purchase agreement
and the guaranty agreement. Moreover, the representations and warranties may be
subject to a contractual standard of materiality that may be different from
what may be viewed as material to stockholders, or may have been used for the
purpose of allocating risk between the Company and Buyer and Parent rather than
establishing matters as facts. The asset purchase agreement is described in
this proxy statement and is included as Annex A only to provide you with
information regarding the terms and conditions of the asset purchase agreement,
and not to provide any other factual information regarding the Company or Buyer
or their respective businesses. The guaranty agreement is described in this
proxy statement and is included as Annex B only to provide you with
information regarding the terms and conditions of the guaranty agreement, and
not to provide any other factual information regarding the Company or Parent or
their respective businesses. Accordingly, you should not rely on the
representations and warranties in the asset purchase agreement or the guaranty
agreement as characterizations of the actual state of facts about the Company
or Buyer or Parent, and you should read the information provided elsewhere in
this proxy statement for information regarding the Company and its business.
See “Where You Can Find More Information” beginning on page 95 of this
proxy statement.
Assets
to be Sold and Liabilities to be Assumed
Buyer is purchasing
substantially all of the Company’s operating assets other than cash,
investments and certain other assets. Specifically, Buyer is purchasing all of
the Company’s right, title and interest in and to the operating assets used in
the Company’s business (other than the excluded assets described below),
including:
·
all of the Company’s library of
television content;
·
all trademarks, service marks, trade
names, brand names, logos, slogans and trade references;
·
all graphics and graphic elements, art
work, copy, design, look or appearance, flow charts and software;
·
all domain names;
·
all information collected about users of
the Company’s websites;
·
all works of authorship or other
intellectual property rights;
·
all software or other intellectual
property rights that the Company has licensed from third parties;
·
any other intellectual or intangible
property embodied in or pertaining to the Company’s business;
·
substantially all tangible personal
property owned by the Company;
·
all rights in and under any contracts
relating to the Company’s business;
·
all permits, authorizations, consents and
approvals of any governmental entity to the extent transferable by applicable
law;
·
all books, records, files and papers,
whether in hard copy or electronic format, used in the business;
·
all goodwill associated with the business
or the purchased assets;
·
all accounts receivable due from
PartyGaming and Centaurus Games, LLC as of the close of the asset sale; and
·
the ClubWPT.com subscription business.
40
Buyer is also assuming
certain Company liabilities used in the Company’s business (other than the excluded
liabilities described below), including:
·
all domestic broadcaster, domestic
sponsorship, foreign distribution, foreign sponsorship, Internet broadcast,
televised event host, brand, foreign licensed event, Brandgenuity, super
affiliate, affiliate, Centaurus Games, collective bargaining, website, talent,
office and warehouse, satellite host, foreign program, exhibitor, WPT Season
Eight purchase orders and vendor services, and miscellaneous licenses and
agreements; and
·
one of the two Los Angeles corporate
office leases and a related telephone lease.
Assets
and Liabilities to be Retained by the Company
The Company is retaining
the following assets:
·
all documents relating to the organization,
maintenance and existence of the Company and each of its subsidiaries;
·
all taxpayer and other identification numbers, and all
tax returns and rights to refunds or claims to overpayments attributed to tax
payments made;
·
all cash, cash balances, deposits, cash equivalents
and investments and the line of credit with UBS Bank USA and UBS Financial
Services;
·
all insurance policies and bonds and all prepaid
expenses and deposits related thereto and all prepaid expenses relating to the
operation of the business or the purchased assets;
·
all rights relating to the case entitled WPT
Enterprises, Inc., et. al. v. Deloitte & Touche, LLP and the
rights from the bankruptcy proceeding with Xyience, Inc.;
·
investments in WPT Asia (Beijing) Consulting Co., Ltd.
and Cecure Gaming Ltd., and the marketing agreement with Poker Royalty, LLC;
·
all public company related contracts;
·
license agreements with Rational Services
Limited (PokerStars) for the license of Season Seven of the WPT television
series; and
·
all accounts receivable as of the closing date, other
than accounts receivable due from PartyGaming and Centaurus Games, LLC as of
the close of the asset sale.
The Company is retaining
the following liabilities:
·
any obligation, duty or liability
relating to the Company’s business and the purchased assets as of the closing
date;
·
all employment obligations including all
employee benefit plans and employee severance arrangements, and all director
and officer indemnification obligations;
·
one of the two Los Angeles corporate
office leases and the tangible personal property located in that suite;
·
any obligation, duty or liability under
the contracts and assets retained by the Company;
·
the Company’s fees and expenses of
creating the asset purchase agreement and related ancillary agreements; and
·
any liability or obligation for taxes for
the period prior to the closing date.
Purchase
Price and Future Payments
Buyer has agreed to pay
the Company $12.3 million for our operating assets and has agreed to
assume certain of our contracts. Buyer will also assume specified Company
liabilities including one of our two corporate leases at the close of the asset
sale. The purchase price will be reduced by the amount of certain obligations
of an affiliate of PartyGaming accruing or paid to the Company from July 10,
2009 through the close of the asset sale, as more
41
fully described below.
Buyer delivered a $1 million initial payment of the purchase price to the
Company upon the execution of the asset purchase agreement and will pay the
balance of the purchase price at the close of the asset sale.
The amounts paid by
iGlobalMedia Marketing (Gibraltar) Limited, a subsidiary of PartyGaming, to the
Company from July 10, 2009 through the close of the asset sale pursuant to
a sponsorship agreement with the Company for Seasons Four, Five and Six of the
World Poker Tour and Season One of the Professional Poker Tour and certain
related documents, will be deposited into an escrow account. The sponsorship
agreement with iGlobalMedia is an exhibit to the Company’s Annual Report on Form 10-K,
filed with the SEC on March 15, 2007. The amounts held in escrow will be
used to satisfy claims made by Buyer under the asset purchase agreement prior
to the close of the asset sale, if any. The funds held in escrow will not be
the sole source of recovery for such claims. At the close of the asset sale,
all amounts on deposit in the escrow account will be distributed to the Company
and credited on a dollar for dollar basis against the purchase price to be paid
at the closing.
Buyer has also agreed to
pay the Company 5% of future gross gaming revenues less certain taxes and 5% of
other future gross revenues less certain taxes and costs earned with the
purchased assets in perpetuity. Certain taxes are defined as value added tax, gaming
tax or other revenue-related tax and costs are defined as out-of-pocket costs.
Buyer has agreed that the future gaming and other revenue-based participation
amount will be at least $3 million over the three year period following
the close of the asset purchase agreement, or otherwise Buyer will make up the
shortfall to $3 million at the end of the period. As further explained in “indemnification,”
an escrow account will be established and Buyer will pay 20% of the future
revenues due to the Company into the escrow account for two years to secure the
Company’s indemnification and certain other obligations to Buyer. The funds in
the escrow accounts are not the sole source of recovery for the Company’s
indemnification obligations to Buyer.
In the event that Buyer
is involved in the acquisition, license, pledge or other disposal of any
portion of the acquired business, purchased assets or a 25% or higher interest
in Buyer’s capital stock, Buyer had agreed to use its best efforts to ensure
that the future gaming and other revenue participation is transferred to the
prospective purchaser, transferee, pledgee, licensee or other acquiring party.
No
Solicitation of Conflicting Transaction
In the asset purchase
agreement, the Company has agreed not to, and to use reasonable efforts to
cause its subsidiaries, directors, officers, employees, affiliates, investment
bankers, attorneys, accountants and other advisors not to:
·
initiate, solicit, or knowingly
facilitate or encourage the making, submission or announcement of any
inquiries, proposals or offers that constitute or could reasonably be expected
to lead to any other acquisition proposal;
·
approve, endorse or recommend, or
publically propose to approve or recommend, any other acquisition proposal;
·
enter into any merger agreement, letter
of intent, agreement in principle, share purchase agreement, asset purchase
agreement, share exchange agreement, option agreement or other similar
agreement related to any other acquisition proposal; or
·
propose to or enter into any agreement
related to any other acquisition proposal that requires the Company to abandon,
terminate or fail to consummate the asset purchase agreement, or propose to or
breach the Company’s obligations under the asset purchase agreement.
As used in the asset
purchase agreement, an acquisition proposal means any inquiry, offer or
proposal:
·
to acquire more than 10% of the Company’s
assets;
·
to acquire more than 10% of the Company’s
outstanding equity securities;
·
that if consummated would result in any
party owning more than 10% of any class of the Company’s outstanding equity
securities; or
42
·
for a merger, consolidation, or other
business combination, recapitalization or similar transaction, including any
single or multi-step transaction or series of related transactions.
The Company also agreed
that prior to the Board changing its recommendation to approve the asset
purchase agreement, terminating the asset purchase agreement or entering into
another asset purchase agreement with another party, the Company would provide
Buyer with the opportunity to submit an amended written proposal and would
negotiate in good faith to make changes to the terms and conditions of the
asset purchase agreement that would result in the Board recommending that
Company stockholders approve the amended asset purchase agreement with Buyer.
Despite this no
solicitation of a conflicting transaction provision, the Company may, in
response to an unsolicited acquisition proposal that did not result from a
breach of the Company’s nonsolicitation obligations under the asset purchase
agreement prior to obtaining stockholder approval of the asset sale:
·
furnish information with respect to the
Company to any person making an acquisition proposal that the Company’s Board
determines in good faith, after consultation with outside legal counsel, is
reasonably likely to lead to a superior proposal, pursuant to a confidentiality
and standstill agreement not materially less restrictive than the
confidentiality and standstill agreement that the Company entered into with
Buyer; and
·
participate in discussions or
negotiations with the person making such an acquisition proposal regarding the
acquisition proposal.
As used in the asset
purchase agreement, a superior proposal means any bona fide written proposal
made by a third party on terms that the Company’s Board determines in good
faith, after consultation with outside legal counsel, to be more favorable to
the Company’s stockholders from a financial point of view than the asset
purchase agreement and is reasonably likely to be consummated, if accepted
after consideration of any modifications to the asset purchase agreement
proposed by Buyer, if any.
In addition, the Company
has agreed to promptly notify Buyer of the receipt of any written acquisition
proposal, the identity of the person making the acquisition proposal, and the
material terms and conditions of the acquisition proposal prior to furnishing
information to or entering into discussions with the person.
However, the asset
purchase agreement provides that the Company’s Board may propose to or actually
withdraw, modify or qualify its recommendation with respect to stockholder
approval of the asset sale or approve or recommend any superior proposal if the
Company’s Board determines in good faith, after consultation with outside legal
counsel, that failure to do so would be inconsistent with its fiduciary
obligations under applicable law. In addition, the Company’s Board may take any
action that is required under the Exchange Act and rules and regulations
of The NASDAQ Stock Market and any other securities exchange. The Board must
publically reaffirm its recommendation to support stockholder approval of the
asset purchase agreement within five days of a request by Buyer to do so.
Conduct
of Business Pending the Completion of the Asset Sale
Under the asset purchase
agreement, the Company has agreed to operate the business in the ordinary and
usual course in all material respects, consistent with past practice, and will
use commercially reasonable efforts to retain its employees and consultants and
to maintain its relationships with licensors, licensees, suppliers,
contractors, distributors and customers.
The asset purchase
agreement also contains a number of specific restrictions on the Company and
its operations during the period between the signing of the asset purchase
agreement and the close of the asset sale. The Company has agreed:
·
to not incur any obligation which would result in a
material adverse effect on the business, the purchased assets or Buyer’s
ability to conduct the business;
·
to not increase the compensation of, or agree to
provide additional benefits to, or enter into any employment agreement with,
any employee;
·
to maintain insurance coverage;
43
·
to not sell or encumber any material portion of the
purchased assets or license any purchased assets to any person;
·
to not enter into any material agreements or
commitments relating to the business;
·
to comply in all material respects with all laws
applicable to the business;
·
to not enter into any agreement with any third party
for the distribution of any of the purchased assets;
·
to not make any material change or announce any such
change to the products or services sold by the business;
·
to not expand the use of the purchased assets within
the organization of the Company;
·
to not violate the terms of any material contracts in
any material respect or enter into any material amendment to any material
contracts;
·
to not commence a lawsuit related to or involving the
purchased assets; and
·
to reasonably cooperate with Buyer in its efforts to
employ the Company’s employees.
The restrictions
described above do not prohibit specified actions in the ordinary course of
business consistent with past practice that are described with each restriction
in the asset purchase agreement and do not prohibit other actions for which the
Company receives the prior written consent of Buyer.
Conditions
to the Completion of the Asset Sale
The obligation of Buyer
to complete the asset sale is subject to the satisfaction or waiver of several
conditions set forth in the asset purchase agreement, including the following:
·
the Company’s representations and
warranties in the asset purchase agreement are true and correct in all material
respects as of the closing date of the asset sale;
·
the asset sale is approved by the Company’s
stockholders;
·
no suit, action, claim, proceeding or
formal investigation is brought by a governmental entity seeking to prevent the
completion of the asset sale and no injunction or other order or statute, rule,
regulation or executive order by any government entity prevents the completion
of the asset sale;
·
the bill of sale, assignment and
assumption agreement, escrow agreement and license agreement are delivered;
·
all required filings with governmental
agencies are made and approvals of the asset sale, if any, are obtained; and
·
there is the absence of a change in the
purchased assets or in the Company’s financial condition or results of
operations that is materially adverse to the Company’s business or the
purchased assets compared to the date the asset purchase agreement was signed.
The obligation of the
Company to complete the asset sale is subject to the satisfaction or waiver of
several conditions set forth in the asset purchase agreement, including the
following:
·
Buyer’s representations and warranties in
the asset purchase agreement are true and correct in all material respects as
of the closing date of the asset sale;
·
the asset sale is approved by the Company’s
stockholders;
·
no suit, action, claim, proceeding or
formal investigation is brought by a governmental entity seeking to prevent the
completion of the asset sale and no injunction or other order or statute, rule,
regulation or executive order by any government entity prevents the completion
of the asset sale;
·
the bill of sale, assignment and
assumption agreement, escrow agreement, license agreement and legal opinion are
delivered; and
·
all required filings with governmental
agencies are made and approvals of the asset sale, if any, are obtained.
44
The asset purchase
agreement provides that any or all of the conditions described above may be
waived, in whole or in part. The Company’s Board is authorized in its
discretion to waive any of the conditions to the Company’s performance without
the consent of the Company’s stockholders to the extent allowed by law. The
Company does not currently expect to waive any material condition to the
completion of the asset sale.
Other
Agreements
The asset purchase agreement
also contains the following provisions or other agreements have been or will be
entered into in connection with the asset purchase agreement:
Proxy Statement.
The Company
agreed to file with the SEC this proxy statement relating to the Special Meeting
of Company’s stockholders and to use its reasonable best efforts to have the
proxy statement cleared by the SEC.
Stockholder Meeting.
The Company
agreed to duly call, give notice of and hold a meeting of its stockholders to
consider the proposal to approve the asset sale and to solicit proxies from
Company stockholders in favor of the proposal. The Company’s Board will also
recommend that the Company’s stockholders approve the asset sale at the Special
Meeting.
Access to information.
The
Company has agreed to permit Buyer to make a full and complete investigation of
the business and the purchased assets and to receive all reasonably requested
information relating to the purchased assets or the Company’s conduct of the
business prior to the close of the asset purchase agreement. After the close of
the asset purchase agreement, the Company and Buyer have agreed to provide each
other with reasonable assistance, including the provision of available relevant
records or other information, as may be reasonably requested in connection with
the preparation of any financial statement or tax return, any audit or
examination by any taxing authority, or any judicial or administrative
proceeding relating to liability for taxes. The Company will retain a copy of
the Company’s books and records and the original books and records will be
transferred to Buyer at the close of the asset purchase agreement.
Regulatory Approvals and Consents.
There are no federal or state regulatory requirements that must be
complied with or approval that must be obtained in connection with the asset
sale or asset purchase agreement.
Guaranty Agreement.
Parent has entered into an agreement with
the Company to unconditionally and irrevocably guarantee as primary obligor the
performance when due of any and all covenants, agreements and other obligations
of Buyer under the asset purchase agreement and related ancillary agreements.
The full text of the guaranty agreement is attached as
Annex B
to this proxy statement and
is incorporated by reference into this proxy statement. The Company urges you
to read the guaranty agreement in its entirety for a more complete description
of the terms and conditions of the guaranty and related matters.
Non-Competition and Non-Solicitation Agreements.
The Company has agreed, for a period of three years after the close of
the asset sale not to, without the prior written consent of Buyer, participate
in or create any land based poker tours, any televised poker programs and/or
any online poker sites. In addition, for a period of 18 months after the
closing of the asset sale, the Company and Mr. Lipscomb have agreed to not
solicit or employ any employee hired by Buyer. Mr. Lipscomb has also
agreed that he will not, without the prior written consent of Buyer, participate
in (other than as a player not branded by a competitive online poker site) or
create any land based poker tours, any televised poker programs and/or any
online poker site for 18 months after the closing of the asset purchase
agreement.
Invitational Seats.
Buyer has agreed to provide the Company
with six invitational seats per year for the WPT Celebrity Invitational, or, if
such event is not held in a given year, a substantially similar event to the
extent such an event is being operated by Buyer or its affiliates. Any person
taking one of these invitational seats will wear the branding designated by
Buyer.
Name Change.
After the
close of the asset sale, the Company has agreed to change its name to another
name that does not include the purchased assets.
Other Transaction Documents.
The Company and Buyer have agreed to execute and deliver other documents
in connection with the asset sale including a bill of sale, an assignment and
assumption agreement, an escrow agreement and a license agreement. The Company
has also agreed to provide a legal opinion at the closing.
45
Termination
of the Asset Purchase Agreement
The Company and Buyer can
mutually agree to terminate the asset purchase agreement at any time.
The Company or Buyer may
terminate the asset purchase agreement if:
·
the close does not occur by February 24,
2010, even if the Company’s stockholders have approved the asset sale, provided
that the right to terminate the asset purchase agreement is not available to
any party whose failure to take any action required to fulfill any obligation
under the asset purchase agreement is the reason for the failure of the closing
to occur by that date;
·
the Company’s stockholders do not approve
the asset sale; or
·
if any governmental entity issues a final
and non-appealable order, decree or ruling or takes any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
by the asset purchase agreement, provided that such party used its reasonable
best efforts to oppose the actions of the governmental entity.
Buyer may terminate the
asset purchase agreement if:
·
the Company breaches certain of the
covenants or agreements or any of the representations or warranties set forth
in the asset purchase agreement if the effect of the breach is expected to
result in the failure of Buyer to satisfy certain of the conditions to close
the asset purchase agreement that are not cured by the earlier of February 24,
2010 or 30 days following written notice to the Company, provided that Buyer
may not terminate the asset purchase agreement if Buyer is in material breach
of any of its covenants or agreements or representations and warranties
contained in the asset purchase agreement;
·
the Company’s Board, or any committee
thereof, announces its intention to or decides to approve, adopt or recommend
an alternative acquisition proposal that the Board decides is superior to the
asset sale to Buyer;
·
the Company’s Board announces its intention
to or withholds, withdraws, qualifies, modifies or amends the Board’s
recommendation to the Company’s stockholders to approve the asset sale to
Buyer;
·
the Company announces its intention to or
executes any letter of intent, memorandum of understanding or similar contract
relating to any alternative acquisition proposal;
·
with the prior consent of the Company’s
Board any person or group acquires beneficial ownership of more than 25% of the
Company’s outstanding shares of capital stock; or
·
the Company breaches its obligation to
hold the Special Meeting other than solely as a result of actions by the SEC.
The Company may terminate
the asset purchase agreement if:
·
Buyer breaches certain of the covenants
or agreements or any of the representations or warranties set forth in the
asset purchase agreement if the effect of the breach is expected to result in
the failure of the Company to satisfy certain of the conditions to close the
asset purchase agreement that are not cured by the earlier of February 24,
2010 or 30 days following written notice to Buyer; provided that the Company
may not terminate the asset purchase agreement if the Company is in material
breach of any of its covenants or agreements or representations and warranties
contained in the asset purchase agreement;
·
the Company’s Board decides to accept an
alternative acquisition proposal that the Board decides is superior to the
asset sale to Buyer; or
·
federal legislation is passed in the U.S.
which the Company’s Board determines in good faith, after consultation with
outside legal counsel, would result in the legalization of online gaming in the
U.S.
46
Effect
of Termination of the Asset Purchase Agreement
In the event of the termination
of the asset purchase agreement as described above, the asset purchase
agreement will be of no further force or effect, except:
·
designated provisions of the asset
purchase agreement, including if applicable, the termination fees described
below, will survive termination;
·
termination of the asset purchase
agreement will not affect the obligations of the parties contained in their
confidentiality agreement, which will survive termination of the asset purchase
agreement in accordance with its terms; and
·
if the termination of the asset purchase
agreement is a result of the willful failure of any party to perform a material
obligation or a material covenant, then such party is liable for damages
suffered by the other party.
Termination
Fee
The Company would owe
Buyer a $1 million termination fee if Buyer terminates the asset purchase
agreement because:
·
the Company breaches certain of the
covenants or agreements or any of the representations or warranties set forth
in the asset purchase agreement if the effect of the breach is expected to
result in the failure of Buyer to satisfy certain of the conditions to close
the asset purchase agreement that are not cured by the earlier of February 24,
2010 or 30 days following written notice to the Company, provided that Buyer
may not terminate the asset purchase agreement if Buyer is in material breach
of any of its covenants or agreements or representations and warranties
contained in the asset purchase agreement;
·
the Company’s Board, or any committee
thereof, announces its intention to or decides to approve, adopt or recommend
an alternative acquisition proposal that the Board decides is superior to the
asset sale to Buyer;
·
the Company’s Board announces its
intention to or withholds, withdraws, qualifies, modifies or amends the Board’s
recommendation to the Company’s stockholders to approve the asset sale to
Buyer;
·
the Company announces its intention to or
executes any letter of intent, memorandum of understanding or similar contract
relating to any alternative acquisition proposal;
·
with the prior consent of the Company’s
Board any person or group acquires beneficial ownership of more than 25% of the
Company’s outstanding shares of common stock; or
·
the Company Breaches its obligation to
hold the Stockholder Meeting other than solely as a result of actions by the
SEC.
Buyer would owe the
Company a $1 million termination fee if the Company terminates the asset
purchase agreement because Buyer breaches any of the covenants or agreements or
any of the representations or warranties set forth in the asset purchase
agreement if the effect of the breach is expected to result in the failure of
the Company to satisfy any of the conditions to close the asset purchase
agreement that are not cured by the earlier of February 24, 2010 or 30
days following written notice to Buyer; provided that the Company may not
terminate the asset purchase agreement if it is in material breach of any of
the Company’s covenants or agreements or representations and warranties
contained in the asset purchase agreement. In addition, the Company and Buyer
have agreed to reimburse each other for reasonable and documented costs and
expenses incurred in connection with the collection and enforcement of the
requirement to pay the $1 million termination fee if the Company or Buyer
terminates the asset purchase agreement.
Reimbursement
of Initial Payment
Buyer delivered a
$1 million initial payment of the purchase price to the Company upon the
execution of the asset purchase agreement. The Company will be obligated to
reimburse Buyer for the $1 million initial payment if the asset purchase
agreement is terminated because:
·
the Special Meeting is held and the
Company’s stockholders do not approve the asset sale;
47
·
the Company breaches certain of the
covenants or agreements or any of the representations or warranties set forth
in the asset purchase agreement if the effect of the breach is expected to
result in the failure of the Company to satisfy certain of the conditions to
close the asset purchase agreement that are not cured by the earlier of February 24,
2010 or 30 days following written notice to the Company, provided that Buyer
may not terminate the asset purchase agreement if Buyer is in material breach
of any of its covenants or agreements or representations and warranties
contained in the asset purchase agreement;
·
the Company’s Board, or any committee
thereof, announces its intention to or decides to approve, adopt or recommend
an alternative acquisition proposal that the Board decides is superior to the
asset sale to Buyer;
·
the Company’s Board announces its intention
to or withhold, withdraw, qualify, modify or amend the Board’s recommendation
to the Company’s stockholders to approve the asset sale to Buyer;
·
the Company announces its intention to or
executes any letter of intent, memorandum of understanding or similar contract
relating to any alternative acquisition proposal;
·
with the prior consent of the Company’s
Board any person or group acquires beneficial ownership of more than 25% of the
Company’s outstanding shares of common stock;
·
the Company terminates the asset purchase
agreement in connection with a change in federal law which would result in the
legalization of online gambling in the U.S.;
·
the close of the asset sale does not
occur by February 24, 2010 and either the Company’s failure to fulfill its
obligations is the cause of the failure to close and the agreement is
terminated by Buyer or the asset purchase agreement is terminated by the
Company and the failure to close was not as a result of Buyer’s failure to
fulfill its obligations; or
·
a governmental entity issues an order,
decree or ruling which prohibits the transaction from closing and such
government action is caused by the Company’s failure to comply with any
applicable law.
The Company will
be obligated to reimburse Buyer for $500,000 if the asset purchase agreement is
terminated because:
·
the agreement is terminated by mutual
consent of Buyer and the Company; or
·
a governmental entity issues an order,
decree or ruling which prohibits the asset sale from closing and such governmental
action is not caused by either the Company’s or Buyer’s failure to comply with
any applicable law.
If the asset purchase
agreement is terminated for any reason other than those listed above, the
Company will retain the full amount of the initial payment.
Representations
and Warranties
The asset purchase
agreement contains representations and warranties made by the Company to Buyer.
These representations and warranties relate to, among other things:
·
our corporation is duly organized,
validly existing and in good standing under the laws of the State of Delaware,
we have the requisite corporate power and authority to own, lease and operate
our properties and to carry on the business as now being conducted, and we are
duly qualified or licensed as foreign corporations to do business, and is in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by us or the nature of our business makes such
qualification or licensing necessary;
·
the asset purchase agreement and the
other documents to be signed at the close of the asset purchase agreement were
authorized by the Company’s Board, were validly signed and are binding on the
Company;
·
other than filings under the Exchange Act
or the rules of the Nasdaq, the Company does not need any permit,
authorization, consent or approval of any government entity to close the asset
sale;
48
·
the asset purchase agreement and other
documents to be signed at the close of the asset sale will not breach the terms
of our Certificate of Incorporation or Bylaws, breach the terms of material
contracts that were sold to Buyer or violate any law, order, writ, injunction
or decree of any governmental entity;
·
the assets sold to Buyer include all
properties currently used by us in the operation of our business and Buyer can
operate our business after the close of the asset sale in the way we currently
do;
·
we have valid title, license or leasehold
interest in the assets sold to Buyer and these assets are in good operating
condition;
·
the asset sale agreement does not breach,
violate or conflict with any of our intellectual property rights and our
intellectual property rights do not infringe on the intellectual property
rights of others;
·
we have all material consents, approvals,
registrations, certifications, authorizations, permits and licenses to operate
our business;
·
we have disclosed all of our employee and
contractor compensation, benefits and benefit plans and we have materially
complied with all employment laws and collective bargaining agreements;
·
we have paid all of our income and other
taxes when due;
·
we have complied with all applicable
laws;
·
we have disclosed all contracts that are
material to our business, our contracts are binding obligations to the parties
thereto and the aggregate financial obligation of contracts that were not
disclosed to Buyer is less than $500,000;
·
there are no claims, actions, suits,
inquiries, proceedings, or investigations against us and there are no grievance
or arbitration proceedings pending against us;
·
we are not in default with respect to any
judgment, order, writ, injunction or decree of any court or any governmental
entity;
·
we have disclosed all insurance policies
and fidelity bonds covering the assets we are selling to Buyer and there are no
pending claims under any of our insurance policies or fidelity bonds;
·
the schedules to the asset purchase
agreement are true and correct;
·
we have not employed a broker or finder
in connection with this asset sale; and
·
we have disclosed all of our subsidiaries
to Buyer.
The asset purchase
agreement also contains representations and warranties made by Buyer to the
Company. These representations and warranties relate to, among other things:
·
the corporation is duly organized,
validly existing and in good standing under the laws of Gibraltar;
·
the asset purchase agreement and the
other documents to be signed at the close of the asset purchase agreement were
authorized by Buyer’s board of directors, were validly signed and are binding
on Buyer;
·
other than the Gibraltar regulatory
requirement to approve organizational changes to Parent, Buyer does not need
any permit, authorization, consent or approval of any government entity to
close the asset sale;
·
the asset purchase agreement and other
documents to be signed at the close of the asset sale will not breach the terms
of its Certificate of Incorporation or Bylaws or violate any law, order, writ,
injunction or decree of any governmental entity;
·
no consents are required to enter into
the asset purchase agreement; and
·
Buyer did not employ a broker or finder
in connection with this asset sale.
The agreement covering
Parent’s guarantee of Buyer obligations also contains representations and
warranties made by Parent to the Company. These representations and warranties
relate to, among other things:
·
the corporation is duly organized,
validly existing and in good standing under the laws of Gibraltar;
49
·
the guaranty agreement and the other
documents to be signed by Parent at the close of the asset sale were authorized
by Parent’s board of directors, were validly signed and are binding on Parent;
·
other than the Gibraltar regulatory
requirement to approve organizational changes to Parent, no consents are
required to enter into the guarantee of Buyer obligations;
·
the guarantee of Buyer obligations will
not breach the terms of its Certificate of Incorporation or Bylaws or violate
any law, order, writ, injunction or decree of any governmental entity; and
·
no consents are required to enter into
the guaranty agreement.
Indemnification
The representations and
warranties in the asset purchase agreement generally survive for three years
after the asset sale closes. Representations and warranties about taxes survive
for the period of the applicable statute of limitations and representations and
warranties about organization, standing and power, authority, and execution and
binding effect survive forever. All covenants in the asset purchase agreement
and all claims related to fraud survive forever unless the covenants have
specific terms in the asset purchase agreement.
The Company has agreed to
indemnify and hold Buyer harmless from all damages due to misrepresentation or
breach of any of the Company’s representations and warranties, from a failure
to fulfill any covenant or agreement made, and from a failure to pay any claim
or liability that is a retained liability. The Company has no indemnification
obligations to Buyer for taxes that arise from and are created by the asset
purchase agreement. Damages are net of the amount of any insurance proceeds
recovered by Buyer.
Buyer has agreed to
indemnify and hold the Company harmless from all damages due to
misrepresentation or breach of any of Buyer’s representations and warranties,
from a failure to fulfill any covenant or agreement made, from a failure to pay
any claim or liability that is an assumed liability, and from liabilities that
result from the confidential treatment of Buyer’s customers. Buyer has no
indemnification obligations to the Company for taxes that arise from and are
created by the asset purchase agreement. Damages are net of the amount of any
insurance proceeds recovered by the Company.
An escrow account will be
established and Buyer will pay 20% of the future gaming and other revenue
participation due to the Company into the escrow account for two years to
secure the Company’s indemnification obligations to Buyer. The escrow period
can exceed two years if additional time is needed to determine the appropriate
amounts to be disbursed from the escrow account. Damages must exceed $150,000
before the Company is required to pay the claims, other than claims for
breaches of certain fundamental or tax representations and warranties, breaches
of covenants, or claims associated with the operation of the business or the
use of the purchased assets prior to the closing date. The aggregate damages
may not exceed $9 million.
Any controversy, dispute
or claim regarding the asset purchase agreement, including a claim about
misrepresentation or breach of any representation or warranty is to be settled
by arbitration.
The Company has not
obtained any insurance policies covering the matters as to which it will
indemnify Buyer. The Company’s indemnification covenants to its directors and
officers will remain in effect following the asset sale.
Material
U.S. Federal Income Tax Consequences
The Company will
recognize a taxable gain on the asset sale equal to the difference between the
amount realized from the asset sale and the adjusted tax basis of the assets
sold and liabilities assumed. The Company expects to have sufficient federal
net operating losses to offset the gain expected to be realized from the asset
sale for regular federal income tax purposes. The Company will pay federal
alternative minimum tax on the gain on asset sale. The Company will not be able
to use California net operating losses to offset the gain on asset sale because
California suspended the use of net operating losses in 2009. The Company
expects to pay California regular income tax on the gain on asset sale.
The Company does not
expect that the asset sale will result in any federal or state income tax
consequences for its stockholders since they will not receive any of the
proceeds from the asset sale.
50
Amendment
Subject to applicable
laws, the Company and Buyer may mutually amend or waive any provision of the
asset purchase agreement at any time. The Company does not currently expect to
waive any material provision of the asset sale.
Governing
Law
The asset purchase
agreement is governed by the laws of the State of California.
Interests
of Management and the Board of Directors
In February 2009,
the Company’s Board of Directors authorized an exchange of stock options, a
bonus arrangement and a severance arrangement with Mr. Lipscomb. The Board
offered to exchange and Mr. Lipscomb accepted 500,000 new stock options
priced at $0.49 if Mr. Lipscomb returned 600,000 fully vested stock
options with an exercise price of $8.00 per share to the Company. The vesting
of the new stock options was restarted and one quarter of the stock options
vests annually on January 1 of each year. Vesting of the new stock options
does not accelerate on a change in control, this asset sale transaction or if Mr. Lipscomb’s
employment terminates. The Board also authorized a new bonus arrangement with Mr. Lipscomb
in the event a change in control occurs due to the sale of the Company in 2009.
Mr. Lipscomb will be paid 5% of the gross proceeds from the sale in 2009
of all or substantially all of the assets or equity interests in the Company in
excess of the fair market value of cash, cash equivalents and debt securities
held by the Company on the date the transaction is closed. If the asset sale
with Buyer is closed in 2009, it is estimated that Mr. Lipscomb will be
paid approximately $490,000 under this bonus arrangement as well as 5% of
future gross gaming revenues less certain taxes and 5% of other future gross
revenues less certain taxes and costs earned with the purchased assets in
perpetuity. The estimated amount is $50,000 less as a result of Mr. Lipscomb’s
offer to subtract any breakage fees actually paid by the Company from the
purchase price amount used to calculate his bonus.
Mr. Lipscomb has
agreed to enter into an 18 month non-solicitation and non-compete agreement
with Buyer. Mr. Lipscomb has agreed to not solicit or employ any employee
hired by Buyer. Mr. Lipscomb has also agreed that he will not, without the
prior written consent of Buyer, participate in (other than as a player not
branded by a competitive online poker site) or create any land based poker
tours, any televised poker programs and/or any online poker site.
In May 2009, the
Company’s Board of Directors authorized an increase in the change in control
payments to two executive officers if a sale of the Company’s assets to Buyer
or Gamynia closed in 2009. Previously, these two officers were to receive six
months severance if their employment was terminated without cause. Under the
new change in control arrangements, Mr. Rohin Malhotra will receive
$412,500 and Mr. Adam Pliska will receive $345,000 if a sale of the
Company’s assets to Buyer or Gamynia closes in 2009.
Mr. Pliska has
entered into an employment agreement with an affiliate of Buyer that is
effective upon the close of the asset purchase agreement.
The sale of the Company’s
operating assets to Buyer will result in an acceleration of the vesting of
stock options held by the Company’s Board of Directors, executive officers and
all other Company employees, other than Mr. Lipscomb.
Except as disclosed in
this proxy statement, there are no present or proposed material agreements,
arrangements, understandings or relationships among the Company, Buyer or
Parent or any of their respective executive officers, directors, controlling
persons or subsidiaries.
51
DESCRIPTION OF WPT
ENTERPRISES, INC.
WPT
Enterprises, Inc.
5700 Wilshire Blvd., Suite 350
Los Angeles, CA 90036
(323) 330-9900
The Company creates
internationally branded entertainment and consumer products driven by the
development, production and marketing of televised programming based on gaming
themes. Our current season of the World Poker Tour, or WPT television series -
Season Seven, based on a series of high-stakes poker tournaments, currently
airs on Fox Sports Net in the U.S., and has been licensed for broadcast
globally. In January 2008, we launched ClubWPT.com, an innovative
subscription-based online poker club targeted to the estimated 60 million poker
players in the U.S., which is currently offered in 38 states. Through November 2008,
we offered a real-money online gaming website which prohibited wagers from
players in the U.S. and other restricted jurisdictions. We also license our
brand to companies in the business of poker equipment and instruction, apparel,
publishing, electronic and wireless entertainment, DVD/home entertainment,
casino games and giftware and are engaged in the sale of corporate
sponsorships. Through March 2009, we developed and marketed online and
mobile games supporting the WPT China National Traktor Poker Tour.
We operate through four
business segments, WPT Studios, WPT Online, WPT Global Marketing and WPT China,
described in greater detail below:
WPT
Studios
, our
multi-media entertainment division, generates revenue through domestic and
international television licensing, domestic and international television
sponsorship, as well as host fees from casinos and card rooms that host our
televised events.
WPT
Online
includes
the online poker club ClubWPT.com that generates revenue from subscriptions,
which began operations in January 2008, our international poker and casino
real money gaming websites which were terminated in November 2008 and an
online merchandise store.
WPT
Global Marketing
includes branded consumer products, sponsorships and event management. Branded
consumer products generate revenue from the licensing of our brand to companies
seeking to use the World Poker Tour brand and logo in the retail sales of their
consumer products. Sponsorship and event management generates revenue through
corporate sponsorship and management of televised and live events.
WPT
China
produced
third-party branding at WPT China National Traktor Poker Tour events, licensed
the television broadcast of the WPT China National Traktor Poker Tour and
marketed the popular Chinese national card game “Tuo La Ji” or “Traktor Poker”
in online and mobile games. This segment was shut down in March 2009.
DESCRIPTION OF PEERLESS MEDIA LTD.
AND ELECTRAWORKS LTD.
Buyer:
|
Parent:
|
Peerless Media Ltd.
|
ElectraWorks Ltd.
|
Suite 711
|
Suite 711
|
Europort
|
Europort
|
Gibraltar
|
Gibraltar
|
00350 200 40126
|
00350 200 40126
|
Buyer and Parent are
Gibraltar private limited companies and Buyer is a subsidiary of Parent. Parent
is the principal operating subsidiary in the PartyGaming Plc group of
companies.
PartyGaming is the world’s
leading listed online gaming business. PartyGaming offers a variety of games
through an integrated Party-branded platform and through a number of secondary
brands and alliances with blue chip companies. Through a unique operating
platform, adults can tune in to a broad range of games, using multiple
languages, multiple-currency options and with the tools to ensure they have fun
and play within their means.
PartyGaming listed on the
London Stock Exchange in June 2005. Regulated and licensed by the
Government of Gibraltar, PartyGaming has over 1,200 employees located in
the head office and operations centre in Gibraltar, a business process
outsourcing operation in India, and a marketing services subsidiary and multi-lingual
customer
52
service operations in
Europe. PartyGaming has customers throughout the world. PartyGaming does not
accept wagers or deposits for real money games from customers located in the
U.S.
53
SELECTED FINANCIAL DATA
The selected financial
data as of December 28, 2008 and December 30, 2007 and for the years
ended December 28, 2008, December 30, 2007 and December 31, 2006
are derived from the Company’s audited financial statements, which have been
audited by Piercy, Bowler, Taylor & Kern, an independent registered
public accounting firm, and are included in this proxy statement beginning on page F-1.
The selected financial data as of December 31, 2006, January 1, 2006
and January 2, 2005 and for the years ended January 1, 2006 and January 2,
2005 are derived from the Company’s audited financial statements, which have
been audited by Piercy, Bowler, Taylor & Kern, an independent
registered public accounting firm, and are not included in this proxy
statement. The statement of operations data for the six months ended June 28,
2009 and June 29, 2008, as well as the balance sheet data as of June 28,
2009 are derived from the Company’s unaudited financial statements included in
this proxy statement beginning on page F-20. The financial data should be
read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the Company’s consolidated financial
statements and related notes appearing elsewhere in this proxy statement. The
historical results are not necessarily indicative of results to be expected in
any future period (in thousands, except per share data).
Statements of Net Earnings (Loss) Data
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended
|
|
|
|
Fiscal
Year
|
|
June 28,
|
|
June 29,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2009
|
|
2008
|
|
Revenues
|
|
$
|
15,481
|
|
$21,712
|
|
$29,261
|
|
$18,063
|
|
$17,557
|
|
$10,099
|
|
$10,034
|
|
Gross
profit
|
|
8,231
|
|
13,488
|
|
18,945
|
|
8,076
|
|
7,313
|
|
6,397
|
|
4,580
|
|
Selling,
general and administrative expense
|
|
(19,236
|
)
|
(21,617
|
)
|
(18,630
|
)
|
(14,087
|
)
|
(6,632
|
)
|
(5,460
|
)
|
(10,794
|
)
|
Asset
impairment and abandonment charges (1)
|
|
(1,923
|
)
|
(2,270
|
)
|
—
|
|
—
|
|
—
|
|
(1,000
|
)
|
—
|
|
Earnings
(loss) from operations
|
|
(13,018
|
)
|
(10,399
|
)
|
315
|
|
(6,011
|
)
|
681
|
|
(63
|
)
|
(6,214
|
)
|
Gain
on sale of investment
|
|
11
|
|
—
|
|
10,216
|
(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
Earnings
(loss) from continuing operations
|
|
(12,045
|
)
|
(8,550
|
)
|
7,769
|
|
(5,003
|
)
|
752
|
|
52
|
|
(5,602
|
)
|
Loss
from discontinued operations
|
|
(2,404
|
)
|
(1,083
|
)
|
—
|
|
—
|
|
—
|
|
(1,081
|
)
|
(1,109
|
)
|
Net
earnings (loss)
|
|
$
|
(14,449
|
)
|
$ (9,633
|
)
|
$ 7,769
|
|
$(5,003
|
)
|
$
|
752
|
|
$(1,029
|
)
|
$(6,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share—basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.58
|
)
|
$
|
(0.42
|
)
|
$
|
0.38
|
|
$
|
(0.26
|
)
|
$
|
0.05
|
|
$
|
—
|
|
$
|
(0.27
|
)
|
Discontinued
operations
|
|
(0.12
|
)
|
(0.05
|
)
|
—
|
|
—
|
|
—
|
|
(0.05
|
)
|
(0.06
|
)
|
Net
earnings (loss) per share
|
|
$
|
(0.70
|
)
|
$
|
(0.47
|
)
|
$
|
0.38
|
|
$
|
(0.26
|
)
|
$
|
0.05
|
|
$
|
(0.05
|
)
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share—diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.58
|
)
|
$
|
(0.42
|
)
|
$
|
0.38
|
|
$
|
(0.26
|
)
|
$
|
0.04
|
|
$
|
—
|
|
$
|
(0.27
|
)
|
Discontinued
operations
|
|
(0.12
|
)
|
(0.05
|
)
|
—
|
|
—
|
|
—
|
|
(0.05
|
)
|
(0.06
|
)
|
Net
earnings (loss) per share
|
|
$
|
(0.70
|
)
|
$
|
(0.47
|
)
|
$
|
0.38
|
|
$
|
(0.26
|
)
|
$
|
0.04
|
|
$
|
(0.05
|
)
|
$
|
(0.33
|
)
|
(1)
This is the 2009 and 2008 impairment of the Company’s investment in Cecure
Gaming and the 2007 write off of online gaming assets.
(2) This is the
2006 sale of the Company’s investment in PokerTek, Inc.
54
Balance Sheet Data
|
|
Fiscal
Year End
|
|
As
of
June 28
,
|
|
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2009
|
|
Current
assets
|
|
$19,036
|
|
$32,609
|
|
$37,471
|
|
$33,793
|
|
$35,959
|
|
$19,771
|
|
Total
assets
|
|
25,881
|
|
41,697
|
|
51,340
|
|
46,260
|
|
37,113
|
|
26,567
|
|
Current
liabilities
|
|
3,818
|
|
5,902
|
|
8,089
|
|
7,887
|
|
4,926
|
|
5,419
|
|
Stockholders’
equity
|
|
22,063
|
|
35,795
|
|
43,251
|
|
38,373
|
|
31,569
|
|
21,148
|
|
55
BUSINESS
Proposed
Asset Sale to Buyer
Until the close of the
proposed asset sale with Buyer, the Company expects to continue to execute its
existing business strategy.
Overview
of Business
WPT Studios
Background
The WPT is a sports
league of affiliated poker tournaments that are open to the public. Season
Seven of the WPT had 13 regular WPT tournaments or tour stops on the
circuit, which were hosted by prestigious casinos and poker rooms. Each season
of tour stops culminates in the WPT World Championship at the Bellagio Hotel
and Casino in Las Vegas, Nevada, which includes the winners of each of that
season’s previous WPT tournaments. The WPT stops have attracted well-known and
established professional and amateur poker players on the poker circuit. We
also make our tour stops accessible to the mainstream poker player by
partnering with casinos and poker rooms which host “satellite” and “super
satellite” poker tournaments in which the winner or winners may ultimately earn
a paid entry into a WPT event. At our tour stops, we film the final table of
six participants competing for some of the poker world’s largest tournament
prize pools. We then edit the footage from each tour stop into a one-hour or
two-hour episode, resulting in a series of one-hour or two-hour episodes which
are distributed for telecast to both domestic and international television
audiences. In addition, we film and produce special episodes based on a variety
of non-traditional poker tournaments, which we also distribute for telecast
along with the episodes based on our regular tour stops.
Season Seven of the WPT
television series aired on Fox Sports Net in the U.S. Season Six aired on the
Game Show Network in the U.S. and Seasons One through Five aired on the Travel
Channel in the U.S. The following table describes the timing of the production
and U.S. licensing of Seasons One through Seven of the WPT television series,
including the production and initial exhibition of the episodes in each season:
World
Poker
Tour Season
|
|
Number
of Hours
|
|
Number
of Episodes
|
|
Production
Period
|
|
Initial
Telecast in the U.S.
|
|
Season
One
|
|
29
|
|
15
|
|
February 2002—June 2003
|
|
March 2003—June 2003
|
|
|
|
|
|
|
|
|
|
|
|
Season
Two
|
|
50
|
|
25
|
|
July 2003—June 2004
|
|
December 2003—September 2004
|
|
|
|
|
|
|
|
|
|
|
|
Season
Three
|
|
41
|
|
21
|
|
May 2004—April 2005
|
|
October 2004—August 2005
|
|
|
|
|
|
|
|
|
|
|
|
Season
Four
|
|
42
|
|
21
|
|
May 2005—April 2006
|
|
October 2005—June 2006
|
|
|
|
|
|
|
|
|
|
|
|
Season
Five
|
|
44
|
|
22
|
|
May 2006—April 2007
|
|
August 2006—August 2007
|
|
|
|
|
|
|
|
|
|
|
|
Season
Six
|
|
46
|
|
23
|
|
May 2007—April 2008
|
|
March 2008—August 2008
|
|
|
|
|
|
|
|
|
|
|
|
Season
Seven
|
|
26
|
|
26
|
|
May 2008—April 2009
|
|
January 2009—July 2009
|
|
WPT Tour Stops
Poker tournaments have
been hosted by many casinos and card rooms around the world for many years. To
gain a seat at the table in these tournaments, competitors “buy-in” by paying
an entry fee, some or all of which goes into the tournaments’ prize pools (that
is, the amount of money that the winners take home). This buy-in amount at
major tournaments ranges from $10,000 to as much as $25,000 at the largest and
best known tournaments. At the WPT’s regular season events and the WPT World
Championship, anyone is eligible to buy-in and play, subject to the house rules of
the host casino and to the laws of the jurisdiction where the tournament is
held.
The style of poker played
at all WPT events is Texas Hold ‘Em. Players are assigned to different tables
at which each player competes against the others until being eliminated by
losing all of his or her chips. Tables are combined as players are eliminated
and the players holding chips continue to compete until six players remain. On
the last day of the tournament, these six players compete at the “final table”
located in a designated WPT arena
56
until only one player,
the champion, remains. Professional and amateur poker players may be drawn to
established tournaments based on the size of a poker tournament’s prize pool,
the prestigious nature of the casino or card room hosting the event, the
history and tradition of the tournament itself and the level of the competition
drawn to the event.
While many of WPT’s
tournaments have been in existence for years, we have turned them into a
circuit of events that is affiliated under the WPT brand. The inaugural season
of the WPT consisted of 12 tour stops and the season ending WPT World
Championship, and we have added additional tournaments to the WPT’s list of
tour stops in the subsequent seasons. Currently, the WPT consists of the
following 13 poker tournaments, which comprise our Season Seven tour stops:
·
Bellagio Cup IV—Bellagio (Las Vegas, Nevada);
·
Legends of Poker—Bicycle Casino (Bell Gardens, California);
·
Borgata Poker Open—Borgata Hotel Casino and Spa
(Atlantic City, New Jersey);
·
North American Poker Championship—Fallsview Casino
Resort (Niagara Falls, Canada);
·
Festa Al Lago—Bellagio (Las Vegas, Nevada);
·
World Poker Finals—Foxwoods Resort Casino
(Mashantucket, Connecticut);
·
Doyle Brunson Five Diamond World Poker
Classic—Bellagio (Las Vegas, Nevada);
·
Gulf Coast Poker Championship—Beau Rivage (Biloxi,
Mississippi);
·
LA Poker Classic—Commerce Casino (Commerce,
California);
·
WPT Celebrity Invitational—Commerce Casino (Commerce,
California);
·
Bay 101 Shooting Star—Bay 101 Casino (San Jose,
California);
·
Foxwoods Poker Classic—Foxwoods Resort Casino
(Mashantucket, Connecticut);
·
WPT World Championship—Bellagio (Las Vegas, Nevada).
WPT Specials
In addition to filming
and producing content for distribution and exhibition based on the final tables
of the WPT’s regular tour stops, we also film and produce non-tournament WPT
episodes. We did not produce any special episodes in 2008, but in the past
these special episodes have included the following:
·
WPT Ladies Night
·
WPT Battle of Champions
·
WPT Hollywood Home Game
·
WPT Bad Boys of Poker
·
WPT Poker by the Book
·
WPT Young Guns of Poker
·
WPT American Chopper vs. Trading Spaces
·
WPT Fathers and Sons
Access to the WPT—Our Satellite and Super
Satellite Tournaments
To have a successful
buy-in tournament event like the regular WPT events or the WPT World
Championship, “satellite” and “super satellite” tournaments are important in
ensuring a large field of players that will generate a substantial prize pool
for the winners. Satellites are tournaments that allow players to buy-in for a
fraction of the cost of a major event in hopes of winning a seat in other
satellites or the major event itself. For example, assuming that a WPT event
costs $10,000 to enter, a one-table satellite (ten players) for this event
would cost $1,000 to play and the winner of the satellite would receive a paid
entry into the $10,000 event. Most casinos
57
host satellites nightly
for as few as two weeks and as much as one year prior to their major events.
Casinos and card rooms also host super satellites, which are multi-table
tournaments held for major events. Because super satellites contemplate more
participants given their multiple table format, the buy-in amounts tend to be
significantly less than that of the one-table satellites.
In order to increase the
accessibility of WPT events, we launched a program to encourage casinos across
the country to provide lower cost satellite or super satellite tournaments to
fans across the U.S. To date, over 100 casinos and card rooms have hosted WPT
satellite and super satellite events. In addition to increasing the size and
visibility of our tour stops, our satellite and super satellite program makes
the WPT events, including the WPT World Championship, more accessible to the
mainstream poker player who may not want to risk the entire cost of a large
buy-in championship tournament. The satellites and super satellites give these
mainstream poker players the opportunity to earn a paid entry to our tour stops
and potentially be a part of the action at the televised final tables. Like the
tour stops themselves, these satellite and super satellite events are operated
by the host casinos and card rooms, and they are responsible for ensuring that
the tournaments comply with all applicable gaming regulations. We neither
receive revenues nor incur expenses in connection with these events.
Telecast License Agreements with Fox Sports
Net
We licensed Season Seven
of the WPT television series to National Sports Programming, owner and operator
of Fox Sports Net for four 30 second commercial units per episode. The
Company also has the right to incorporate billboards, in-show sponsorships, entitlements
and a “dot net” poker tutorial website sponsor in the episodes. FSN retains the
right to approve the website and sponsor in both the 30 second commercial
units and the episodes. As is customary in most production agreements with
television networks, FSN retains the right to approve all material creative
elements of Season Seven.
FSN retains an exclusive
right to broadcast episodes of Season Seven for an unlimited number of times
during the applicable license period solely on the FSN network in the U.S. The
exclusive license period is the earlier of one year after initial telecast of
each episode or 15 months after delivery to FSN. The nonexclusive license
period is the earlier of three years after initial telecast of each episode or
39 months after delivery to FSN.
FSN committed to use
commercially reasonable efforts to broadcast Season Seven on Sunday between
6:00 p.m. and 10:00 p.m. in a minimum of 50 million homes and repeat
the airing one time within seven days of the initial broadcast and two times
within one year of the initial broadcast.
In January 2009, we
licensed Season Eight of the WPT television series to National Sports
Programming on substantially the same terms as the Season Seven license. We
agreed to provide FSN with 26 one hour episodes of the WPT television
series.
Telecast License Agreements with GSN
We licensed Season Six of
the WPT television series to the Game Show Network for $300,000 per episode.
GSN committed to spend at least $3 million in marketing costs for Season Six.
GSN has the right to promote and advertise Season Six in all media during the
license term. Any sponsorship or in-show advertising of Season Six is subject
to the mutual approval of the parties. As is customary in most production
agreements with television networks, GSN retained the right to approve all
material creative elements of the show.
GSN retains an exclusive
right to broadcast episodes of English versions of Season Six for an unlimited
number of times for the earlier of four years from initial airing or four years
and nine months from delivery solely on the GSN network in the U.S., and a
non-exclusive right to broadcast English versions of the show in Canada and in
the island countries and territories of the Caribbean. In addition, GSN has the
right to exploit Season Six for video-on-demand services in certain specified
media, provided that revenue derived by GSN from video-on-demand services will
be split equally between the parties. We retain the right to exploit
non-English versions of Season Six anywhere in the world or English or
non-English versions of Season Six in any medium other than the GSN television
network and video-on-demand.
Telecast License Agreements with the Travel
Channel
We licensed Seasons One
through Five of the WPT television series to the Travel Channel. The license
fee for Season Five of the WPT television series was $477,000 per episode. The
Travel Channel has the exclusive right to exhibit the episodes produced in
connection with each of these seasons in the U.S. for a period of four
58
years, or three years in
the case of Season One. Additionally, our license agreement provides for
exhibition holdbacks for two years after the expiration of the license term.
Under our agreements with
the Travel Channel, we received fixed license fees for each episode, paid at
various times during our production and post-production process. The
per-episode license fee increased by a fixed percentage in each year that the
Travel Channel exercised its option for a new season. The Travel Channel also
received rights to show an unlimited number of repeats on the Travel Channel or
other Discovery Channel networks in the U.S. for four years for Seasons Two
through Five episodes and for three years for Season One episodes. As is
customary in most production agreements with television networks, the Travel
Channel retained final edit rights over the programs that we produced.
Since the license fees we
received from the Travel Channel either remained constant or increased at a
prescribed rate for each new season of programming, our television ratings did
not affect the license fees we received.
While we retained
worldwide television rights to telecast the WPT and Professional Poker Tour
television series episodes outside the U.S. and the right to pursue other
business activities related to the WPT and Professional Poker Tour events and
brand worldwide, the Travel Channel receives up to 15% (currently 10%) of our
adjusted gross revenues from DVD and home video sales, merchandising and
publishing activities and certain international television licenses. This
participation rate declines by 2.5% per year.
FullTiltPoker.net Sponsorship
FSN did not pay a license
fee for Season Seven of the WPT television series. We instead entered into a
U.S. and Mexico sponsorship arrangement with Pocket Kings for FullTiltPoker.net
to sponsor Season Seven. FullTiltPoker.net paid us $3,250,000 for branded
sponsorship integration in Season Seven and four commercial units per episode
in the U.S. We agreed to use our best efforts to have each episode air on
Sunday at 8:00 p.m. with a repeat airing later in the week. The term of
this agreement is two years or sooner if each episode is run at least four
times on FSN.
The Professional Poker Tour
We licensed Season One of
the Professional Poker Tour to the Travel Channel. The PPT television series
differed somewhat from the WPT television series in that only qualified players
were permitted to play in PPT events. The PPT’s first season, which included 24
two-hour episodes, aired on the Travel Channel during 2006. The license
agreement for Season One of the PPT television series was similar to our
agreement with the Travel Channel for the WPT.
Our Television Series
Using our innovative
sports-style production, we shoot our footage of the final table of each WPT
event from as many as 19 different camera angles, incorporate graphics and
distinctive lighting and add commentary from on-air poker personalities. Our
productions also feature specially-designed poker tables conducive to televised
poker play and include our WPT Cams, which are small cameras placed on the
poker table in front of each player that reveal each competitor’s hidden cards,
or “hole cards,” to the television audience at the same time the player looks
at his or her hand. Using the footage we obtain at the final tables of our WPT
events, we edit the footage into one-hour and two-hour episodes for each
tournament for distribution and telecast on cable and/or broadcast television.
International Telecast Agreements
Since 2004, we have
entered into agreements for international telecast of our WPT and PPT episodes
covering over 150 territories. Each of these agreements grants the
international licensee an exclusive license to exhibit certain WPT and PPT
episodes in the applicable territory and distribution channel for a period of
time ranging from four months to two years. In addition, certain agreements
provide the licensee with either an option to license additional seasons of WPT
programming on similar terms or a right of first refusal and last negotiation
with respect to such programming.
Alfred Haber Agreements
Through December 2006,
we exclusively used Alfred Haber Distribution, Inc. to distribute Seasons
One through Four of the WPT television series and Season One of the PPT
television series in international markets.
59
After
recouping certain expenses, Alfred Haber received 25% of gross receipts from
international licenses of WPT Seasons One through Three and 20% of gross
receipts from WPT Season Four and PPT Season One.
In December 2006, we
notified Alfred Haber that they would no longer be the exclusive international
distributor for WPT and PPT television seasons. As a result, the Company
utilizes its internal staff to distribute WPT and PPT episodes into the
international marketplace. We used Alfred Haber in 2007 and 2008 on a
non-exclusive case-by-case basis in certain territories and paid them 20% of
gross receipts for licenses they arranged.
PartyGaming Sponsorship Agreement
In December 2006, we
signed a multi-year agreement with iGlobalMedia Marketing (Gibraltar) Limited,
a subsidiary of PartyGaming Plc, owner of PartyPoker.com, pursuant to which
they provide international television sponsorship of the WPT Seasons Four, Five
and Six and PPT Season One. PartyPoker.com receives exclusive in-show branded
integration and association with our brand.
Pursuant to the
agreement, we provide PartyGaming with certain post-produced audio and graphic
sponsorship integration and advertising rights in connection with the
distribution and broadcasting of the WPT and PPT television series in certain
primary and secondary international markets for an approximate three-year
period in each territory. In exchange for those rights, PartyGaming agreed to
pay us fixed fees for entering into broadcast sponsorship arrangements that
meet particular requirements, including:
·
securing exclusive online gaming
advertising rights in connection with the broadcasting of our shows;
·
incorporating audio and graphic
integration of Party Poker at a certain minimum ratio; and ensuring that the
shows are broadcast before midnight for a run of at least half of the episodes
to be aired by each such broadcaster.
We retained the right to
incorporate our own branding and other audio and graphic integration into the
shows. We also can integrate additional sponsors within the shows provided
those sponsors are not considered “title” sponsors of the shows and as long as
the sponsor is not in the business of online gaming. In addition, PartyGaming
agreed to use commercially reasonable efforts to assist us in obtaining
international distribution of the shows. PartyGaming also agreed to negotiate
advertising rates and obtain advertising inventory around each exhibition of
episodes in each territory. We are entitled to purchase up to one-third of all
available advertising inventory available to PartyGaming at the same rate
PartyGaming receives. PartyGaming provides satellite tournaments for entry into
WPT poker tournaments on PartyGaming’s online gaming site and generally
promotes those satellites.
We are paid for aired
shows that comply with the above requirements, a Qualified Deal, as follows:
(1) For the WPT, $500,000 for each Qualified
Deal up to five per season, in a primary country (as defined) and $125,000 for
each Qualified Deal in a secondary or remaining primary country, per season,
with maximum payments to us of $5 million for Season Four, $6 million
for Season Five and $7 million for Season Six of the WPT.
(2) For the PPT, $200,000 for each Qualified
Deal up to five per season, in a primary country (as defined) for Season One of
the PPT and $300,000 for each Qualified Deal, up to five per season for Seasons
Two and Three of the PPT, and $100,000 for each qualified deal in a secondary
or remaining primary country, with maximum payments to us of $3 million
for Season One, $4 million for Season Two and $5 million for Season
Three of the PPT.
Typically, we are paid
25% of the applicable sponsorship fee upon executing a qualified deal with a
broadcaster, 25% upon the initial broadcast of an episode of a season, and 50%
upon the initial broadcast of the tenth episode. For 2008 and 2007, we
recognized $2,894,000 and $2,248,000 of revenues, respectively, from
PartyGaming. No revenue was recognized in 2006.
Member Casino Affiliations
In establishing and
building the WPT circuit of tournaments, we entered into written agreements
with all of our member casinos. Under these agreements, the casino is
responsible for conducting its annual poker tournament, and the member casino
pays us a yearly hosting fee to have the tournament included as a tour stop on
the WPT circuit. The agreements were originally for a term of five years and,
although some member casinos have a bilateral option, most of the agreements
provided us with a unilateral option to renew on the same terms for
60
another five years. In September 2004,
we exercised our right to renew most of these agreements for an additional five
years. In each year after its first year of participation, the member casino
may elect to withdraw its tournament from the World Poker Tour and terminate
the agreement by giving us notice by a specified date or, if earlier, a
specified length of time (generally four to six months) prior to the date of
the tournament. To date, twelve member casinos that hosted WPT tour stops no
longer participate as hosts of WPT events. We replaced each of these venues
with other tour stops and do not believe that the change in tour venues has had
a significant impact on the quality of the tour or on our business. While the
agreement is in effect and for varying periods of time thereafter, the member
casino is prohibited from televising the tournament itself, permitting any
third party to televise the tournament or licensing its name, trademarks or
likeness to any other party in conjunction with the telecast of a poker
tournament.
WPT Online
WPT Online includes the
real money gaming website at WorldPokerTour.com in certain international
markets and the non-gaming website at WorldPokerTour.com directed at the U.S.
and other select markets, which includes poker tournament coverage and live
updates thereof, statistics, poker player information, an online merchandise
store and ClubWPT, which launched in January 2008.
WorldPokerTour.com – Online Gaming Website
From 2005 through November 2008,
we operated the WPT-branded online gaming website at WorldPokerTour.com that
featured an online poker room and an online casino with a broad selection of
slots and table games. Although any Internet user could access
WorldPokerTour.com via the World Wide Web, the website did not permit bets to
be made from players in the U.S. and other restricted jurisdictions.
WorldPokerTour.com showcased a WPT-branded poker room featuring ring games, as
well as Sit and Go and multi-table tournaments for poker games including Texas
Hold ‘Em, Omaha, 7 Card Stud, and 7 Card Hi-Lo. Additionally, the site featured
online casino games with a selection of slots and table games, including
multi-hand blackjack, European roulette and multiple interactive slots
including their most popular – Millionaire’s Club®, Bejeweled® and The Hulk
TM
.
In 2005, we began
operating our online gaming business through a license agreement with
WagerWorks, Inc., under which we licensed our brand to WagerWorks and
WagerWorks shared with us a percentage of net revenue it collected from the
operation of the online poker room and online casino.
In 2006, we decided to
commission the development of our own software for our online poker room. We
licensed a software platform from CyberArts Licensing, LLC, and hired
approximately thirty employees in Israel to develop the software and support
infrastructure. However, in April 2007, we entered into a three year
software supply and support agreement with CryptoLogic Inc., and its
wholly-owned subsidiary WagerLogic Limited, (collectively referred to as “CryptoLogic”).
In June 2007, our relationship with WagerWorks, Inc. was terminated.
As a result of the
decision to utilize CryptoLogic and move away from the internally-developed
online gaming platform based on CyberArts software, we wrote off
$2.3 million of property and equipment and related capitalized costs
during the second quarter of 2007. In addition to the write off of assets, we
curtailed our Israel operations and closed one of our two offices during the
second quarter of 2007 and in the fourth quarter of 2007, we closed the
remaining office in Israel.
CryptoLogic operated an
online gaming site for us featuring a poker room and casino games utilizing its
proprietary software, in exchange for a percentage of the revenue generated
from the site. We were entitled to approximately 80% of net gaming revenues, as
defined below, from the operation of the site. We were also a member in a
centralized online gaming network with several other licensees of CryptoLogic
pursuant to which players were able to play on our branded gaming site on the
network.
In June 2007,
CryptoLogic delivered the poker software to us and the online poker room became
operational. In July 2007, CryptoLogic delivered ten casino games to us.
In March 2008, we expanded our offering of casino games and agreed to a
$750,000 annual minimum guarantee payable to CryptoLogic. We also had
CryptoLogic develop two additional poker language rooms in Spanish and German
for $100,000. We then agreed to extend the term of the license agreement with
CryptoLogic to June 30, 2011.
As a result of these
contract amendments, we were entitled to 100% of the first $37,500 of revenue
per month, 79% of revenue in excess of $37,500 but less than $500,000 per month
and 80% of the revenue in excess of $500,000 per month. CryptoLogic was
entitled to earn minimum guaranteed revenue of $750,000 per year. The
61
minimum guarantee
exceeded our revenue share in 2008 and 2007.
In October 2008, we
notified CryptoLogic of our intent to terminate our agreements with them.
Effective November 20, 2008, we no longer operate the WPT-branded online
gaming website on the CryptoLogic network. We paid CryptoLogic $350,000 in September 2008
for the option to terminate our agreements with them and we had no payment
obligations to CryptoLogic after November 2008.
WorldPokerTour.com - Non-Gaming Website
The domestic website at
WorldPokerTour.com includes poker tournament coverage and live updates,
statistics, poker player information, an online merchandise store and ClubWPT,
which launched in January 2008. ClubWPT is an innovative
subscription-based online poker club targeted to the estimated 60 million poker
players in the U.S. and is currently offered in 38 states. ClubWPT offers
a monthly subscription package for $19.95 per month, as well as discounted
quarterly and annual options. In return, members receive exclusive club
benefits and points which make them eligible to enter into over 5,000 live
poker and elimination black jack tournaments, sit-n-go poker tournaments and
poker ring games for a chance to win over $100,000 in cash and prizes each
month, which could include a $10,000 seat into a WPT televised main event.
Other high-end prizes include flat screen HD televisions, shopping sprees,
cruises and jewelry. Non-subscribers who do not wish to purchase the other club
benefits are offered a free or alternative means of entry.
Other benefits offered by
ClubWPT include a subscription to
Bluff
Magazine
, the world’s most widely distributed poker magazine, as
well as the
Las Vegas Advisor
and
over
150
coupons from 64
Las Vegas properties covering room rate
bargains, free meals, 2-for-1 show tickets and other benefits. Our marketing
message to drive players online is consistent with our message across all
aspects of the World Poker Tour. We target the “everyday man or woman” who
wants to live the poker dream of becoming the next “WPT Poker Made Millionaire.”
We use a third party
service provider, Centaurus Games, LLC (previously Ultimate Blackjack Tour,
LLC), to operate our subscription-based online service for ClubWPT.com, which
includes supporting the software, technical operations and customer service. Centaurus
earns a percentage of net revenues which is calculated as subscriber fees less
chargebacks, prize pool, Club content, financial charges and compliance fees.
Centaurus collects subscriptions from our customers, retains their profit
participation and remits the net revenue to us.
Mobile Gaming Investment and Licensing
Agreement
In July 2006,
we entered into a licensing agreement with Cecure Gaming (“Cecure”), pursuant
to which we granted Cecure a non-exclusive license to use the World Poker Tour
brand in conjunction with the promotion of its real-money mobile gaming
applications. Cecure designs and operates software and other products that
enable it or its licensees to offer gaming services to customers via mobile
devices. Pursuant to the agreement, Cecure offers real-money mobile games
solely in jurisdictions where such gaming is not restricted. In consideration
for the license, we are entitled to 50% of Cecure’s net revenues. In July 2006,
we paid $2,923,000 to acquire a 10% ownership interest in Cecure (currently
8%).
We recorded a
$1,923,000 impairment charge in the third quarter of 2008 and a $1,000,000
impairment charge in the first quarter of 2009 related to this investment due
to difficulties Cecure was having in obtaining working capital to finance their
business development that resulted in a significant reduction in staffing. This
investment was measured at implied fair value resulting in an
other-than-temporary impairment charge. Cecure ceased operations in July 2009.
WPT Global Marketing
Brand Licensing
We use Brandgenuity LLC,
a brand licensing company, to pursue a licensing program and negotiate
licensing agreements aimed at capitalizing on poker and the WPT brand in the
U.S. We have also engaged international brand licensing companies to explore
foreign licensing opportunities. To date, we have licensed the World Poker Tour
name and logo to over 30 licensees. The majority of our product licensing
revenues are from a few select licensees including:
·
Hands-On Mobile—mobile games;
·
MDI—instant win lottery games;
62
·
US Playing Card—playing cards, poker
chips and accessories; and
·
WPT Boot Camp—poker player education.
We entered into a brand
license agreement with Lakes Entertainment, Inc. (“Lakes”), our majority
stockholder through November 2008, pursuant to which Lakes utilizes the
WPT name and logo in connection with a WPT No Limit Texas Hold ‘Em casino table
game that Lakes has developed using certain intellectual property rights of
Sklansky Games, LLC. Under the terms of the agreement, we are entitled to
receive a specified minimum annual royalty payment or 10% of the gross revenue
received by Lakes from its sale or lease of this casino game once initial
manufacturing costs are recouped, whichever is greater. We have separate
agreements with Mike Sexton and Vince Van Patten, our current on-air talent,
and Shana Hiatt, our former host, pursuant to which each of them allows his or
her video endorsements to be integrated into the table game. In exchange, each
is entitled to 5% of the license fees we receive from table games that
utilize his or her respective video endorsements (up to a total of 15% if video
endorsements of all three are integrated).
Sponsorships
We grant entitlement
sponsorship pursuant to which a company’s product may be identified as an “official”
product of the WPT and “naming rights” that entitle one company to be the sole
sponsor of an entire WPT season. We have had four sponsors to date:
·
Anheuser Busch - official beer of the WPT
for Seasons Two through Five of the WPT television series;
·
Xyience – official energy drink of the
WPT for Season Five of the WPT television series;
·
Blue Diamond Almonds – sponsored the WPT
Season Five Championship and Seasons Six, Seven and Eight of the WPT series;
and
·
Southwest Airlines - official airline of
the WPT.
WPT Events
We have an events
division offering help in designing special programs for corporations, meeting
planners and charitable organizations for entertainment purposes only, not for
actual gaming. Some of the ways customers are able to incorporate the WPT into
their events are for sales meetings, product launches, vendor programs,
incentive programs and client parties.
WPT
China
In August 2007, we
entered into a Cooperation Agreement with the China Leisure Sports
Administrative Center (the “CLSAC”), a Chinese government-sanctioned body with
authority over certain leisure sports, including the popular Chinese national
card game “Traktor Poker” or “Tuo La Ji”. We have the right to brand and
exploit the WPT China National Traktor Poker Tour (“Traktor Poker Tour”) during
the five year term of the Cooperation Agreement. Additionally, we are afforded
certain commercial, marketing and sponsorship rights in conjunction with the
Traktor Poker Tour, including the right to sanction and derive revenue from
third-party branding at tour events, the right to exploit films and other
content generated in conjunction with the Traktor Poker Tour in all media and
rights to sell online and mobile subscriptions, which we expect to generate the
largest long-term financial opportunities. Furthermore, the CLSAC agreed to
organize no less than 15 Traktor Poker Tour events each year during the
term, to secure placement of the championship finals on a major Chinese
television station, and to promote the Traktor Poker Tour. In exchange, we pay
a yearly fee to the CLSAC, which started at $505,000 for the first year and
increases by 10% annually for the remaining four years of the term (currently
$555,500). We also have a unilateral option to extend the agreement for an
additional five years, provided that the yearly fee, for the first year of the
renewed term, will increase by 25% from the fifth year of the term.
In October 2007, we
launched the inaugural season of the Traktor Poker Tour in Lanzhou, Gansu.
After 15 regional tournaments, Season One culminated at the Grand Finals held
in Nanjing, Jiangsu on June 22-25, 2008, where the first ever national
championship team was crowned. Season Two of the Traktor Poker Tour began in
Luoyang, Henan on October 11, 2008 and the Grand Finals are expected to be
held in Beijing on October 16-18, 2009 after completion of the
15 regional tournaments.
In January 2009, the
Company began searching for a strategic partner to invest in the WPT China
business. The cash needs to support the growth in this business are greater
than the Company is willing to expend. In
63
March 2009, the Company
shut down the operations of WPT China while continuing to look for a strategic
partner to acquire the WPT China assets.
Competition
In the market for
televised poker tournaments, we compete with producers of several poker-related
programs, including the “World Series of Poker,” an annual event hosted by
Harrah’s Entertainment, Inc. that airs on ESPN, High Stakes Poker on GSN
and Poker After Dark and the National Heads-Up Poker Championship on NBC. In
2005, Harrah’s created the World Series of Poker national circuit, taking
place at several casinos operated by Harrah’s throughout the U.S.. All circuit
championships events are currently taped for telecast on ESPN. These and other
producers of poker-related programming are well established and many have significantly
greater resources than we do. One of the ways that the WPT series
differentiates our programming schedule from these competing shows is by our
efforts to air the WPT series in prime time television during the same timeslot
each week. We believe that this type of “appointment” television helps build a
following among viewers. In addition to other poker-related programs, the WPT
series also competes with televised sporting events, reality-based television
programming and other televised programming that airs during the same timeslot.
Regulation
WPT tournaments are
conducted by the host casinos and card rooms, and we believe we are not subject
to government gaming regulation in connection with our affiliation with and
telecasts of these events. We continue to monitor the legality of Internet
gaming in domestic and international jurisdictions, but cannot be certain that
changes in existing regulations will be beneficial to the gaming market.
Our subscription-based
online club, ClubWPT.com, is operated in accordance with the principles of
sweepstakes law. A free alternative means of entry is offered for participants
who wish to play in the tournaments but do not wish to purchase the other
membership benefits. The subscription fee for ClubWPT remains the same each
month and players are not allowed to wager actual money online. One must be
eighteen or older to participate.
Intellectual Property
The trademark “World
Poker Tour” has been registered with the U.S. Patent and Trademark Office on
the principal register in connection with entertainment services, clothing,
playing cards and poker chips, and housewares and glass; and on the
supplemental register in connection with electronic and scientific apparatus.
Other registered marks around the world include: “Battle of Champions” in the
U.S.; “Card Design” in Argentina, Brazil, Chile, Colombia, Mexico, Peru, Puerto
Rico, and Venezuela; “Doyle Brunson North American Poker Championship” in the
U.S.; “Hollywood Home Game” in the U.S.; “Ladies’ Night” in the U.S.; “Latin
American Poker Tour” in Peru; “Poker Détente” in Europe; “Poker Walk of Fame”
in the U.S.; “PPT” in the U.S. and Europe; “PPT & Design” in the U.S.
and Canada; “Professional Poker Tour” in the U.S.; “Professional Poker Tour PPT &
Design” in the U.S.; “World Poker Tour” in Argentina, Canada, Chile, Colombia,
Europe, India, Mexico, Peru, Puerto Rico, and Venezuela; “World Poker Tour &
Design” in the U.S., Canada and Europe; “WPT” in the U.S., Argentina,
Australia, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Puerto Rico, and
Venezuela; “WPT Academy” in Europe; “WPT Boot Camp” in the U.S.; “WPT Poker
Corner” in the U.S., Canada and Europe; “WPT World Poker Tour & Design”
in the U.S., Australia, Canada, Europe and Korea; “WPTonline.com” in the U.S.
and Europe; and “WPTonline.net” in the U.S. and Europe. In addition, we have
trademark applications pending for “World Poker Tour” and for “WPT” in four
additional countries, collectively. We also have trademark applications pending
in China and Hong Kong. We have registered approximately 2,100 Internet
domain names in 70 regions around the world. We also have proprietary rights to
our portfolio of registered and unregistered copyrighted materials, which
includes the episodes of the televised programming that we produce, subject to
licenses related to these episodes provided under our agreements with FSN, the
Travel Channel and GSN and our international telecast license agreements, as
well as the WPT Academy database and online videos.
We filed three U.S. and
international patent applications. The three patent applications relate to (1) a
specially designed game table that uses integral lighting; (2) a method
for exhibiting a card game in a video format; and (3) a tournament-style
pari-mutuel wagering system. In June 2007, a divisional application of the
game table patent was issued in the U.S. (Patent No. 7,234,702); and an
application containing ancillary claims related to the method of exhibiting a
card game patent was issued in the United Kingdom, Germany, France, Italy,
Spain and Sweden (Patent No. 1596952). Certain U.S. applications are still
pending for all three patent
64
applications and a
European application is still pending for the game table application. We
believe that our special poker table is conducive to television recording in a
way that is superior to other poker tables. We further believe that our method
for exhibiting video and graphics on a television screen provides viewers with an
individualized perspective of each player’s cards. Together, these technologies
are designed to heighten the on-screen drama of tournament poker play.
We believe that several
competitive poker-related television programs use exhibition methods and technology
that might infringe on one or more claims of our issued and pending patent
applications. We have issued letters to some of the producers of these
programs, notifying them that we have intellectual property rights in such
technology and that we intend to vigorously enforce such rights in order to
protect our proprietary processes. These and other producers of poker-related
programming may be well established and may have significantly greater
resources than we do.
It is our policy to
require each of our employees, consultants, crew members and other persons
rendering services in connection with our television programs and other
business divisions to execute an agreement which contains both a
confidentiality provision pursuant to which each such person agrees not to
disclose confidential and proprietary information and “work made for hire”
provision pursuant to which each such person agrees that any intellectual
property developed in connection with our projects by such person during the
course of his or her employment or engagement is created on a “work made for
hire” basis and is owned by us.
Available
Information
Our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports are available without charge on our website,
www.worldpokertour.com, as soon as reasonably practicable after they are filed
electronically with the SEC. We are providing the address to our Internet site
solely for the information of investors. We do not intend the address to be an
active link or to otherwise incorporate the contents of the website into this
report.
Employees
As of June 28, 2009,
we had 44 full-time employees. We utilize a number of production and marketing
personnel on a temporary basis to assist in the production of the WPT and PPT
television series. We also have talent agreements with Mike Sexton and Vince
Van Patten, our current on-air talents for the WPT.
Our post production group
is currently operating under a collective bargaining agreement with the
International Alliance of Theatrical Stage Employees. We consider our
relationships with our employees to be satisfactory.
65
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You
should read the following discussion and analysis of financial condition and
results of operations together with the “Selected Financial Data” section of
this proxy statement and the Company’s consolidated financial statements and
the related notes included in this proxy statement. In addition to historical
information, the following discussion contains forward-looking statements that
involve risks, uncertainties and assumptions. The Company’s actual results
could differ materially from those anticipated by the forward-looking
statements due to important factors including, but not limited to, those set
forth in the “Risk Factors—Risks Related to the Current Business” and “Risk
Factors—Risks Related to the Current Industry” sections of this proxy
statement.
Business
Overview
We create internationally
branded entertainment and consumer products driven by the development,
production and marketing of televised programming based on gaming themes. Our
current season of the World Poker Tour, or WPT television series - Season
Seven, based on a series of high-stakes poker tournaments, currently airs on
Fox Sports Net in the U.S., and has been licensed for broadcast globally. In January 2008,
we launched ClubWPT.com, an innovative subscription-based online poker club
targeted to the estimated 60 million poker players in the U.S., which is
currently offered in 38 states. Through November 2008, we offered a
real-money online gaming website which prohibited wagers from players in the
U.S. and other restricted jurisdictions. We also license our brand to companies
in the business of poker equipment and instruction, apparel, publishing,
electronic and wireless entertainment, DVD/home entertainment, casino games and
giftware and are engaged in the sale of corporate sponsorships. Through March 2009,
we developed and marketed online and mobile games supporting the WPT China
National Traktor Poker Tour.
We operate through four
business segments, WPT Studios, WPT Online, WPT Global Marketing and WPT China,
described in greater detail below:
WPT
Studios
, our
multi-media entertainment division, generates revenue through domestic and
international television licensing, domestic and international television
sponsorship, as well as host fees from casinos and card rooms that host our
televised events.
WPT
Online
includes
the online poker club ClubWPT.com that generates revenue from subscriptions,
our international poker and casino real money gaming websites which were
terminated in November 2008 and an online merchandise store.
WPT
Global Marketing
includes branded consumer products, sponsorships and event management. Branded
consumer products generate revenue from the licensing of our brand to companies
seeking to use the World Poker Tour brand and logo in the retail sales of their
consumer products. Sponsorship and event management generates revenue through
corporate sponsorship and management of televised and live events.
WPT
China
produced
third-party branding at WPT China National Traktor Poker Tour events, licensed the
television broadcast of the WPT China National Traktor Poker Tour and marketed
the popular Chinese national card game “Tuo La Ji” or “Traktor Poker” in online
and mobile games. In January 2009, the Company began searching for a
strategic partner to invest in the WPT China business. The cash needs to
support the growth in this business are greater than the Company is willing to
expend. In March 2009, the Company shut down the operations of WPT China
while continuing to look for a strategic partner to acquire the WPT China
assets. The historical results of WPT China have been reclassified as a
discontinued operation.
Until the close of the
proposed asset sale with Buyer, the Company expects to continue its existing
business strategy. The description of the Company’s business set forth in this
proxy statement, including in this management’s discussion and analysis of
financial condition and results of operations, does not reflect any changes to
the Company’s business that may occur if it closes the proposed asset sale with
Buyer.
Recent
Developments
Buyer and the Company
entered into the asset purchase agreement, dated as of August 24, 2009,
pursuant to which the Company will, subject to specified terms and conditions,
including approval of the asset sale by the Company’s stockholders at the
Special Meeting, sell substantially all of the Company’s operating assets other
than cash, investments and certain other assets to Buyer. Buyer will assume
from the Company specified liabilities including one of the two corporate
leases. Buyer has agreed to pay the Company $12.3 million for our
operating
66
assets less the amount of
certain obligations of an affiliate of PartyGaming accruing or paid to the
Company under the sponsorship agreement for Seasons Four, Five and Six of the
World Poker Tour and Season One of the Professional Poker Tour from July 10,
2009 through the close of the asset sale. $1 million of the purchase price
was paid by Buyer upon the execution of the asset purchase agreement and the
balance will be delivered upon the close of the asset sale. Buyer has also
agreed to pay the Company 5% of future gross gaming revenues less certain taxes
and 5% of other future gross revenues less certain taxes and costs earned with
the purchased assets in perpetuity. Buyer has agreed that the future gaming and
other revenue-based participation amount will be at least $3 million over
the three year period following the close of the asset purchase agreement, or
otherwise Buyer will make up the shortfall to $3 million at the end of the
period. Parent has guaranteed all of Buyer’s covenants, agreements and other
obligations under the asset purchase agreement.
In January 2009, the
Company began searching for a strategic partner to invest in the WPT China
business. The cash needs to support the growth in this business are greater
than the Company is willing to expend. In March 2009, the Company shut
down the operations of WPT China while continuing to look for a strategic partner
to acquire the WPT China assets. The financial results of WPT China have been
reclassified as discontinued operations. The Company incurred $306,000 of costs
to shutdown the WPT China business in 2009.
Business
Outlook
For the third quarter and
full year 2009, we expect:
·
FSN to air 26 all-new episodes of Season
Seven of the WPT television series: 13 episodes aired in the first quarter,
eleven episodes aired in the second quarter and two episodes aired in the third
quarter.
·
To recognize foreign sponsorship revenues
for Season Seven of the WPT television series beginning in the fourth quarter.
If Season Seven episodes are delivered to a foreign sponsor ahead of planned
delivery, then revenues and profits from the fourth quarter will be shifted into
the third quarter of 2009. Foreign sponsorship revenues for the PPT television
series and Seasons Four through Six of the WPT television series will also be
recognized in 2009.
·
To begin production of Season Eight of
the WPT television series for broadcast on FSN. Season Eight will be filmed in
high definition television. Season Eight production costs should be lower than
Season Seven production costs.
·
Lower general and administrative expenses
compared to the same period in 2008.
·
Lower selling and marketing costs
compared to the same period in 2008.
Results
of Operations
Three
Months Ended June 28, 2009 Compared to the Three Months Ended June 29,
2008
The following table sets
forth revenue and cost of revenue information for our three continuing business
segments (amounts in thousands):
|
|
Three
months ended
|
|
|
|
June 28,
2009
|
|
%
of Revenues
|
|
June 29,
2008
|
|
%
of
Revenues
|
|
WPT
Studios:
|
|
|
|
|
|
|
|
|
|
Domestic
sponsorship
|
|
$
|
1,375
|
|
42
|
%
|
$
|
—
|
|
—
|
%
|
Domestic
license
|
|
—
|
|
—
|
%
|
2,400
|
|
60
|
%
|
International
sponsorship
|
|
1,587
|
|
49
|
%
|
599
|
|
15
|
%
|
International
license
|
|
78
|
|
2
|
%
|
403
|
|
10
|
%
|
Event
hosting and sponsorship
|
|
225
|
|
7
|
%
|
625
|
|
15
|
%
|
|
|
3,265
|
|
100
|
%
|
4,027
|
|
100
|
%
|
Cost
of revenues
|
|
1,285
|
|
39
|
%
|
2,473
|
|
61
|
%
|
Gross
profit
|
|
$
|
1,980
|
|
61
|
%
|
$
|
1,554
|
|
39
|
%
|
67
|
|
Three
months ended
|
|
|
|
June 28,
2009
|
|
%
of
Revenues
|
|
June 29,
2008
|
|
%
of
Revenues
|
|
WPT
Online:
|
|
|
|
|
|
|
|
|
|
Online
gaming
|
|
$
|
108
|
|
16
|
%
|
$
|
320
|
|
82
|
%
|
Non-gaming
|
|
588
|
|
84
|
%
|
70
|
|
18
|
%
|
|
|
696
|
|
100
|
%
|
390
|
|
100
|
%
|
Cost
of revenues
|
|
310
|
|
45
|
%
|
247
|
|
63
|
%
|
Gross
profit
|
|
$
|
386
|
|
55
|
%
|
$
|
143
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
WPT
Global Marketing:
|
|
|
|
|
|
|
|
|
|
Product
licensing
|
|
$
|
366
|
|
60
|
%
|
$
|
573
|
|
88
|
%
|
Event
hosting and sponsorship
|
|
223
|
|
36
|
%
|
66
|
|
10
|
%
|
Other
|
|
23
|
|
4
|
%
|
16
|
|
2
|
%
|
|
|
612
|
|
100
|
%
|
655
|
|
100
|
%
|
Cost
of revenues
|
|
42
|
|
7
|
%
|
64
|
|
10
|
%
|
Gross
profit
|
|
$
|
570
|
|
93
|
%
|
$
|
591
|
|
90
|
%
|
WPT Studios.
Combined domestic and foreign television
revenues decreased $362,000 to $3,040,000 in 2009, from $3,402,000 in 2008.
Domestic television revenues decreased $1,025,000 and international television
revenues increased $663,000 in 2009 compared to 2008. The sponsorship fees
received per episode in 2009 for Season Seven of the WPT television series were
lower than the license fees received for Season Six in 2008. The sponsorship
fee per one-hour episode for Season Seven was $125,000 compared to a license
fee of $300,000 per two-hour episode for Season Six. In the second quarter of
2009, we aired 11 one-hour episodes of Season Seven compared to the delivery of
eight two-hour episodes of Season Six in 2008. International television
sponsorship revenues increased $988,000 in 2009 compared to 2008 as we had
greater distribution of Seasons Four, Five and Six of the WPT television series
and PPT Season One in territories covered by the PartyGaming sponsorship
contract. International television licensing revenues decreased $325,000 in
2009 compared to 2008 as a result of fewer international territories accepting license
arrangements and the substitution of sponsorship arrangements for license
arrangements in many territories. WPT television series hosting fees decreased
by $400,000 in 2009 due to lower per episode hosting fees in Season Seven.
During 2009, our sources
of revenue changed from primarily licensed-based revenues from the sale of our
programming to television networks to primarily sponsorship-based revenues.
Sponsors pay to appear in the show and television networks air the program for
free or we pay a fee to television networks to air the program. In addition, in
recent television seasons, foreign television revenues increased and domestic
television revenues decreased. We expect these two trends to continue in 2009.
Television cost of
revenues decreased $1,188,000 in 2009 compared to 2008 due to higher gross
margins for Season Seven of the WPT television series compared to Season Six
and lower revenues in 2009 compared to 2008. Television gross profit margins
were 61% in the quarter compared to 39% in the same period 2008.
WPT Online.
Online revenues increased $306,000 to
$696,000 in 2009, from $390,000 in 2008. Online gaming revenues decreased
$212,000 between years. In 2009, our online gaming revenues were derived from
affiliate revenues whereas in 2008 our online gaming revenues were derived from
the WPT-branded online gaming website. In November, 2008, we terminated the
WPT-branded online gaming website. Affiliate revenues in 2009 had no cost of
revenues whereas the WPT-branded online gaming website had $203,000 of cost of
revenues in the second quarter of 2008.
Non-gaming revenues
increased $518,000 between years due to increased membership in ClubWPT.com
which was launched in the first quarter of 2008. ClubWPT.com cost of revenues
increased $276,000 to $310,000 in 2009 from $33,000 in the same period 2008 due
to increased revenues. ClubWPT.com gross profit margins increased to 47% in
2009 from 40% in 2008. As total membership increased, we realized improved
gross profit margins from economies of scale.
WPT Global Marketing.
Global
marketing revenues decreased $43,000 to $612,000 in 2009, from $655,000 in
2008. A decrease in product licensing revenues was offset by an increase in
hosting and sponsorship revenues.
68
There was a decrease in
product licensing revenues from one significant licensee in 2009. Hosting and
sponsorship revenues increased in 2009 due to the addition of non-televised
sponsored events internationally. Global marketing gross profit margins increased
to 93% in 2009 from 90% in 2008.
Selling, General and Administrative Expense.
The following table sets forth selling, general and
administrative expense information for our three continuing business segments
(amounts in thousands):
|
|
Three
months ended
|
|
|
|
June 28,
2009
|
|
June 29,
2008
|
|
%
Change
|
|
Operational
expenses
|
|
$
|
114
|
|
$
|
416
|
|
(73
|
)%
|
Selling
and marketing expenses
|
|
216
|
|
1,905
|
|
(89
|
)%
|
General
and administrative expenses
|
|
1,947
|
|
3,517
|
|
(45
|
)%
|
|
|
$
|
2,277
|
|
$
|
5,838
|
|
(61
|
)%
|
Selling, general
and administrative expense decreased $3,561,000 to $2,277,000 in 2009, from
$5,838,000 in 2008. Selling, general and administrative expense consists of
operational costs to manage websites and software, sales and marketing expenses
and general and administrative expenses.
Operational expenses
decreased $302,000 in 2009. Costs associated with our domestic website
decreased $137,000 in 2009 due to lower maintenance costs. Costs associated
with our WPT-branded online gaming website decreased $154,000 in 2009 because
we terminated our WPT-branded online gaming website November 2008.
Sales and marketing
expenses decreased $1,689,000 in 2009. Costs decreased primarily due to the
shutdown of our WPT-branded online gaming website. In the first half of 2008,
we heavily marketed our WPT-branded online gaming website and costs associated
with advertising, content, promotions, sponsorship and affiliates for online
gaming decreased $1,410,000 in 2009.
General and
administrative expenses decreased $1,570,000 in 2009. The decrease was
primarily due to personnel reductions in 2008 that resulted in $1,192,000 in
lower payroll and related costs in 2009. Travel expense decreased $132,000 also
as a result of personnel reductions. Professional and consulting expenses were
reduced by $184,000 in the 2009 period. Offsetting these lower 2009 costs was
$199,000 of higher bad debt expense primarily due to the third party system
provider for ClubWPT.
Other Income.
Net interest
income decreased $217,000 in 2009 compared to 2008, primarily due to lower
interest rates. We recorded a $61,000 decrease in interest income during the
second quarter of 2009 in marking our ARS portfolio to fair value and a
corresponding increase in interest income in marking to fair value the rights
that our broker gave us to compel them to repurchase our auction rate
securities.
Income Taxes.
The Company expects to pay federal
alternative minimum tax on the utilization of net operating losses in 2009 and
California income taxes due to the suspension of the availability of net
operating losses in 2009. The income tax expense for the three months ended June 28,
2009 is based on the estimated annual effective income tax rate for 2009. There
was no income tax benefit for the three months ended June 29, 2008 due to
the loss for the period.
Discontinued WPT China Operations.
The following table sets forth selling, general and
administrative expense information for our discontinued business segment
(amounts in thousands):
|
|
Three
months ended
|
|
|
|
June 28,
2009
|
|
June 29,
2008
|
|
%
Change
|
|
Operational
expenses
|
|
$
|
—
|
|
$
|
61
|
|
—
|
%
|
Selling
and marketing expenses
|
|
—
|
|
126
|
|
—
|
%
|
General
and administrative expenses
|
|
—
|
|
394
|
|
—
|
%
|
Shut
down provision
|
|
95
|
|
—
|
|
—
|
%
|
|
|
$
|
95
|
|
$
|
581
|
|
(84)
|
%
|
69
We incurred $95,000 of
shut down costs in 2009 and $581,000 in operating costs in the same period
2008. The 2008 operating costs consisted of $275,000 of payroll costs, $61,000
of website costs and $79,000 of television production costs.
Six Months
Ended June 28, 2009 Compared to the Six Months Ended June 29, 2008
The following
table sets forth revenue and cost of revenue information for our three
continuing business segments (amounts in thousands):
|
|
Six
months ended
|
|
|
|
June 28,
2009
|
|
%
of
Revenues
|
|
June 29,
2008
|
|
%
of
Revenues
|
|
WPT
Studios:
|
|
|
|
|
|
|
|
|
|
Domestic
sponsorship
|
|
$
|
2,875
|
|
40
|
%
|
$
|
—
|
|
—
|
%
|
Domestic
license
|
|
—
|
|
—
|
%
|
4,500
|
|
58
|
%
|
International
sponsorship
|
|
3,071
|
|
43
|
%
|
1,330
|
|
17
|
%
|
International
license
|
|
659
|
|
9
|
%
|
1,172
|
|
15
|
%
|
Event
hosting and sponsorship
|
|
575
|
|
8
|
%
|
725
|
|
10
|
%
|
|
|
7,180
|
|
100
|
%
|
7,727
|
|
100
|
%
|
Cost
of revenues
|
|
2,975
|
|
41
|
%
|
4,844
|
|
63
|
%
|
Gross
profit
|
|
$
|
4,205
|
|
59
|
%
|
$
|
2,883
|
|
37
|
%
|
|
|
|
|
|
|
|
|
|
|
WPT
Online:
|
|
|
|
|
|
|
|
|
|
Online
gaming
|
|
$
|
244
|
|
18
|
%
|
$
|
567
|
|
84
|
%
|
Non-gaming
|
|
1,133
|
|
82
|
%
|
105
|
|
16
|
%
|
|
|
1,377
|
|
100
|
%
|
672
|
|
100
|
%
|
Cost
of revenues
|
|
607
|
|
44
|
%
|
457
|
|
68
|
%
|
Gross
profit
|
|
$
|
770
|
|
56
|
%
|
$
|
215
|
|
32
|
%
|
|
|
|
|
|
|
|
|
|
|
WPT
Global Marketing:
|
|
|
|
|
|
|
|
|
|
Product
licensing
|
|
$
|
1,043
|
|
68
|
%
|
$
|
1,260
|
|
77
|
%
|
Event
hosting and sponsorship
|
|
446
|
|
29
|
%
|
293
|
|
18
|
%
|
Other
|
|
53
|
|
3
|
%
|
82
|
|
5
|
%
|
|
|
1,542
|
|
100
|
%
|
1,635
|
|
100
|
%
|
Cost
of revenues
|
|
120
|
|
8
|
%
|
153
|
|
9
|
%
|
Gross
profit
|
|
$
|
1,422
|
|
92
|
%
|
$
|
1,482
|
|
91
|
%
|
WPT Studios.
Combined domestic and foreign television
revenues decreased $397,000 to $6,605,000 in 2009, from $7,002,000 in 2008.
Domestic television revenues decreased $1,625,000 and international television
revenues increased $1,228,000 in 2009 compared to 2008. The sponsorship fees
received per episode in 2009 for Season Seven of the WPT television series were
lower than the license fees received for Season Six in 2008. The sponsorship
fee per one-hour episode for Season Seven was $125,000 compared to a license
fee of $300,000 per two-hour episode for Season Six. In 2009, we aired 24
one-hour episodes of Season Seven compared to the delivery of 15 two-hour
episodes of Season Six in 2008. International television sponsorship revenues
increased $1,741,000 in 2009 compared to 2008 as we had greater distribution of
Seasons Four, Five and Six of the WPT television series and PPT Season One in
territories covered by the PartyGaming sponsorship contract. International
television licensing revenues decreased $513,000 in 2009 compared to 2008 as a
result of fewer international territories accepting license arrangements and
the substitution of sponsorship arrangements for license arrangements in many
territories. WPT television series hosting fees decreased by $150,000 in 2009
due to lower per episode hosting fees in Season Seven.
During 2009, our sources
of revenue changed from primarily licensed-based revenues from the sale of our
programming to television networks to primarily sponsorship-based revenues.
Sponsors pay to appear in the show and television networks air the program for
free or we pay a fee to television networks to air the program. In addition, in
recent television seasons, foreign television revenues increased and domestic
television revenues decreased. We expect these two trends to continue in 2009.
70
Television cost of revenues
decreased $1,869,000 in 2009 compared to 2008 due to higher gross margins for
Season Seven of the WPT television series compared to Season Six and lower
revenues in 2009 compared to 2008. Television gross profit margins were 59% in
2009 compared to 37% in 2008.
WPT Online.
Online revenues increased $705,000 to
$1,377,000 in 2009, from $672,000 in 2008. Online gaming revenues decreased
$323,000 between years. In 2009, our online gaming revenues were derived from
affiliate revenues whereas in 2008 our online gaming revenues were derived from
the WPT-branded online gaming website. In November, 2008, we terminated the
WPT-branded online gaming website. Affiliate revenues in 2009 had no cost of
revenues whereas the WPT-branded online gaming website had $384,000 of cost of
revenues in 2008.
Non-gaming revenues
increased $1,028,000 between years due to increased membership in ClubWPT.com
which was launched in the first quarter of 2008. ClubWPT.com cost of revenues
increased $557,000 to $601,000 in 2009 from $44,000 in 2008 due to increased
revenues. ClubWPT.com gross profit margins increased to 46% in 2009 from 39% in
2008. As total membership increased, we realized improved gross profit margins
from economies of scale.
WPT Global Marketing.
Global
marketing revenues decreased $93,000 to $1,542,000 in 2009, from $1,635,000 in
2008. A decrease in product licensing revenues in 2009 was partially offset by
an increase in hosting and sponsorship revenues. There was a decrease in
product licensing revenues in 2009 from one significant licensee that was
partially offset by higher product licensing revenues from another significant
licensee. Hosting and sponsorship revenues increased in 2009 due to the
addition of increased non-televised sponsored events internationally. Other
global marketing revenues decreased $29,000 in 2009 due to the expiration of a
DVD distributor agreement in 2008. Global marketing gross profit margins
increased to 92% in 2009 from 91% in 2008.
Selling, General and Administrative Expense.
The following table sets forth selling, general and
administrative expense information for our three continuing business segments
(amounts in thousands):
|
|
Six
months ended
|
|
|
|
June 28,
2009
|
|
June 29,
2008
|
|
%
Change
|
|
Operational
expenses
|
|
$
|
265
|
|
$
|
872
|
|
(70
|
)%
|
Selling
and marketing expenses
|
|
1,011
|
|
3,077
|
|
(67
|
)%
|
General
and administrative expenses
|
|
4,184
|
|
6,845
|
|
(39
|
)%
|
|
|
$
|
5,460
|
|
$
|
10,794
|
|
(49
|
)%
|
Selling, general
and administrative expense decreased $5,334,000 to $5,460,000 in 2009, from
$10,794,000 in 2008. Selling, general and administrative expense consists of
operational costs to manage websites and software, sales and marketing expenses
and general and administrative expenses.
Operational expenses
decreased $607,000 in 2009. Costs associated with our domestic website
decreased $243,000 in 2009 due to lower maintenance costs. Costs associated
with our WPT-branded online gaming website decreased $348,000 in 2009 because
we terminated our WPT-branded online gaming website in November 2008.
Sales and marketing
expenses decreased $2,066,000 in 2009. Costs decreased primarily due to the
shutdown of our WPT-branded online gaming website. In the first half of 2008,
we heavily marketed our WPT-branded online gaming website and costs associated
with advertising, promotions and affiliates for online gaming decreased
$1,622,000 in 2009. Other sponsorship costs decreased $91,000 in 2009 due to
the termination of our spokesperson contract with Antonio Esfandiari.
General and
administrative expenses decreased $2,661,000 in 2009. The decrease was
primarily due to personnel reductions in 2008 that resulted in $2,097,000 in
lower payroll and related costs in 2009. Travel expense decreased $204,000 also
as a result of personnel reductions.
Legal expense decreased $247,000 in 2009 as litigation was settled in
the second quarter of 2008. Professional and consulting expenses were reduced
by $150,000 in the 2009 period. Offsetting these lower 2009 costs was $459,000
of higher bad debt expense that was primarily due to the third party system
provider for ClubWPT.
Asset Impairment.
We recorded an impairment charge against
our investment in Cecure Gaming in the third quarter of 2008 due to
difficulties Cecure Gaming was having in obtaining working capital to finance
their business development over the next several years that resulted in a
significant reduction in staffing. Financing
71
difficulties continued
into 2009 and we recorded an additional $1,000,000 impairment charge in first
quarter of 2009. This investment was measured at implied fair value resulting
in an other-than-temporary impairment charge.
Other Income.
Net interest
income decreased $498,000 in 2009 compared to 2008, primarily due to lower
interest rates and lower balances of investments in cash equivalents and debt
securities. We recorded a $150,000 increase in interest income in 2009 in
marking our ARS portfolio to fair value and a corresponding decrease in
interest income in marking to fair value the rights that our broker gave us to
compel them to repurchase our auction rate securities.
Income Taxes.
The Company expects to pay federal
alternative minimum tax on the utilization of net operating losses in 2009 and
California income taxes due to the suspension of the availability of net
operating losses in 2009. The income tax benefit for the six months ended June 28,
2009 is based on the estimated annual effective income tax rates for the first
and second quarters of 2009. There was no income tax benefit for the six months
ended June 29, 2008 due to the loss for the period.
Discontinued WPT China Operations.
The following table sets forth selling, general and
administrative expense information for our discontinued business segment
(amounts in thousands):
|
|
Six
months ended
|
|
|
|
June 28,
2009
|
|
June 29,
2008
|
|
%
Change
|
|
Operational
expenses
|
|
$
|
57
|
|
$
|
86
|
|
(34)
|
%
|
Selling
and marketing expenses
|
|
247
|
|
258
|
|
(4)
|
%
|
General
and administrative expenses
|
|
503
|
|
765
|
|
(34)
|
%
|
Shut
down provision
|
|
306
|
|
—
|
|
—
|
%
|
|
|
$
|
1,113
|
|
$
|
1,109
|
|
—
|
%
|
In January 2009,
the Company began searching for a strategic partner to invest in the WPT China
business. The cash needs to support the growth in this business were greater
than the Company was willing to expend. In March 2009, the Company shut
down the operations of WPT China and continues to look for a strategic partner
to acquire the WPT China assets.
We incurred $807,000 in
2009 and $1,109,000 in 2008 of selling, general and administrative expenses. We
also incurred $306,000 of costs in 2009 to shut down the WPT China
operations. Higher 2008 expenses
resulted from $537,000 of higher payroll costs and $157,000 of higher Traktor
Poker Tour fees.
72
2008
Compared to 2007
The following table sets
forth revenue and cost of revenue information for our three continuing business
segments (amounts in thousands):
|
|
Fiscal
Year
|
|
|
2008
|
|
%
of
Revenues
|
|
2007
|
|
%
of
Revenues
|
WPT
Studios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
sponsorship
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Domestic
license
|
|
5,400
|
|
|
50
|
%
|
|
9,632
|
|
|
63
|
%
|
International
sponsorship
|
|
2,894
|
|
|
27
|
%
|
|
2,248
|
|
|
15
|
%
|
International
license
|
|
1,545
|
|
|
14
|
%
|
|
2,263
|
|
|
15
|
%
|
Event
hosting and sponsorship
|
|
1,010
|
|
|
9
|
%
|
|
1,032
|
|
|
7
|
%
|
|
|
10,849
|
|
|
100
|
%
|
|
15,175
|
|
|
100
|
%
|
Cost
of revenues
|
|
5,978
|
|
|
55
|
%
|
|
6,772
|
|
|
45
|
%
|
Gross
profit
|
|
$
|
4,871
|
|
|
45
|
%
|
|
$
|
8,403
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WPT
Online:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
gaming
|
|
$
|
1,045
|
|
|
63
|
%
|
|
$
|
1,150
|
|
|
86
|
%
|
Non-gaming
|
|
608
|
|
|
37
|
%
|
|
194
|
|
|
14
|
%
|
|
|
1,653
|
|
|
100
|
%
|
|
1,344
|
|
|
100
|
%
|
Cost
of revenues
|
|
984
|
|
|
60
|
%
|
|
883
|
|
|
66
|
%
|
Gross
profit
|
|
$
|
669
|
|
|
40
|
%
|
|
$
|
461
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WPT
Global Marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
licensing
|
|
$
|
2,483
|
|
|
83
|
%
|
|
$
|
3,619
|
|
|
70
|
%
|
Event
hosting and sponsorship
|
|
496
|
|
|
17
|
%
|
|
1,574
|
|
|
30
|
%
|
|
|
2,979
|
|
|
100
|
%
|
|
5,193
|
|
|
100
|
%
|
Cost
of revenues
|
|
288
|
|
|
10
|
%
|
|
569
|
|
|
11
|
%
|
Gross
profit
|
|
$
|
2,691
|
|
|
90
|
%
|
|
$
|
4,624
|
|
|
89
|
%
|
WPT Studios.
Combined
domestic and foreign television revenues decreased $4,304,000 to $9,839,000 in
2008, from $14,143,000 in 2007. Domestic television licensing revenues
decreased $4,232,000 in 2008 compared to 2007. The decrease was a result of the
lower license fee received per episode for Season Six compared to Season Five
of the WPT television series. The license fee per episode for Season Six was
$300,000 compared to $477,000 for Season Five. In addition, in 2008 we
delivered 18 episodes of Season Six compared to 17 episodes of Season Five and
five episodes of Season Six of the WPT television series in 2007 (22 total
episodes). International television sponsorship revenues increased $646,000 in
2008 compared to 2007 as we had greater distribution of Seasons Four, Five and
Six of the WPT television series and PPT Season One in territories covered by
the PartyGaming sponsorship contract. International television licensing
revenues decreased $718,000 in 2008 compared to 2007 as a result of fewer
international territories accepting license arrangements and the substitution
of sponsorship arrangements for license arrangements in many territories.
Television cost of
revenues decreased $794,000 because we delivered fewer episodes in 2008
compared to 2007. Television gross profit margins were 45% in 2008 compared to
55% in 2007. The decline in gross profit margins reflected the delivery of 18 episodes
of the WPT series in 2007 at the lower per episode license fee without a
comparable reduction in production costs.
WPT Online.
Online
revenues increased $309,000 to $1,653,000 in 2008, from $1,344,000 in 2007.
On-line gaming revenues declined $105,000 between years, despite a significant
increase in marketing costs in 2008. On November 20, 2008, we terminated
the WPT-branded online gaming website on the CryptoLogic network. Online gaming
cost of revenues decreased $135,000 in 2008 compared to 2007 due to lower
revenues.
Non-gaming revenues
increased $414,000 between years due to the addition of subscription revenues
for ClubWPT in 2008, partially offset by a decline in online store sales. The
ClubWPT.com website debuted in early 2008 and generated $448,000 in revenues
and $243,000 in cost of revenues. Online store sales decreased $65,000 between
periods. Online store gross profit margins were 12% in 2008 and 39% in 2007.
73
WPT Global Marketing.
Global
marketing revenues decreased $2,214,000 to $2,979,000 in 2008, from $5,193,000
in 2007. Product licensing revenues decreased $1,136,000 to $2,483,000 in 2008,
from $3,619,000 in 2007. The decrease was primarily due to lower royalties from
two licensees. Event hosting revenue decreased $78,000 to $160,000 in
2008. Corporate event budgets were
adversely affected by the general economic conditions. Sponsorship revenues
decreased $1,000,000 to $336,000 in 2008.
The decrease in revenues was primarily from the non-renewal of one
sponsor for Season Six of the WPT television series.
Product licensing cost of
revenues decreased $154,000 as commissioned revenues decreased in 2008 and
gross profit margins increased to 92% in 2008 from 90% in 2007. Event hosting
cost of revenue decreased $86,000 in 2008 as gross profit margins increased to
43% in 2008 from 25% in 2007. The
increased margins are in part due to a reduced cost structure with a
third-party vendor.
Selling, General and Administrative Expense
.
The
following table sets forth selling, general and administrative expense
information for our three continuing business segment (amounts in thousands):
|
|
Fiscal
Year
|
|
|
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
Operational expenses
|
|
$
|
1,399
|
|
$
|
1,688
|
|
(17%)
|
|
Selling and marketing
expenses
|
|
5,145
|
|
3,192
|
|
61%
|
|
General and
administrative expenses
|
|
12,782
|
|
16,737
|
|
(24%)
|
|
|
|
$
|
19,326
|
|
$
|
21,617
|
|
(11%)
|
|
Selling, general and
administrative expense decreased $2,291,000 to $19,326,000 in 2008, from
$21,617,000 in 2007. Selling, general and administrative expense consists of
operational costs to manage websites and software, sales and marketing expenses
and general administrative expenses.
Operational expenses
decreased $289,000 in 2008. Costs associated with our domestic website
increased $317,000 and costs associated with our WPT-branded online gaming
website decreased $467,000 in 2008.
Sales and marketing
expenses increased $1,953,000 in 2008. In the first half of 2008, we heavily
marketed our WPT-branded online gaming website and costs for marketing the
website increased $797,000 in 2008. We also introduced a new television series
for our ClubWPT.com business in the fourth quarter of 2008 and production costs
for this series were $927,000.
General administrative
expenses decreased $3,955,000 in 2008. The decrease was primarily due to
personnel reductions in 2008 and the termination of employees in Israel at the
end of 2007. These actions resulted in $3,231,000 in lower payroll and related
costs in 2008. Legal expense also decreased by $830,000 in 2008 as litigation
was settled in the second quarter of 2008. Offsetting these cost reductions in
2008 was a $456,000 provision to sublease office space and a $350,000 provision
to terminate our agreements with CryptoLogic.
Asset Impairment Charge
.
We recorded a $1,923,000 impairment charge in the third quarter of 2008
related to our investment in Cecure Gaming due to difficulties Cecure was
having in obtaining working capital to finance their business development that
resulted in a significant reduction in staffing. This investment was measured
at implied fair value resulting in an other-than-temporary impairment charge.
During the second quarter
of 2007, we wrote-off $2,270,000 in online gaming assets as a result of
termination of development of the stand-alone online gaming platform we were
developing based on CyberArts software.
Other Income
. Interest
income decreased by $817,000 in 2008 compared to 2007, primarily due to lower
interest rates and lower balances of investments in cash equivalents and debt
securities. We recorded a $605,000 increase in interest income in 2008 for the
value of the rights that our broker gave us to compel them to repurchase our
ARS and we recorded a $605,000 ARS impairment charge in interest income in 2008
now that we are relying on the broker to repurchase our ARS.
Income Taxes
. The income
tax provision (benefit) was $0 in 2008 and ($70,000) in 2007, and the effective
tax rate was 0.0% in 2008 and (0.8%) in 2007. There is no income tax provision
in 2008 and 2007 due to the loss in each year. As of December 28, 2008, we
had $15.5 million of federal net operating loss carryforwards and $15.8 million
of state net operating loss carryforwards. We reviewed the tax positions taken
in income tax returns that are subject to audit and we are not aware of any
significant uncertain tax positions in those income tax returns.
74
Discontinued WPT China Operations.
The following table sets forth selling, general and administrative
expense information for our discontinued business segment (amounts in
thousands):
|
|
Fiscal
Year
|
|
|
|
|
|
2008
|
|
2007
|
|
%
Change
|
|
Operational expenses
|
|
$
|
175
|
|
$
|
4
|
|
428%
|
|
Selling and marketing
expenses
|
|
687
|
|
420
|
|
64%
|
|
General and
administrative expenses
|
|
1,542
|
|
659
|
|
134%
|
|
|
|
$
|
2,404
|
|
$
|
1,083
|
|
122%
|
|
We incurred $2,404,000 in
2008 and $1,083,000 in 2007 of selling, general and administrative expenses.
Higher 2008 expenses resulted from $171,000 of higher website costs, $274,000
of higher costs to market the WPT China National Traktor Poker Tour and
$585,000 of higher payroll and consulting costs.
2007
Compared to 2006
The following table sets
forth revenue and cost of revenue information for our three continuing business
segments (amounts in thousands):
|
|
Fiscal
Year
|
|
|
2007
|
|
%
of
Revenues
|
|
2006
|
|
%
of
Revenues
|
WPT
Studios:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
sponsorship
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Domestic
license
|
|
9,632
|
|
|
63
|
%
|
|
16,871
|
|
|
81
|
%
|
International
sponsorship
|
|
2,248
|
|
|
15
|
%
|
|
—
|
|
|
—
|
%
|
International
license
|
|
2,263
|
|
|
15
|
%
|
|
2,978
|
|
|
14
|
%
|
Event
hosting and sponsorship
|
|
1,032
|
|
|
7
|
%
|
|
1,111
|
|
|
5
|
%
|
|
|
15,175
|
|
|
100
|
%
|
|
20,960
|
|
|
100
|
%
|
Cost
of revenues
|
|
6,772
|
|
|
45
|
%
|
|
7,918
|
|
|
38
|
%
|
Gross
profit
|
|
$
|
8,403
|
|
|
55
|
%
|
|
$
|
13,042
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WPT
Online:
|
|
|
|
|
|
|
|
|
|
|
|
|
Online
gaming
|
|
$
|
1,150
|
|
|
86
|
%
|
|
$
|
3,150
|
|
|
91
|
%
|
Non-gaming
|
|
194
|
|
|
14
|
%
|
|
298
|
|
|
9
|
%
|
|
|
1,344
|
|
|
100
|
%
|
|
3,448
|
|
|
100
|
%
|
Cost
of revenues
|
|
883
|
|
|
66
|
%
|
|
1,869
|
|
|
54
|
%
|
Gross
profit
|
|
$
|
461
|
|
|
34
|
%
|
|
$
|
1,579
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WPT
Global Marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
licensing
|
|
$
|
3,619
|
|
|
70
|
%
|
|
$
|
3,315
|
|
|
68
|
%
|
Event
hosting and sponsorship
|
|
1,574
|
|
|
30
|
%
|
|
1,538
|
|
|
32
|
%
|
|
|
5,193
|
|
|
100
|
%
|
|
4,853
|
|
|
100
|
%
|
Cost
of revenues
|
|
569
|
|
|
11
|
%
|
|
529
|
|
|
11
|
%
|
Gross
profit
|
|
$
|
4,624
|
|
|
89
|
%
|
|
$
|
4,324
|
|
|
89
|
%
|
WPT Studios.
Combined
domestic and foreign television revenues decreased $5,706,000 to $14,143,000 in
2007, from $19,849,000 in 2006. Domestic television licensing revenues
decreased $7,239,000 in 2007 compared to 2006. The decrease was primarily a
result of the delivery of 17 episodes of Season Five and five episodes of
Season Six of the WPT television series in 2007 (22 total episodes) versus 16
episodes of Season Four and five episodes of Season Five of the WPT and 24
episodes of the PPT television series in 2006 (45 total episodes).
International television sponsorship revenues were $2,248,000 in 2007 and did
not exist in 2006. International television licensing revenues decreased
$715,000 in 2007 compared to 2006 as a result of lower television licensing
fees per territory, which was primarily due to our online gaming competitors
producing lower cost programming.
75
Television cost of
revenues decreased $1,146,000 as we delivered fewer episodes in 2007 compared
to 2006. Television gross profit margins were 55% in 2007 compared to 62% in
2006. The decline in gross profit margins was due to the delivery of
twenty-four episodes of our PPT series in 2006 for which the production costs
had been expensed in an earlier period and higher post production integration
costs for international sponsorship in 2007.
WPT Online.
Online
revenues decreased $2,104,000 to $1,344,000 in 2007, from $3,448,000 in 2006.
$2,000,000 of the decrease was due to lower levels of online gaming player
activity, as well as us ceasing operations on the WagerWorks network while
transitioning our online gaming operations to CryptoLogic. Online store sales
decreased $104,000 between periods.
Online gaming cost of
revenues decreased $899,000 in 2007 compared to 2006 due to lower revenues.
Online store sales gross profit margins were 39% in 2007 and 41% in 2006.
WPT Global Marketing.
Global
marketing revenues increased $340,000 to $5,193,000 in 2007, from $4,853,000 in
2006. Product licensing revenues increased $304,000 in 2007 compared to 2006
primarily due to higher revenues from one licensee. Sponsorship revenues were about the same
between periods.
Product licensing cost of
revenues decreased $60,000 as non-commissioned revenues increased year over
year and gross profit margins increased to 90% in 2007 from 88% in 2006.
Sponsorship cost of revenue increased $100,000 as gross profit margins
increased to 94% in 2007 from 92% in 2006.
Selling, General and Administrative Expense
.
The following table sets forth selling, general and administrative
expense information for our three continuing business segment (amounts in
thousands):
|
|
Fiscal
Year
|
|
|
|
|
|
2007
|
|
2006
|
|
%
Change
|
|
Operational expenses
|
|
$
|
1,688
|
|
$
|
836
|
|
102%
|
|
Selling and marketing
expenses
|
|
3,192
|
|
2,548
|
|
25%
|
|
General and
administrative expenses
|
|
16,737
|
|
15,246
|
|
10%
|
|
|
|
$
|
21,617
|
|
$
|
18,630
|
|
16%
|
|
Selling, general and
administrative expense increased $2,987,000 to $21,617,000 in 2007, from
$18,630,000 in 2006. The increase was partially due to our efforts to develop
our online gaming business including costs to develop infrastructure prior to
entering into an agreement with CryptoLogic and headcount costs associated with
our Israel operations. Infrastructure and development costs associated with our
non-gaming website at WorldPokerTour.com and ClubWPT.com also contributed to
the increase in costs.
Asset Abandonment Charge
.
During the second quarter of 2007, we wrote-off $2,270,000 in online
gaming assets as a result of termination of development of the stand-alone
online gaming platform we were developing based on CyberArts software.
Other Income
. We recorded a
$10,216,000 gain on sale of PokerTek, Inc. common stock in 2006. Interest
income increased by $149,000 in 2007 compared to 2006, primarily due to higher interest
rates and balances of investments in cash equivalents and debt securities.
Income Taxes
. The income
tax provision (benefit) was ($70,000) in 2007 and $4,392,000 in 2006, and the
effective tax rate was (0.8%) in 2007 and 36.1% in 2006. There is no income tax
provision in 2007 due to the loss for the year. The 2006 income tax provision
was at statutory income tax rates with a minor adjustment to the deferred tax
asset valuation reserve.
Discontinued WPT China Operations.
We incurred $1,083,000 in 2007 and no costs in 2006 of selling, general
and administrative expenses. WPT China began operations in August 2007.
The 2007 expenses consisted of $541,000 of payroll and consulting costs and
$347,000 of WPT China National Traktor Poker Tour fees.
Liquidity
and Capital Resources
During the six months
ended June 28, 2009, cash and cash equivalents and investments in debt
securities and put rights increased $3.8 million to a combined balance of
$21.3 million. We borrowed $2.7 million from the broker that holds
our ARS portfolio and this source of cash was a significant part of the
increase in cash and investment balances. Cash flows from operating activities
of continuing operations were $1,816,000 in 2009 compared to ($4,111,000) in
2008. Reductions in production costs and selling, general and administrative
76
expenses in 2009 were the
primary reasons for the improvement between years. Our principal operating cash
requirements consist of payroll and benefits, office leases, television
production, professional and consulting fees, business insurance and sales and
marketing costs. Cash flows from investing activities of continuing operations
decreased to ($1,962,000) in 2009 from $6,915,000 in 2008. The decrease was
caused by fewer net redemptions of investments in 2009. Cash flows from
financing activities increased to $2,648,000 from ($136,000) in 2008. The 2009
cash flows were from the draw down of the line of credit in February 2009.
We intend to use funds
currently on hand for working capital and capital expenditures associated with
the expansion of the WPT television series, ClubWPT and WPT Global Marketing,
and for general corporate purposes. We anticipate our overall selling, general
and administrative expenses will decrease in future periods compared to the
same periods in 2008. We eliminated sales and marketing expenditures related to
our online gaming website and WPT China and we significantly reduced payroll
and related costs in 2008 and the first quarter of 2009. We expect to continue
to benefit from these cost reductions throughout the remainder of 2009.
As of June 28, 2009,
we had $3.9 million invested in ARS and rights to put the ARS back to UBS.
Historically, ARS had been liquid with interest rates resetting every 7 to 35
days by an auction process. However, beginning in February 2008, auctions
for ARS held by us failed as a result of liquidity issues experienced in the
global credit and capital markets. An auction failure means that the amount of
securities submitted for sale exceeds the amount of purchase orders and the
parties wishing to sell the securities are instead required to hold the
investment until a successful auction is completed. The ARS continue to pay
interest in accordance with the terms of the underlying security; however,
liquidity will continue to be limited until there is a successful auction or
until such time as other markets for ARS develop.
We entered into an
agreement with UBS that requires UBS to buy the ARS from us at par during the
period June 30, 2010 to July 2, 2012. We are required to sell the ARS
to UBS prior to that period if they decide to buy the ARS at par value for any
reason. UBS provided us with a line of credit, secured by ARS held by UBS,
equal to 75% of the fair value of the ARS. We borrowed $2,661,000 under the
line of credit agreement in February 2009. At June 28, 2009,
$2,647,000 was outstanding under the line of credit.
We expect that cash, cash
equivalents, investments in debt securities and put rights and borrowings on
the credit line secured by our ARS portfolio will be sufficient to fund our
working capital and capital expenditure requirements for the next twelve months
even considering the current liquidity issues with the ARS. We prepare quarterly
cash flow projections in order to operate our business and to make forward
looking statements about our cash flow expectations. General economic and
capital market conditions are rapidly changing, are unpredictable and the
impact on our business is not within our control. If we need to raise working
capital, we may need to seek to sell additional equity securities, issue debt
or convertible securities or seek to obtain credit facilities through financial
institutions, the availability of which is highly uncertain.
Reverse
Stock Split
The Company’s
stockholders approved an amendment to the Company’s Certificate of
Incorporation accomplishing a reverse stock split of our common stock at a
ratio within a range of 1:5 to 1:10 and a reduction in the number of authorized
shares of common stock at a corresponding ratio. The Board of Directors has the
authority until May 20, 2010 to implement the reverse stock split and to
decide the precise ratio of the reverse stock split within a range of 1:5 to
1:10. If the reverse stock split is implemented, the number of issued and
outstanding shares of common stock and the total number of authorized shares of
common stock will be reduced in accordance with the ratio designated by the
Board.
Critical
Accounting Policies and Estimates
The
methods, estimates and judgments that we use in applying our accounting
policies have a significant impact on the results that we report in our
financial statements. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates regarding matters that are inherently uncertain. For a summary of our
significant accounting policies, including the accounting policies discussed
below, see Note 2 to the Consolidated Financial Statements for 2008, 2007
and 2006.
Investments in Debt Securities and Put Rights
.
We account for our investments in debt securities in accordance with
SFAS No. 115,
Accounting for Certain
Investments in Debt and Equity Securities
. Our investment portfolio
includes investments in auction rate securities and rights to sell ARS to the
broker that holds the ARS. Our ARS were classified as long-term investments in
debt securities at June 28, 2009.
77
Due to the lack of
observable market quotes on our ARS portfolio and on our rights to sell the ARS
to the broker that holds the ARS, we utilize valuation models that are based on
management’s estimates of expected cash flow streams and collateral values, default
risk underlying the security, long term broker credit rating, discount rates
and overall capital market liquidity. The valuation of our ARS portfolio and
our rights to sell the ARS to the broker that holds the ARS is subject to
considerable judgment, uncertainties and evolving market conditions that are
difficult to predict. Factors that may impact the estimated fair value include
changes to credit ratings of the ARS as well as to the assets collateralizing
the securities, rates of default of the underlying assets and collateral value,
broker default risk, discount rates and evolving market conditions affecting
the liquidity of ARS. If uncertainties in the capital and credit markets
continue, these markets deteriorate further or we experience any ratings
downgrades on any ARS investments and related rights in our portfolio, we may
need to further impair the value of our ARS portfolio and related rights.
When we recorded the
value of the rights to sell our ARS to the broker that holds the ARS, we decided
to transfer our ARS portfolio from investments held for sale to investments in
trading securities, in accordance with SFAS 115. This decision has the
effect of recording unrealized gains and losses in income rather than in other
comprehensive income in stockholders’ equity. We also decided to elect fair
value accounting for the value assigned to the rights to sell our ARS to the
broker that holds the ARS and this decision has the effect of recording
increases and decreases in the value assigned to the rights in income.
Non-Marketable Equity Investments
.
We paid $2,923,000 in 2006 to acquire an interest in Cecure Gaming. Our
ownership was subsequently diluted to approximately 8%. Cecure develops
software and other products which enable Cecure or its licensees to offer real
money gaming services to customers via mobile devices. As we have less than a
20% ownership interest and do not have the ability to exercise significant
influence over Cecure, we account for this investment under the cost method of
accounting and periodically evaluate the carrying value for possible
impairment.
We review our investment
in Cecure quarterly for indicators of impairment. This impairment analysis
requires significant judgment to identify events or circumstances that could significantly
impact the value of the investment. Investments that we identify as having an
indicator of impairment are subject to further analysis to determine if the
investment is other than temporarily impaired, in which case we write down the
investment to estimated fair value.
We recorded a $1,923,000
impairment charge in the third quarter of 2008 due to difficulties Cecure was
having in obtaining working capital to finance their business development that
resulted in a significant reduction in staffing. Cecure’s financing
difficulties continued into 2009 and the Company recorded an additional
$1,000,000 impairment charge in the first quarter of 2009. This investment was
measured at implied fair value resulting in an other-than-temporary impairment
charge. The implied fair value measurement was calculated using financial
metrics and ratios of comparable public companies and was measured using
Level 3 inputs, as we used unobservable inputs and significant management
judgment to value this investment due to the absence of quoted market prices,
inherent lack of liquidity and the long-term nature of this investment. Cecure
ceased operations in July 2009.
Income Taxes
. We must make
certain estimates and judgments in determining income tax expense for financial
statement purposes. These estimates and judgments occur in the calculation of
tax credits, benefits and deductions, and in the calculation of certain tax
assets and liabilities, which arise from differences in the timing of
recognition of revenue and expense for tax and financial statement purposes.
Significant changes to these estimates may result in an increase or decrease to
income tax expense in a subsequent period.
Each quarter, we
assess the likelihood that we will be able to recover our net deferred tax
assets. If recovery is not likely, we increase income tax expense by recording
a valuation allowance against the deferred tax assets that we estimate will not
ultimately be recoverable. However, should there be a change in our ability to
recover our deferred tax assets, we would reverse the valuation allowance and
we would record a credit in income tax expense. We have fully reserved our net
deferred tax assets because it is our judgment that it is more likely than not
that our net deferred tax assets will not be recovered in the foreseeable
future.
The calculation of
our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations. As a result of the implementation of FASB
Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes—an interpretation of SFAS No. 109
, we
recognize liabilities for uncertain tax positions, if any, based on the process
prescribed in the interpretation. We reevaluate any uncertain tax positions on
a quarterly
78
basis. This evaluation is
based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and
new audit activity. Such a change in recognition or measurement would result in
the recognition of a tax benefit or an additional charge to the tax provision.
Television Revenues and Costs
.
We expense the cost of producing the WPT and PPT television series over
the applicable life cycle of the television series based upon the ratio of the
current period’s gross revenues to the estimated remaining total gross revenues
(“Ultimate Revenues”) for each season. If our estimate of Ultimate Revenues
decreases, amortization of television costs will be accelerated. Conversely, if
estimates of Ultimate Revenues increase, television cost amortization will be
slowed. For television series, we include revenues that will be earned within
three years of the delivery of the first episode.
Revenue Recognition
.
The Company
has revenue recognition policies for its various business segments that are
appropriate to the circumstances of each business. See Note 2 to the
Consolidated Financial Statements for 2008, 2007 and 2006 for our revenue
recognition policies. Licensing advances and guaranteed payments collected, but
not yet earned, as well as casino host fees and sponsorship fees collected
prior to the airing of episodes, are classified as deferred revenue in the
consolidated balance sheets.
We recognized domestic
television license revenues upon the receipt and acceptance of completed
episodes by the Travel Channel and GSN. However, due to restrictions and
practical limitations applicable to our operating relationships with foreign
networks, we do not consider collectability of international television license
revenues to be “reasonably assured,” and accordingly, we do not recognize such
revenue unless payment has been received. Additionally, we present certain
international distribution license fee revenues net of the distributor’s fees,
as the distributor is the primary obligor in the transaction with the ultimate
customer pursuant to EITF 99-19,
Reporting
Revenue Gross as a Principal versus Net as an Agent
.
Event hosting fees are
paid by host casinos for the privilege of hosting the events and are recognized
as the episodes that feature the host casino are aired. Sponsorship revenues
are recognized as the episodes that feature the sponsor are aired.
Product licensing
revenues are recognized when the underlying royalties from the sales of the
related products are earned. We recognize minimum revenue guarantees, if any,
ratably over the term of the license or as earned based on actual sales of the
related products, if greater. We present product licensing fees gross of licensing
commissions, which are recorded as selling, general and administrative expenses
since we are the primary obligor in the transaction with the ultimate customer
pursuant to EITF 99-19.
Online gaming revenues
are recognized monthly based on statements received from CryptoLogic, our
online gaming service provider for online poker and casino activity. In
accordance with EITF 99-19, we present online gaming revenues gross of
service provider costs (including the service provider’s management fee, royalties
and credit card processing that are recorded as cost of revenues) as we have
the ability to adjust price and specifications of the online gaming site, we
bear the majority of the credit risk and we are responsible for the sales and
marketing of the gaming site.
We
include certain cash promotional expenses related to free bets and deposit
bonuses along with customer chargebacks as direct reductions of revenue. All
other promotional expenses are generally recorded as sales and marketing
expenses.
Subscription revenues are
recognized monthly based on statements received from Centaurus, our
subscription-based online service provider. In accordance with EITF 99-19,
we present subscriptions revenues gross of service provider costs (including
the service provider’s management fee, content fees and credit card processing
fees that are recorded as cost of revenues) as we have the ability to adjust
specifications of the game site, we bear the majority of the credit risk and we
are responsible for the sales and marketing of the gaming site. All other
promotional expenses are generally recorded as sales and marketing expenses.
Share-Based Compensation
. Effective January 1,
2006, we adopted the provisions of SFAS No. 123 (revised 2004),
Shared-Based Payment
. SFAS 123(R) requires
employee equity awards to be accounted for under the fair value method. Total
share-based compensation expense during 2008, 2007 and 2006 was $728,000,
$2,113,000 and $3,800,000, respectively. Determining the appropriate fair-value
model and calculating the fair value of employee stock options and rights to
purchase shares under stock purchase plans at the date of grant requires
judgment. We use the Black-Scholes option pricing model to estimate the fair
value of these share-based awards consistent with the provisions of
SFAS 123(R). Option pricing models, including the Black-Scholes model,
also require the use of input assumptions, including expected volatility,
expected life, expected dividend rate and expected risk-free rate of return.
The assumptions for expected volatility and expected life are the two
79
assumptions that
significantly affect the grant date fair value. Changes in the expected
dividend rate and expected risk-free rate of return do not significantly impact
the calculation of fair value and determining these inputs is not highly
subjective.
We do not believe
that our historical share option exercise data provides us with sufficient
evidence to estimate expected term. Therefore, we use the simplified method of
calculating expected life described in the SEC’s SAB 107. In December 2007,
the SEC issued SAB 110 to amend the SEC’s views discussed in SAB 107
regarding the use of the simplified method in developing an estimate of expected
life of share options in accordance with SFAS No. 123(R).
SAB 110 was effective for us beginning in the first quarter of 2008. We
will continue to use the simplified method until we have the historical data
necessary to provide a reasonable estimate of expected life, in accordance with
SAB 107, as amended by SAB 110.
In addition,
SFAS 123(R) requires us to develop an estimate of the number of
share-based awards that will be forfeited due to employee turnover. Quarterly
adjustments in the estimated forfeiture rates can have a significant effect on
reported share-based compensation, as we recognize the cumulative effect of the
rate adjustments for all expense amortization in the period in which the
estimated forfeiture rates are adjusted. We estimate and adjust forfeiture
rates based on a quarterly review of recent forfeiture activity and expected
future employee turnover. If a revised forfeiture rate is higher than our
previously estimated forfeiture rate, we make an adjustment that will result in
a decrease in the expense recognized in the financial statements. If a revised
forfeiture rate is lower than the previously estimated forfeiture rate, we make
an adjustment that will result in an increase in the expense recognized in the
financial statements. The effect of forfeiture adjustments in 2008 was
significant due to an unplanned employee lay off in the second and third
quarters of 2008. The effect of forfeiture adjustments in 2007 and 2006 was not
significant. The expense that we recognize in future periods could also differ
significantly from the current period and from our forecasts due to adjustments
in the assumed forfeiture rates.
Recently
Issued Accounting Pronouncements
See Note 2. Summary of
Significant Accounting Policies in the footnotes to the Condensed Consolidated
Financial Statements for the six months ended June 28, 2009 for
information about recently issued accounting pronouncements.
80
QUANTITATIVE AND QUALITATIVE
DISCLOSURES
ABOUT MARKET RISK
Our financial instruments
include cash equivalents, short-term municipal bonds, corporate preferred
securities, certificates of deposit, ARS including related put rights, our
investment in Cecure Gaming, restricted cash and our line of credit. Our main
investment objectives are the preservation of investment capital and the
maximization of after-tax returns on our investment portfolio. Consequently, we
invest with only high-credit-quality issuers and limit the amount of credit
exposure to any one issuer. We do not use derivative instruments for
speculative or investment purposes.
Our cash equivalents and
restricted cash are not subject to significant interest rate risk due to the
short maturities of these instruments, or for our ARS portfolio because
interest rates reset to market rates frequently. As of June 28, 2009, the
carrying value of our cash equivalents and restricted cash approximated fair
value. We have in the past and our investment strategy for the future is to
obtain marketable debt securities (principally consisting of government
securities, commercial paper and corporate bonds) having a weighted average
duration of one year or less. Consequently, such securities would not be
subject to significant interest rate risk.
81
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited
pro forma consolidated financial statements have been prepared from the Company’s
historical consolidated financial statements and give effect to the sale of
substantially all of the Company’s assets other than cash and investments to
Buyer. The unaudited pro forma consolidated balance sheet as of June 28,
2009 reflects adjustments as if the asset sale had occurred on June 28,
2009. The unaudited pro forma consolidated statements of continuing operations
for the years ended December 28, 2008, December 30, 2007 and December 31,
2006, and for the six months ended June 28, 2009 and June 29, 2008
reflect adjustments as if the asset sale had occurred on the first day of each
period, respectively.
The unaudited pro forma
consolidated financial statements do not purport to present the financial
position or results of operations of the Company had the transactions and
events assumed therein occurred on the dates specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future.
The unaudited pro forma
consolidated financial statements should be read in conjunction with the
historical financial statements of the Company, including the related notes,
and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in this proxy statement.
82
WPT
ENTERPRISES, INC.
Unaudited
Pro Forma Consolidated Balance Sheet
As
of June 28, 2009
|
|
Historical
|
|
Pro Forma
Adjustments
|
|
Pro Forma
|
|
|
|
(In thousands, except par value amounts)
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
13,434
|
|
$
|
9,800
|
(a)
|
|
|
|
|
|
|
(1,748
|
)(g)
|
|
|
|
|
|
|
(737
|
)(e,f)
|
$
|
20,749
|
(m)
|
Investments
in debt securities
|
|
2,540
|
|
—
|
|
2,540
|
|
Accounts
receivable, net
|
|
2,037
|
|
—
|
|
2,037
|
|
Deferred
television costs
|
|
1,529
|
|
(280
|
)(b)
|
1,249
|
|
Other
|
|
231
|
|
(65
|
)(b)
|
166
|
|
Total
current assets
|
|
19,771
|
|
6,970
|
|
26,741
|
|
Investments
in debt securities and put rights
|
|
5,342
|
|
—
|
|
5,342
|
|
Property
and equipment, net
|
|
971
|
|
(937
|
)(c)
|
34
|
|
Other
|
|
483
|
|
(47
|
)(b)
|
436
|
|
Total
assets
|
|
$
|
26,567
|
|
$
|
5,986
|
|
$
|
32,553
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
158
|
|
$
|
—
|
|
$
|
158
|
|
Accrued
payroll and related
|
|
399
|
|
(183
|
)(e)
|
216
|
|
Operating
lease reserve
|
|
464
|
|
—
|
|
464
|
|
Other
accrued expenses
|
|
523
|
|
(103
|
)(d)
|
420
|
|
Line
of credit
|
|
2,647
|
|
—
|
|
2,647
|
|
Deferred
revenue
|
|
1,228
|
|
(729
|
)(d)
|
499
|
|
Total
current liabilities
|
|
5,419
|
|
(1,015
|
)
|
4,404
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred stock,
$0.001 par value; authorized 20,000 shares; none issued or outstanding
|
|
—
|
|
—
|
|
—
|
|
Common stock,
$0.001 par value; authorized 100,000 shares; 20,603 shares issued and
outstanding
|
|
21
|
|
—
|
|
21
|
|
Additional
paid-in capital
|
|
44,685
|
|
777
|
(h)
|
45,462
|
(m)
|
Deficit
|
|
(23,550
|
)
|
6,224
|
(h)
|
(17,326
|
)
|
Accumulated
other comprehensive loss
|
|
(8
|
)
|
—
|
|
(8
|
)
|
Total
stockholders’ equity
|
|
21,148
|
|
7,001
|
|
28,149
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
26,567
|
|
$
|
5,986
|
|
$
|
32,553
|
|
See notes to unaudited
pro forma consolidated financial statements.
83
WPT
ENTERPRISES, INC.
Unaudited
Pro Forma Consolidated Statements of Continuing Operations
For
the Year Ended December 28, 2008
|
|
Historical
|
|
Pro Forma
Adjustments
|
|
Pro Forma
|
|
|
|
|
|
(In thousands)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Television
|
|
$
|
9,839
|
|
$
|
(9,839
|
)(i)
|
$
|
—
|
|
ClubWPT
|
|
448
|
|
(448
|
)
|
—
|
|
Product
licensing
|
|
2,483
|
|
(2,483
|
)(i)
|
—
|
|
Event
hosting and sponsorship
|
|
1,496
|
|
(1,496
|
)(i)
|
—
|
|
Other
|
|
1,215
|
|
(1,063
|
)(i)
|
152
|
(j)
|
|
|
15,481
|
|
(15,329
|
)
|
152
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
7,250
|
|
(7,250
|
)(i)
|
—
|
|
Gross
profit
|
|
8,231
|
|
(8,079
|
)
|
152
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
19,326
|
|
(11,409
|
)(i)
|
7,917
|
(k)
|
Asset impairment charge
|
|
1,923
|
|
—
|
|
1,923
|
|
Loss
from operations
|
|
(13,018
|
)
|
3,330
|
|
(9,688
|
)
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
Gain
on sale of investment
|
|
11
|
|
—
|
|
11
|
|
Interest
|
|
962
|
|
—
|
|
962
|
(l)
|
Loss
from continuing operations before income taxes
|
|
(12,045
|
)
|
3,330
|
|
(8,715
|
)
|
|
|
|
|
|
|
|
|
Income taxes
|
|
—
|
|
—
|
|
—
|
|
Loss from continuing operations
|
|
$
|
(12,045
|
)
|
$
|
3,330
|
|
$
|
(8,715
|
)
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations – basic and
diluted
|
|
$
|
(0.58
|
)
|
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
20,603
|
|
|
|
20,603
|
|
See notes to unaudited
pro forma consolidated financial statements.
84
WPT
ENTERPRISES, INC.
Unaudited
Pro Forma Consolidated Statements of Continuing Operations
For
the Year Ended December 30, 2007
|
|
Historical
|
|
Pro Forma
Adjustments
|
|
Pro Forma
|
|
|
|
|
|
(In thousands)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Television
|
|
$
|
14,143
|
|
$
|
(14,143
|
)(i)
|
$
|
—
|
|
ClubWPT
|
|
—
|
|
—
|
(i)
|
—
|
|
Product
licensing
|
|
3,619
|
|
(3,619
|
)(i)
|
—
|
|
Event
hosting and sponsorship fees
|
|
2,583
|
|
(2,583
|
)(i)
|
—
|
|
Other
|
|
1,367
|
|
(1,138
|
)(i)
|
229
|
(j)
|
|
|
21,712
|
|
(21,483
|
)
|
229
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
8,224
|
|
(8,224
|
)(i)
|
—
|
|
Gross
profit
|
|
13,488
|
|
(13,259
|
)
|
229
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
21,617
|
|
(11,211
|
)(i)
|
10,406
|
(k)
|
Asset abandonment charge
|
|
2,270
|
|
(2,270
|
)(i)
|
—
|
|
Loss
from operations
|
|
(10,399
|
)
|
222
|
|
(10,177
|
)
|
|
|
|
|
|
|
|
|
Interest income
|
|
1,779
|
|
—
|
|
1,779
|
(l)
|
Loss
from continuing operations before income taxes
|
|
(8,620
|
)
|
222
|
|
(8,398
|
)
|
|
|
|
|
|
|
|
|
Income taxes
|
|
(70
|
)
|
—
|
|
(70
|
)
|
Loss from continuing operations
|
|
$
|
(8,550
|
)
|
$
|
222
|
|
$
|
(8,328
|
)
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations – basic and
diluted
|
|
$
|
(0.42
|
)
|
|
|
$
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
20,603
|
|
|
|
20,603
|
|
See notes to unaudited
pro forma consolidated financial statements.
85
WPT
ENTERPRISES, INC.
Unaudited
Pro Forma Consolidated Statements of Continuing Operations
For
the Year Ended December 31, 2006
|
|
Historical
|
|
Pro Forma
Adjustments
|
|
Pro Forma
|
|
|
|
|
|
(In thousands)
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Television
|
|
$
|
19,849
|
|
$
|
(19,849
|
)(i)
|
$
|
—
|
|
ClubWPT
|
|
—
|
|
—
|
(i)
|
—
|
|
Product
licensing
|
|
3,315
|
|
(3,315
|
)(i)
|
—
|
|
Event
hosting and sponsorship fees
|
|
2,638
|
|
(2,638
|
)(i)
|
—
|
|
Other
|
|
3,459
|
|
(3,242
|
)(i)
|
217
|
(j)
|
|
|
29,261
|
|
(29,044
|
)
|
217
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
10,316
|
|
(10,316
|
)(i)
|
—
|
|
Gross
profit
|
|
18,945
|
|
(18,728
|
)
|
217
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
18,630
|
|
(7,651
|
)(i)
|
10,979
|
(k)
|
Earnings
(loss) from operations
|
|
315
|
|
(11,077
|
)
|
(10,762
|
)
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
Gain
on sale of investment
|
|
10,216
|
|
—
|
|
10,216
|
|
Interest
|
|
1,630
|
|
—
|
|
1,630
|
(l)
|
Earnings
from continuing operations before income taxes
|
|
12,161
|
|
(11,077
|
)
|
1,084
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
4,392
|
|
(4,363
|
)
|
29
|
|
Earnings from continuing operations
|
|
$
|
7,769
|
|
$
|
(6,714
|
)
|
$
|
1,055
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations – basic and
diluted
|
|
$
|
0.38
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
20,457
|
|
|
|
20,457
|
|
Weighted average shares outstanding – diluted
|
|
20,504
|
|
|
|
20,504
|
|
See notes to unaudited
pro forma consolidated financial statements.
86
WPT
ENTERPRISES, INC.
Unaudited Pro Forma Consolidated Statements of Continuing Operations
For the Six Months Ended June 28, 2009
|
|
Historical
|
|
Pro Forma
Adjustments
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
Television
|
|
$
|
6,605
|
|
$
|
(6,605
|
)(i)
|
$
|
—
|
|
ClubWPT
|
|
1,115
|
|
(1,115
|
)
|
—
|
|
Product
licensing
|
|
1,043
|
|
(1,043
|
)(i)
|
—
|
|
Event
hosting and sponsorship
|
|
1,021
|
|
(1,021
|
)(i)
|
—
|
|
Other
|
|
315
|
|
(202
|
)(i)
|
113
|
(j)
|
|
|
10,099
|
|
(9,986
|
)
|
113
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
3,702
|
|
(3,702
|
)(i)
|
—
|
|
Gross
profit
|
|
6,397
|
|
(6,284
|
)
|
113
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
5,460
|
|
(2,919
|
)(i)
|
2,541
|
(k)
|
Asset impairment charge
|
|
1,000
|
|
—
|
|
1,000
|
|
Loss
from operations
|
|
(63
|
)
|
(3,365
|
)
|
(3,428
|
)
|
|
|
|
|
|
|
|
|
Interest income
|
|
103
|
|
—
|
|
103
|
(l)
|
Earnings
(loss) from continuing operations before income taxes
|
|
40
|
|
(3,365
|
)
|
(3,325
|
)
|
|
|
|
|
|
|
|
|
Income taxes
|
|
12
|
|
(12
|
)
|
—
|
|
Earnings (loss) from continuing operations
|
|
$
|
52
|
|
$
|
(3,377
|
)
|
$
|
(3,325
|
)
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations –
basic and diluted
|
|
$
|
—
|
|
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic
|
|
20,603
|
|
|
|
20,603
|
|
Weighted average shares outstanding - diluted
|
|
20,604
|
|
|
|
20,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited
pro forma consolidated financial statements.
87
WPT
ENTERPRISES, INC.
Unaudited Pro Forma Consolidated Statements of Continuing Operations
For the Six Months Ended June 29, 2008
|
|
Historical
|
|
Pro Forma
Adjustments
|
|
Pro Forma
|
|
|
|
(In thousands)
|
|
Revenues:
|
|
|
|
|
|
|
|
Television
|
|
$
|
7,002
|
|
$
|
(7,002
|
)(i)
|
$
|
—
|
|
ClubWPT
|
|
73
|
|
(73
|
)
|
—
|
|
Product
licensing
|
|
1,260
|
|
(1,260
|
)(i)
|
—
|
|
Event
hosting and sponsorship
|
|
1,018
|
|
(1,018
|
)(i)
|
—
|
|
Other
|
|
681
|
|
(608
|
)(i)
|
73
|
(j)
|
|
|
10,034
|
|
(9,961
|
)
|
73
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
5,454
|
|
(5,454
|
)(i)
|
—
|
|
Gross
profit
|
|
4,580
|
|
(4,507
|
)
|
73
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
10,794
|
|
(6,319
|
)(i)
|
4,475
|
(k)
|
Loss
from operations
|
|
(6,214
|
)
|
1,812
|
|
(4,402
|
)
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
Gain
on sale of investment
|
|
11
|
|
—
|
|
11
|
|
Interest
|
|
601
|
|
—
|
|
601
|
(l)
|
Loss
from continuing operations before income taxes
|
|
(5,602
|
)
|
1,812
|
|
(3,790
|
)
|
|
|
|
|
|
|
|
|
Income taxes
|
|
—
|
|
—
|
|
—
|
|
Loss from continuing operations
|
|
$
|
(5,602
|
)
|
$
|
1,812
|
|
$
|
(3,790
|
)
|
|
|
|
|
|
|
|
|
Loss per share from continuing operations – basic and
diluted
|
|
$
|
(0.27
|
)
|
|
|
$
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding – basic and diluted
|
|
20,603
|
|
|
|
20,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited
pro forma consolidated financial statements.
88
WPT
ENTERPRISES, INC.
Notes to Unaudited Pro Forma Consolidated Financial Statements
1. BASIS
OF PRESENTATION
The Company entered into
an asset purchase agreement dated as of August 24, 2009, with Buyer
pursuant to which Buyer has agreed to acquire substantially all of the Company’s
operating assets other than cash, investments and certain other assets. The
accompanying unaudited pro forma consolidated financial statements present the
pro forma consolidated financial position and results of operations of the
Company based upon the historical financial statements of the Company, after
giving effect to the asset sale and adjustments described in these notes, and
are intended to reflect the impact of the asset sale on the Company.
The accompanying unaudited
pro forma consolidated balance sheet presents the historical financial
information of the Company as of June 28, 2009 adjusted as if the asset
sale to Buyer had occurred on June 28, 2009. The unaudited pro forma
consolidated statements of continuing operations for the years ended December 28,
2008, December 30, 2007 and December 31, 2006, and for the six months
ended June 28, 2009 and June 29, 2008 present the historical
operating results of the Company, the historical operating results of the
business to be sold to Buyer and other pro forma adjustments as if the asset
sale had occurred on the first day of each period, respectively.
The accompanying
unaudited pro forma consolidated statements of continuing operations do not
reflect any gain on sale of the assets to Buyer. The estimated after tax gain
on the sale is included as a pro forma adjustment to stockholders’ equity in
the unaudited pro forma consolidated balance sheet as of June 28, 2009.
2. PRO
FORMA ADJUSTMENTS
The unaudited pro forma
financial statements reflect the following pro forma adjustments:
(a)
Cash proceeds from the sale of assets and assumption
of liabilities under the asset purchase agreement are $12.3 million less
the amount of certain obligations of an affiliate of PartyGaming paid or
accruing to the Company under the sponsorship agreement for Seasons Four, Five
and Six of the World Poker Tour and Season One of the Professional Poker Tour
from July 10, 2009 through the close of the asset sale. For purposes of
these unaudited pro forma financial statements, Buyer is assumed to have made a
$9.8 million payment at closing (this assumes that the $12.3 million
purchase price is reduced by $1.5 million in sponsorship revenue earned by
the Company from PartyGaming for the period from July 10, 2009 until the
close of the asset sale and accounts for the $1.0 million asset purchase
agreement termination fee that was paid to Gamynia).
(b)
The asset sale includes the transfer to Buyer of
certain deferred television costs, prepaid expenses, other current assets and
deposits totaling $392,000 as of June 28, 2009.
(c)
The asset sale includes the transfer to Buyer of
property and equipment with a net book value of $937,000 as of June 28,
2009.
(d)
The asset sale includes the transfer to Buyer of $103,000
of accrued liabilities and $729,000 of deferred revenue as of June 28,
2009.
(e)
In the asset sale to Buyer, the Company expects to pay
out substantially all employee obligations when the employees are transferred
to Buyer or otherwise leave the Company after the asset sale closes. Accrued
employee obligations were $183,000 as of June 28, 2009 for employees
expected to be transferred to Buyer or terminated.
(f)
The estimated tax liability on the gain on the asset
sale, calculated at the federal alternative minimum tax rate and California
regular income tax rate is $554,000 as of June 28, 2009.
89
WPT
ENTERPRISES INC.
Notes
to Unaudited Pro Forma Consolidated Financial Statements (Continued)
2. PRO
FORMA ADJUSTMENTS (Continued)
(g)
Transaction costs related to the asset sale consist of
a transaction bonus to the Company’s President and Chief Executive Officer,
change in control payments to two Company Executive Officers, legal fees,
accounting fees and proxy costs.
(h)
The estimated after-tax gain on the asset sale is
included in discontinued operations and is $6,224,000 as of June 28, 2009.
Included in the estimated after-tax gain on the asset sale is $777,000 of
share-based compensation that results from the acceleration of stock option
vesting due to the sale of assets.
(i)
The revenues and expenses related to the assets sold
to and liabilities assumed by Buyer.
(j)
The Company is to receive 5% of future gross gaming
revenues less certain taxes and 5% of other future gross revenues less certain
taxes and costs earned with the purchased assets in perpetuity. Buyer has
agreed that the future gaming and other revenue-based participation amount will
be at least $3 million over the three year period following the close of
the asset purchase agreement, or otherwise Buyer will make up the shortfall to
$3 million at the end of the period. No pro forma adjustment for the
Company’s participation in gaming revenues has been included in the unaudited
pro forma consolidated statements of continuing operations because the pro
forma amounts would be speculative. The Company’s participation in other
revenues has been calculated based on actual sponsorship and other revenues for
the period and has been included in the unaudited pro forma consolidated
statements of continuing operations.
(k)
The Company expects to reduce corporate overhead
following the closing of the asset sale. No pro forma adjustment for reduced
payroll and other costs has been included in the unaudited pro forma
consolidated statements of continuing operations because the pro forma amounts
would be speculative.
(l)
The Company expects to invest the net cash proceeds
from the asset sale until the cash is used to acquire or develop another non-poker
business. No pro forma adjustment for increased interest income has been
included in the unaudited pro forma consolidated statements of continuing
operations because the pro forma amounts would be speculative.
(m)
Company employees that go to work for Buyer or
otherwise leave the Company after the asset sale closes have 90 days to
exercise vested stock options. There are [ ] stock options that become
fully vested as a result of the asset sale that have in-the-money exercise
prices on [ ], 2009.
These stock options, if fully exercised will bring $[ ] in cash to the Company and will
increase the total number of shares outstanding. To the extent that employees
exercise stock options and sell the acquired common stock within one year, the
Company will receive an income tax deduction for the amount of the gain
realized by the employee. No pro forma adjustments have been have been included
in unaudited pro forma consolidated balance sheet because the pro forma amounts
would be speculative.
3.
ESTIMATED NET CASH PROCEEDS
The estimated net cash
proceeds from the asset sale to Buyer as if the asset sale had occurred on June 28,
2009, based on the pro forma adjustments described above, are as follows (in
thousands):
|
|
June 28,
2009
|
|
Gross
proceeds from asset sale
|
|
$
|
9,800
|
|
Transaction
bonus
|
|
(490
|
)
|
Change
in control payments
|
|
(758
|
)
|
Transaction
costs
|
|
(500
|
)
|
Income
taxes
|
|
(554
|
)
|
Accrued
employee obligations
|
|
(183
|
)
|
Estimated
net cash proceeds
|
|
$
|
7,315
|
|
90
MATTERS BEING SUBMITTED TO A VOTE OF
STOCKHOLDERS
Proposal
No. 1: Approval of the Asset Sale
At the Special Meeting,
the Company’s stockholders will be asked to approve the sale of substantially
all of its assets pursuant to the asset purchase agreement. The terms of,
reasons for and other aspects of the asset purchase agreement and the asset
sale are described in detail in the other sections of this proxy statement.
Vote Required; Recommendation of Board of Directors
The affirmative vote of
holders of a majority of the outstanding shares of the Company’s common stock
as of the record date for the Special Meeting is required for Proposal No. 1.
A failure to submit a
proxy card or vote at the Company’s Special Meeting, or an abstention, vote
withheld or “broker non-vote” for Proposal No. 1 will have the same effect
as a vote against the approval of Proposal No. 1.
THE
COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY’S
STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 1 TO APPROVE THE ASSET SALE PURSUANT TO
THE ASSET PURCHASE AGREEMENT.
Proposal
No. 2: Approval of Name Change Charter Amendment
Stockholders will also
consider at the Special Meeting a proposal to approve an amendment to the
Company’s Certificate of Incorporation to change the Company’s name to [ ] upon the close of the asset
sale. In the asset sale agreement, we agreed with Buyer to change our name at
the asset sale close and we have selected [
] as our new name.
No Dissenter’s Rights
You will not experience
any change in your rights as a stockholder as a result of the name change
charter amendment. Delaware law, the Company’s charter or our Bylaws do not
provide for appraisal or other similar rights for dissenting stockholders in
connection with the name change charter amendment, and we do not intend to
independently provide stockholders with any such right.
Vote Required; Recommendation of Board of Directors
The affirmative vote of
the holders of a majority of the Company’s common stock present in person or
represented by proxy at the Special Meeting is required to approve the name
change charter amendment.
A failure to submit a
proxy card or vote at the Special Meeting, or an abstention, vote withheld or “broker
non-vote” will have no effect on the outcome of Proposal No. 2.
THE
COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY’S
STOCKHOLDERS VOTE “FOR” PROPOSAL NO.
2 TO APPROVE
THE NAME CHANGE CHARTER AMENDMENT.
Proposal
No. 3: Approval of Possible Adjournment of the Special Meeting
General
If the Company fails to
receive a sufficient number of votes to approve Proposal No. 1 to approve
the asset sale, the Company may propose to adjourn the Company’s Special
Meeting, for a period of not more than 30 days, for the purpose of
soliciting additional proxies to approve Proposal No. 1. The Company
currently does not intend to propose adjournment at the Special Meeting if
there are sufficient votes to approve the proposal to approve the asset sale.
Vote Required; Recommendation of Board of Directors
The affirmative vote of
the holders of a majority of the Company’s common stock present in person or
represented by proxy at the Special Meeting is required to approve the
adjournment of the Special Meeting for the purpose of soliciting additional
proxies to approve Proposal No. 1.
A failure to submit a
proxy card or vote at the Special Meeting, or an abstention, vote withheld or “broker
non-vote” will have no effect on the outcome of Proposal No. 3.
91
THE
COMPANY’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY’S
STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 3 TO ADJOURN THE SPECIAL MEETING, IF
NECESSARY FOR A PERIOD OF UP TO 30 DAYS, TO SOLICIT ADDITIONAL PROXIES IF THERE
ARE NOT SUFFICIENT VOTES IN FAVOR OF THE PROPOSAL TO APPROVE THE ASSET SALE.
92
MARKET PRICE AND DIVIDEND INFORMATION
The Company’s common
stock trades on The Nasdaq Global Market under the symbol WPTE.
The high and low sales prices per share of the Company’s common stock
for each quarterly period within the two most recent fiscal years are indicated
below, as reported on The Nasdaq Global Market:
|
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Year
Ended
|
|
December 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$1.88
|
|
$1.57
|
|
$1.04
|
|
$0.67
|
|
|
|
Low
|
|
1.33
|
|
0.98
|
|
0.66
|
|
0.27
|
|
Year
Ended
|
|
December 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
5.50
|
|
5.37
|
|
4.25
|
|
3.25
|
|
|
|
Low
|
|
3.63
|
|
3.95
|
|
2.88
|
|
1.63
|
|
The Company has never
paid a cash dividend, and the current policy of the Board is to retain any
earnings to provide for the growth of the Company. The payment of cash
dividends in the future, if any, will be at the discretion of the Board and
will depend on such factors as earnings levels, capital requirements, our
overall financial condition and any other factors deemed relevant by the
Company’s Board.
The following table sets
forth the closing sales prices per share of the Company common stock, as
reported on The NASDAQ Global Market on August 24, 2009, the last full
trading day before the public announcement of the proposed asset sale, and on
[ ], 2009, the latest
practicable date before the printing of this proxy statement:
|
|
Common
Stock
Closing Price
|
|
August 24,
2009
|
|
$
|
1.05
|
|
[ ],
2009
|
|
$
|
[ ]
|
|
As of [ ], 2009, the Company had
approximately [ ], holders
of record of its common stock.
93
PRINCIPAL STOCKHOLDERS OF THE COMPANY
We have one class of
voting securities outstanding: common stock, $0.001 par value. The following
table sets forth, as of [ ],
2009, information about the beneficial ownership of our common stock by all directors,
our Chief Executive Officer, our Chief Financial Officer and our three other
highest paid executive officers in 2008 (collectively, the “named executive
officers”), all persons known by us to be the owner of record or beneficially,
of more than 5% of our outstanding common stock and all directors and named
executive officers as a group. Except as otherwise indicated, the address of
each stockholder is 5700 Wilshire Boulevard, Suite 350, Los Angeles,
California 90036, and each stockholder has sole voting and investment power
with respect to the shares beneficially owned.
Name
|
|
Shares
Beneficially
Owned
|
|
Percent
of
Class
|
|
Lyle
Berman (1),(2)
|
|
[ ]
|
|
[ ]%
|
|
Steven
Lipscomb
|
|
[ ]
|
|
[ ]%
|
|
Thomas
Flahie
|
|
—
|
|
*
|
|
Scott
Friedman
|
|
—
|
|
*
|
|
Rohin
Malhotra
|
|
—
|
|
*
|
|
Robyn
Moder
|
|
—
|
|
*
|
|
Adam
Pliska (3)
|
|
[ ]
|
|
[ ]%
|
|
Michael
Beindorff (4)
|
|
[ ]
|
|
*
|
|
Bradley
Berman (1),(5)
|
|
[ ]
|
|
[ ]%
|
|
Joseph
Carson, Jr. (4)
|
|
[ ]
|
|
*
|
|
Ray Moberg
(4)
|
|
[ ]
|
|
*
|
|
Mimi
Rogers (4)
|
|
[ ]
|
|
*
|
|
All
Directors and Officers as a group (10 people) (6)
|
|
[ ]
|
|
[ ]%
|
|
*
Less than 1%
(1)
Address is 130 Cheshire Lane, Minnetonka,
MN 55305.
(2)
Includes [ ] options to purchase common shares
which are exercisable within 60 days of [ ], 2009.
(3)
Consists of 304,415 shares owned by an
irrevocable trust for the benefit of Mr. Lipscomb’s children that Mr. Pliska
has sole voting and dispositive powers as trustee. Mr. Pliska disclaims
beneficial ownership of such shares.
(4)
Consists of options to purchase common
shares which are exercisable within 60 days of [ ], 2009.
(5)
Includes [ ] options to purchase common
shares which are exercisable within 60 days of [ ], 2009.
(6)
Includes [ ] options to purchase common
shares which are exercisable within 60 days of [ ], 2009.
94
FUTURE STOCKHOLDER PROPOSALS
Stockholders who wish to
present proposals for inclusion in the proxy materials to be distributed in
connection with next year’s annual stockholders’ meeting proxy statement must
submit their proposals so that they are received at our headquarters’ address
no later than the close of business on February 2, 2010. As the rules of
the SEC make clear, simply submitting a proposal does not guarantee that it
will be included.
To be in proper form, a
stockholder’s notice must comply with the proxy proposal submission rules of
the SEC. A stockholder who wishes to submit a proposal or nomination is
encouraged to seek independent counsel about SEC requirements. We will not
consider any proposal or nomination that does not meet SEC requirements for
submitting a proposal or nomination.
Notices of intention to
present proposals at the 2010 Annual Meeting should be addressed to General
Counsel and Secretary, WPT Enterprises, Inc., 5700 Wilshire Blvd., Suite 350,
Los Angeles, CA 90036. We reserve the right to reject, rule out of order,
or take other appropriate action with respect to any proposal that does not
comply with these and other applicable requirements.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual,
quarterly and current reports, proxy statements and other information with the
SEC under the Exchange Act. You may read and copy this information at, or
obtain copies of this information by mail from, the SEC’s Public Reference
Room, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference room.
The Company’s filings
with the SEC are also available to the public from commercial document
retrieval services and at the website maintained by the SEC at www.sec.gov.
No persons have been
authorized to give any information or to make any representations other than
those contained in this proxy statement and, if given or made, such information
or representations must not be relied upon as having been authorized by us or
any other person. This proxy statement is dated [ ], 2009. You should not assume
that the information contained in this proxy statement is accurate as of any date
other than that date, and the mailing of this proxy statement to stockholders
shall not create any implication to the contrary.
This proxy statement
contains a description of representations and warranties made in the asset
purchase agreement. Representations and warranties are also set forth in
contracts and other documents, including the asset purchase agreement and the
guaranty agreement, which are attached or filed as annexes to this proxy. The
assertions embodied in those representations and warranties were made solely
for purposes of such contracts or other documents and solely for the benefit of
the parties to such contracts or other documents as of specific dates, may be
subject to important qualifications and limitations agreed to by the contacting
parties (including the Company, Buyer and Parent) in connection with
negotiating the terms of such contracts and documents and may not be complete.
Moreover, these representations and warranties may be subject to a contractual
standard of materiality that may be different from what may be viewed as
material to stockholders, or may have been used for the purposes of allocating
contractual risk between the parties to such contract or other document instead
of establishing these matters as facts, and may or may not have been accurate
as of any specific date and do not purport to be accurate as of the date of
this proxy statement. Accordingly, you should not rely upon the descriptions of
representations and warranties contained in this proxy statement or the actual
representations and warranties contained in such contracts and other documents,
including the asset purchase agreement, as statements of factual information.
YOUR
VOTE IS IMPORTANT. Whether or not you plan to attend the Special Meeting,
please sign and date the enclosed proxy card and return it promptly in the
envelope provided or vote through the Internet or by telephone as described in
the enclosed proxy card. Giving your proxy now will not affect your right to
vote in person if you attend the special meeting.
If you have any questions about this proxy statement,
the Special Meeting or the asset sale or need assistance with the voting
procedures, you should contact The Altman Group, the Company’s proxy solicitor,
toll-free at [( ) -
] or collect at [( ) -
].
95
WPT
ENTERPRISES, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
INDEX
|
|
Page
|
|
|
|
Management’s
Report on Internal Control Over Financial Reporting
|
|
F-2
|
Report of Independent
Registered Public Accounting Firm on Financial Statements
|
|
F-3
|
Consolidated Balance
Sheets as of December 28, 2008 and December 30, 2007
|
|
F-4
|
Consolidated
Statements of Net Earnings (Loss) and Comprehensive Earnings (Loss) for 2008,
2007 and 2006
|
|
F-5
|
Consolidated
Statements of Stockholders’ Equity for 2008, 2007 and 2006
|
|
F-6
|
Consolidated
Statements of Cash Flows for 2008, 2007 and 2006
|
|
F-7
|
Notes to Consolidated Financial Statements
|
|
F-8
|
|
|
|
Unaudited
Condensed Consolidated Balance Sheets as of June 28, 2009 and
December 28, 2008
|
|
F-22
|
Unaudited Condensed Consolidated Statements of Net
Earnings (Loss) and Comprehensive Earnings (Loss) for the three and six
months ended June 28, 2009 and June 29, 2008
|
|
F-23
|
Unaudited Condensed Consolidated Statements of Cash
Flows for the six months ended June 28, 2009 and June 29, 2008
|
|
F-24
|
Notes to Unaudited Condensed Consolidated Financial
Statements
|
|
F-25
|
F-1
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial statements.
Internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and
with the participation of management, including our principal executive officer
and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework in
Internal Control — Integrated
Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation under the framework in
Internal Control — Integrated Framework,
management
concluded that our internal control over financial reporting was effective as
of December 28, 2008.
/s/
Steven Lipscomb
Steven Lipscomb
Founder, Chief Executive Officer and President
/s/
Thomas Flahie
Thomas Flahie
Interim Chief Financial Officer
March 4, 2009
August 31, 2009 as to Note 15
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENTS
Board of Directors
WPT Enterprises, Inc.
Los Angeles, California
We have audited the
accompanying consolidated balance sheets of WPT Enterprises, Inc. (the Company)
as of December 28, 2008 and December 30, 2007, and the related
statements of earnings (loss), comprehensive earnings (loss), stockholders’
equity and cash flows for the years ended December 28, 2008, December 30,
2007 and December 31, 2006. 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 the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Accordingly, we express no such opinion. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. 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
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of WPT Enterprises, Inc. as of December 28,
2008 and December 30, 2007, and the results of its operations and its cash
flows for the years ended December 28, 2008, December 30, 2007 and December 31,
2006, in conformity with accounting principles generally accepted in the United
States.
/s/
Piercy, Bowler, Taylor & Kern
Piercy,
Bowler, Taylor & Kern
Certified
Public Accountants
Las Vegas, Nevada
March 4, 2009,
except for the effects of the matters disclosed in Note 15,
as to which the date is August 31,
2009
F-3
WPT
ENTERPRISES, INC.
Consolidated Balance Sheets
|
|
December 28, 2008
|
|
December 30, 2007
|
|
|
|
(In thousands, except par value data)
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
11,497
|
|
$
|
3,852
|
|
Investments
in debt securities
|
|
2,088
|
|
22,971
|
|
Accounts
receivable, net of allowances of $158 and $18
|
|
2,099
|
|
2,758
|
|
Deferred
television costs
|
|
2,285
|
|
2,244
|
|
Other
|
|
666
|
|
666
|
|
Current
assets of discontinued operations
|
|
401
|
|
118
|
|
|
|
19,036
|
|
32,609
|
|
|
|
|
|
|
|
Investments
in debt securities and put rights
|
|
3,900
|
|
4,200
|
|
Property
and equipment, net
|
|
1,293
|
|
1,462
|
|
Investment
in Cecure Gaming
|
|
1,000
|
|
2,923
|
|
Other
|
|
537
|
|
503
|
|
Long-term
assets of discontinued operations
|
|
115
|
|
—
|
|
|
|
$
|
25,881
|
|
$
|
41,697
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
|
$
|
487
|
|
$
|
736
|
|
Accrued
payroll and related
|
|
269
|
|
988
|
|
Operating
lease reserve
|
|
456
|
|
—
|
|
Other
accrued expenses
|
|
693
|
|
1,308
|
|
Deferred
revenue
|
|
1,913
|
|
2,870
|
|
|
|
3,818
|
|
5,902
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
Preferred
stock, $0.001 par value; authorized 20,000 shares; none issued or outstanding
|
|
—
|
|
—
|
|
Common
stock, $0.001 par value; authorized 100,000 shares; 20,492 shares issued and
outstanding
|
|
20
|
|
20
|
|
Additional
paid-in capital
|
|
44,561
|
|
43,833
|
|
Deficit
|
|
(22,521
|
)
|
(8,072
|
)
|
Accumulated
other comprehensive gain
|
|
3
|
|
14
|
|
|
|
22,063
|
|
35,795
|
|
|
|
$
|
25,881
|
|
$
|
41,697
|
|
See notes to consolidated
financial statements.
F-4
WPT
ENTERPRISES, INC.
Consolidated Statements of Net
Earnings (Loss) and Comprehensive Earnings (Loss)
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
Television
|
|
$
|
9,839
|
|
$
|
14,143
|
|
$
|
19,849
|
|
ClubWPT
|
|
448
|
|
—
|
|
—
|
|
Product
licensing
|
|
2,483
|
|
3,619
|
|
3,315
|
|
Event
hosting and sponsorship
|
|
1,496
|
|
2,583
|
|
2,638
|
|
Other
|
|
1,215
|
|
1,367
|
|
3,459
|
|
|
|
15,481
|
|
21,712
|
|
29,261
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
7,250
|
|
8,224
|
|
10,316
|
|
Gross
profit
|
|
8,231
|
|
13,488
|
|
18,945
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense
|
|
19,326
|
|
21,617
|
|
18,630
|
|
Asset impairment and abandonment charges
|
|
1,923
|
|
2,270
|
|
—
|
|
Earnings
(loss) from operations
|
|
(13,018
|
)
|
(10,399
|
)
|
315
|
|
|
|
|
|
|
|
|
|
Other income:
|
|
|
|
|
|
|
|
Gain
on sale of investment
|
|
11
|
|
—
|
|
10,216
|
|
Interest
|
|
962
|
|
1,779
|
|
1,630
|
|
Earnings
(loss) from continuing operations before income taxes
|
|
(12,045
|
)
|
(8,620
|
)
|
12,161
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
—
|
|
(70
|
)
|
4,392
|
|
Earnings
(loss) from continuing operations
|
|
(12,045
|
)
|
(8,550
|
)
|
7,769
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
(2,404
|
)
|
(1,083
|
)
|
—
|
|
Net earnings (loss)
|
|
(14,449
|
)
|
(9,633
|
)
|
7,769
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on securities
|
|
(11
|
)
|
63
|
|
(282
|
)
|
Comprehensive earnings (loss)
|
|
$
|
(14,460
|
)
|
$
|
(9,570
|
)
|
$
|
7,487
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per common share from continuing operations - basic and diluted
|
|
(0.58
|
)
|
(0.42
|
)
|
0.38
|
|
Loss
per common share from discontinued operations - basic and diluted
|
|
(0.12
|
)
|
(0.05
|
)
|
—
|
|
Net earnings (loss) per common share - basic and diluted
|
|
$
|
(0.70
|
)
|
$
|
(0.47
|
)
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding – basic
|
|
20,603
|
|
20,603
|
|
20,457
|
|
Common
stock equivalents
|
|
—
|
|
—
|
|
47
|
|
Weighted-average common shares outstanding – diluted
|
|
20,603
|
|
20,603
|
|
20,504
|
|
See notes to consolidated
financial statements.
F-5
WPT
ENTERPRISES, INC.
Consolidated Statements of
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Other
|
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
Dollars
|
|
Capital
|
|
Deficit
|
|
Gain
(Loss)
|
|
Total
|
|
|
|
(In thousands)
|
|
Balances, January 1, 2006
|
|
20,158
|
|
$
|
20
|
|
$
|
34,113
|
|
$
|
(6,208
|
)
|
$
|
10,449
|
|
$
|
38,374
|
|
Common
stock issued
|
|
220
|
|
—
|
|
1
|
|
—
|
|
—
|
|
1
|
|
Share-based
compensation
|
|
—
|
|
—
|
|
3,696
|
|
—
|
|
—
|
|
3,696
|
|
Tax
benefit from stock options
|
|
—
|
|
—
|
|
3,909
|
|
—
|
|
—
|
|
3,909
|
|
Sale
of investment
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(10,216
|
)
|
(10,216
|
)
|
Other
comprehensive loss
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(282
|
)
|
(282
|
)
|
Net
earnings
|
|
—
|
|
—
|
|
—
|
|
7,769
|
|
—
|
|
7,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
20,378
|
|
20
|
|
41,719
|
|
1,561
|
|
(49
|
)
|
43,251
|
|
Common
stock issued
|
|
114
|
|
—
|
|
1
|
|
—
|
|
—
|
|
1
|
|
Share-based
compensation
|
|
—
|
|
—
|
|
2,113
|
|
—
|
|
—
|
|
2,113
|
|
Other
comprehensive gain
|
|
—
|
|
—
|
|
—
|
|
—
|
|
63
|
|
63
|
|
Net
loss
|
|
—
|
|
—
|
|
—
|
|
(9,633
|
)
|
—
|
|
(9,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 30, 2007
|
|
20,492
|
|
20
|
|
43,833
|
|
(8,072
|
)
|
14
|
|
35,795
|
|
Share-based
compensation
|
|
—
|
|
—
|
|
728
|
|
—
|
|
—
|
|
728
|
|
Other
comprehensive loss
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(11
|
)
|
(11
|
)
|
Net
loss
|
|
—
|
|
—
|
|
—
|
|
(14,449
|
)
|
—
|
|
(14,449
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 28, 2008
|
|
20,492
|
|
$
|
20
|
|
$
|
44,561
|
|
$
|
(22,521
|
)
|
$
|
3
|
|
$
|
22,063
|
|
See notes to consolidated
financial statements.
F-6
WPT
ENTERPRISES, INC.
Consolidated Statements of Cash Flows
|
|
2008
|
|
2007
|
|
2006
|
|
|
|
(In thousands)
|
|
Operating Activities:
|
|
|
|
|
|
|
|
Net
earnings (loss)
|
|
$
|
(14,449
|
)
|
$
|
(9,633
|
)
|
$
|
7,769
|
|
Adjustments to
reconcile net earnings (loss) to net cash provided by (used in) operating
activities of continuing operations:
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
2,404
|
|
1,083
|
|
—
|
|
Depreciation
and amortization
|
|
707
|
|
696
|
|
597
|
|
Share-based
compensation
|
|
728
|
|
2,113
|
|
3,800
|
|
Asset
impairment and abandonment charges
|
|
1,923
|
|
2,270
|
|
—
|
|
Gain
on sale of investment
|
|
(11
|
)
|
—
|
|
(10,216
|
)
|
Put
rights issued by broker holding ARS portfolio
|
|
(605
|
)
|
—
|
|
—
|
|
Impairment
of ARS portfolio
|
|
605
|
|
—
|
|
—
|
|
Other
|
|
—
|
|
—
|
|
58
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
659
|
|
(411
|
)
|
680
|
|
Deferred
television costs
|
|
(41
|
)
|
(522
|
)
|
(305
|
)
|
Other
|
|
3
|
|
(560
|
)
|
533
|
|
Accounts
payable
|
|
(249
|
)
|
62
|
|
(876
|
)
|
Accrued
expenses
|
|
(878
|
)
|
(28
|
)
|
1,094
|
|
Deferred
revenue
|
|
(957
|
)
|
(1,870
|
)
|
(410
|
)
|
Net
cash provided by (used in) operating activities of continuing operations
|
|
(10,161
|
)
|
(6,800
|
)
|
2,724
|
|
Net
cash used in operating activities of discontinued operations
|
|
(2,649
|
)
|
(1,201
|
)
|
—
|
|
Net
cash provided by (used in) operating activities
|
|
(12,810
|
)
|
(8,001
|
)
|
2,724
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
(538
|
)
|
(769
|
)
|
(2,701
|
)
|
Investment
in unconsolidated investee
|
|
—
|
|
—
|
|
(2,923
|
)
|
Purchases
of available for sale debt securities
|
|
(11,187
|
)
|
(55,974
|
)
|
(48,318
|
)
|
Sales/redemptions
of available for sale debt securities
|
|
32,370
|
|
60,129
|
|
43,899
|
|
Proceeds
from sale of investment
|
|
—
|
|
—
|
|
10,236
|
|
Net
cash provided by investing activities of continuing operations
|
|
20,645
|
|
3,386
|
|
193
|
|
Net
cash used in investing activities of discontinued operations
|
|
(153
|
)
|
—
|
|
—
|
|
Net
cash provided by investing activities
|
|
20,492
|
|
3,386
|
|
193
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
(Increase)
decrease in restricted cash
|
|
(37
|
)
|
106
|
|
(204
|
)
|
Proceeds
from exercise of stock options
|
|
—
|
|
1
|
|
1
|
|
Tax
benefit from stock options
|
|
—
|
|
—
|
|
3,909
|
|
Net
cash provided by (used in) financing activities
|
|
(37
|
)
|
107
|
|
3,706
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
7,645
|
|
(4,508
|
)
|
6,623
|
|
Cash
and cash equivalents at beginning of year
|
|
3,852
|
|
8,360
|
|
1,737
|
|
Cash
and cash equivalents at end of year
|
|
$
|
11,497
|
|
$
|
3,852
|
|
$
|
8,360
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
Share-based
compensation in television costs
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14
|
|
Cash
paid (refunded) for income taxes
|
|
(95
|
)
|
394
|
|
98
|
|
See notes to
consolidated financial statements.
F-7
WPT Enterprises, Inc.
Notes to Consolidated Financial Statements
1.
BUSINESS
WPT Enterprises, Inc.,
together with the subsidiaries through which the Company’s business is
conducted (the “Company”), creates internationally branded entertainment and
consumer products driven by the development, production and marketing of
televised programming based on gaming themes. The World Poker Tour or WPT
television series, which is based on a series of high-stakes poker tournaments,
currently airs on the Travel Channel and Game Show Network in the U.S., and
began airing on Fox Sports Net in January 2009, and has been licensed for
broadcast globally. The Company also offered until November 2008 a
real-money online gaming website which prohibits wagers from players in the
U.S. and other restricted jurisdictions. In addition, the Company licenses the
World Poker Tour brand to companies in the business of poker equipment and
instruction, apparel, publishing, electronic and wireless entertainment,
DVD/home entertainment, casino games and giftware and is engaged in the sale of
corporate sponsorships.
The Travel Channel, LLC (“Travel
Channel”) licensed Season One of the Professional Poker Tour (“PPT”) and
Seasons One through Five of the WPT and represented 0%, 37% and 58% of the
Company’s total revenue in 2008, 2007 and 2006, respectively. The Game Show
Network licensed Season Six of the WPT and represented 35%, 7% and 0% of the
Company’s total revenue in 2008, 2007 and 2006, respectively. Fox Sports Net (“FSN”)
is broadcasting Season Seven of the WPT television series in 2009 and
FullTiltPoker.net is the sponsor of the television series in the U.S. and
Mexico. PartyGaming Plc (“PartyGaming”) is one international sponsor of the
Season One of the PPT and Seasons Four through Six of the WPT. PartyGaming
represented 19%, 10% and 0% of the Company’s total revenue in 2008, 2007 and
2006, respectively.
Included in accounts
receivable at December 28, 2008 are amounts billed to FullTiltPoker.net,
PartyGaming and Hands-On Mobile that are 39%, 24% and 15% of the total balance,
respectively. Included in accounts receivable at December 30, 2007 are
amounts billed to PartyGaming, Hands-On Mobile and Alfred Haber Distribution, Inc.
that are 31%, 21% and 15% of the total balance, respectively.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Year End
—
The Company has a 52- or 53-week accounting period
ending on the Sunday closest to December 31 of each year. The Company’s
fiscal years for the periods reflected in the accompanying financial statements
ended on December 28, 2008 (2008), December 30, 2007 (2007) and December 31,
2006 (2006).
Basis of Presentation
—
The financial statements of the Company
include the accounts of WPT Enterprises, Inc. and its wholly-owned
subsidiaries after elimination in consolidation of intercompany accounts and
transactions. Television sponsorship revenues in 2007 and 2006 were
reclassified from event hosting and sponsorship fees to television revenues to
conform to the 2008 presentation.
Use of Estimates
—
The preparation of financial statements in conformity
with accounting principles generally accepted in the U.S. requires management
to make estimates that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash
—
The Company periodically maintains cash balances at
banks in excess of federally-insured amounts.
Cash Equivalents
—
The Company considers all highly liquid investments
with an original maturity of three months or less at the date of purchase to be
cash equivalents. The carrying value of cash equivalents approximates fair
value due to the short period of time to maturity.
Investments
—
Until November 2008 when the Company changed the
classification of its investments in auction rate securities (“ARS”) to “trading
securities”, all investments in debt securities were held as “available for
sale”, which are stated at fair value with unrealized gains and losses reported
as other comprehensive earnings (loss). “Trading securities” are stated at fair
value with unrealized gains and losses reported in interest income. Realized
gains or losses are determined as of the settlement date on the specific
identification cost method. The cost method of accounting is used for
investments in which the Company has less than a 20% ownership interest and
does not have the ability to exercise significant influence.
F-8
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
Deferred Television Costs
—
Deferred television costs include direct
production, overhead and development costs stated at the lower of cost or net
realizable value based on anticipated revenue. Production overhead includes
incremental costs associated with the productions such as office facilities and
insurance. Shared facilities costs are allocated to episodes based on
headcount. Production overhead insurance costs are allocated to television
costs based on number of episodes. Capitalized television production costs for
each episode are expensed as revenues are recognized upon delivery and
acceptance of the completed episode using the individual-film-forecast-computation
method for each season produced.
Property and Equipment
—Property and equipment is stated at cost less
accumulated depreciation and amortization computed using the straight-line
method over the following estimated useful lives, which in the case of
leasehold improvements, is limited to the term of the lease:
Furniture and equipment
|
|
3-6 years
|
|
Software
|
|
3 years
|
|
Leasehold
improvements
|
|
3-6 years
|
|
Deferred Revenue
—
Deferred revenue consists of domestic television and
product licensing advances, not yet earned, and host fees and sponsorship
payments received prior to the airing of episodes.
Revenue Recognition
—
Revenue
from the distribution of the domestic
and international television series is recognized as earned using the following
criteria:
·
Persuasive evidence of an arrangement
exists;
·
The show/episode is complete, and in
accordance with the terms of the arrangement, has been delivered or is
available for immediate and unconditional delivery;
·
The license period has begun and the
customer can begin its exploitation, exhibition or sale;
·
The price to the customer is fixed and
determinable; and
·
Collectability is reasonably assured.
Due to restrictions and
practical limitations applicable to operating relationships with foreign
networks, the Company does not consider collectability of international
television license revenues to be reasonably assured, and accordingly, the
Company does not recognize such revenue unless payment has been received. The
Company presents international distribution license fee revenues net of the
distributor’s fees.
Product licensing
revenues are recognized when the underlying royalties from the sales of the
related products are earned. The Company recognizes minimum revenue guarantees,
if any, ratably over the term of the license or as earned royalties based on
actual sales of the related products, if greater.
Online gaming and
nongaming revenues are recognized monthly based on detailed statements received
from the online service providers. The Company presents online gaming and
nongaming revenues gross of service provider costs (including the service
provider’s management fee, royalties and credit card processing that are
recorded as cost of revenues) as the Company has the ability to adjust price
and specifications of the online websites, the Company bears the majority of
the credit risk and the Company is responsible for the sales and marketing of
the websites.
The Company
includes certain cash promotional expenses related to free bets, deposit
bonuses, prizes and customer chargebacks as direct reductions of revenue. All
other promotional expenses are generally recorded as sales and marketing
expenses.
Event hosting fees paid
by host casinos for the privilege of hosting the events are recognized as the
related episodes are aired. Sponsorship revenues are recognized as the episodes
that feature the sponsor are aired.
Travel Channel Participation
—
The Company accounts for royalty payments
to the Travel Channel in cost of revenues as the related international
television, consumer products, and other licensing revenues are recognized.
Share-Based Compensation
—
The Company accounts for share-based
compensation based on SFAS No. 123(R)
Share-Based Payment
. SFAS 123(R) prescribes the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services.
F-9
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
The
Company uses the “modified prospective transition” method, which requires
recognition of expense for all awards granted after the date of adoption and
for the unvested portion of previously granted awards outstanding as of the
date of adoption. The Company estimates the fair value of stock option awards
on the date of grant using a Black-Scholes option pricing model. The key
assumptions included in the Black-Scholes model are as follows:
·
Risk free interest rate—For periods
within the expected term of the share option, risk free interest rate is based
on the U.S. Treasury yield curve in effect at the time of grant.
·
Expected term—Due to the Company’s limited operating
history including stock option exercises and forfeitures, the Company
calculated expected life using the “Simplified Method” in accordance with
SAB 107.
·
Expected volatility—As the Company has a relatively
short operating history and no definitive peer or peer groups, expected
volatility was based on historical volatility of the Company’s stock since it
began trading in August 2004.
·
Forfeiture rate—The Company uses
historical data to estimate employee departure behavior in estimating future
forfeitures.
The value of the portion
of the award that is ultimately expected to vest (net of estimated forfeitures)
is recognized as expense, using a straight-line method, over the requisite
service period.
Earnings (Loss) Per Share—
Basic earnings (loss) per common share
is calculated by dividing net earnings (loss) by the weighted-average number of
common shares outstanding during the period. Shares for certain stock options
granted to Company employees are included in the computation after the options
have vested when the shares are issuable for minimal cash consideration in
relation to the fair value of the options. Diluted earnings per common share is
calculated by adjusting weighted-average outstanding shares, assuming the
conversion of all potentially dilutive stock options and awards (common stock
equivalents). However, common stock equivalents are not included in the
calculation of diluted earnings per share for loss periods because the effect
is anti-dilutive. There were no common stock equivalents in 2008 or 2007, the
two loss periods.
Accounting Changes
—In the first quarter of 2008, the Company adopted
SFAS No. 157,
Fair Value Measurements
for all financial assets and liabilities and for all non-financial assets and
liabilities recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually)
.
SFAS 157
defines fair value and establishes a framework for measuring fair value and
expands disclosures about fair value measurements. The adoption of
SFAS 157 did not have a significant impact on the consolidated financial
statements. In the first quarter of 2008, the Company also adopted SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities —
including an
amendment of
FAS 115.
SFAS 159 allows entities to choose, at specified
election dates, to measure eligible financial assets and liabilities at fair
value in situations when they are not required to be measured at fair value.
The adoption of SFAS 159 did not have a significant impact on the consolidated
financial statements. The Company elected to measure the put rights described
in Note 3 at fair value.
In February 2008,
the FASB issued FSP 157-1,
Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13
and
FSP 157-2,
Effective Date of FASB
Statement No. 157
. FSP 157-1 amends SFAS 157 to remove certain
leasing transactions from its scope, and was effective upon initial adoption of
SFAS 157. FSP 157-2 delays the effective date of SFAS 157 for
all non-financial assets and non-financial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). We are currently evaluating the impact
that SFAS 157 will have on our consolidated financial statements when it
is applied to non-financial assets and non-financial liabilities that are not
measured at fair value on a recurring basis.
In October 2008, the
FASB issued FSP 157-3
Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active
.
FSP 157-3 clarifies the application of SFAS 157 in a market that is
not active, and addresses application issues such as the use of internal
assumptions when relevant observable data does not exist, the use of observable
market information when the market is not active and the use of market quotes
when assessing the relevance of observable and unobservable data.
FSP 157-3 is effective for all periods presented in accordance with
SFAS 157. The adoption of FSP 157-3 did not have a significant impact
on our consolidated financial statements.
F-10
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
In December 2007,
the FASB issued SFAS No. 141 (Revised 2007),
Business Combinations.
SFAS 141(R) will
significantly change the accounting for business combinations. SFAS 141(R) is
to be applied prospectively to business combinations for which the acquisition
date is on or after January 1, 2009.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling
Interests in
Consolidated
Financial Statements — an Amendment of ARB No. 51
which
establishes accounting and reporting standards for the noncontrolling or
minority interest in a subsidiary and for the deconsolidation of a subsidiary.
SFAS 160 is effective for fiscal year 2009. Among the effects of
SFAS 160 will be the future exclusion from net income (loss) of the
noncontrolling or minority interest therein and the relocation of such
noncontrolling or minority interest to the stockholders’ equity section of the
balance sheet, and the Company is evaluating other effects, if any, that
SFAS 160 will have on the Company’s future financial position, results of
operations and cash flows.
In March 2008, the
FASB issued SFAS No. 161,
Disclosures
About Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133
. SFAS 161 expands the disclosure
requirements in SFAS No. 133,
Accounting
for Derivative Instruments and Hedging Activities
, regarding
derivative instruments and hedging activities. SFAS 161 will be effective
for fiscal year 2009. The Company does not currently expect that SFAS 161
will have a material impact on the Company’s future financial condition,
results of operations or cash flows.
3.
INVESTMENTS IN DEBT SECURITIES AND PUT RIGHTS
As of December 28,
2008 and December 30, 2007, investments in debt securities and put rights
consist of the following (in thousands):
December 28,
2008
|
|
Cost
|
|
Unrealized
Gains/(Losses)
|
|
Fair Value
|
|
Maturity less than 1 year (all
available for sale)
|
|
|
|
|
|
|
|
Short-term
municipal bonds
|
|
$
|
800
|
|
$
|
1
|
|
$
|
801
|
|
Corporate
preferred securities
|
|
997
|
|
2
|
|
999
|
|
Certificates
of deposit
|
|
288
|
|
—
|
|
288
|
|
|
|
$
|
2,085
|
|
$
|
3
|
|
$
|
2,088
|
|
|
|
|
|
|
|
|
|
Longer maturities (all trading securities)
|
|
|
|
|
|
|
|
Auction
rate securities
|
|
$
|
3,295
|
|
$
|
—
|
|
$
|
3,295
|
|
Put
rights
|
|
605
|
|
—
|
|
605
|
|
|
|
$
|
3,900
|
|
$
|
—
|
|
$
|
3,900
|
|
December 30,
2007
|
|
Cost
|
|
Unrealized
Gains/(Losses)
|
|
Fair Value
|
|
Maturity less than 1 year (all
available for sale)
|
|
|
|
|
|
|
|
US
Treasury and agency securities
|
|
$
|
1,000
|
|
$
|
—
|
|
$
|
1,000
|
|
Short-term
municipal bonds
|
|
1,000
|
|
1
|
|
1,001
|
|
Auction
rate securities
|
|
7,825
|
|
—
|
|
7,825
|
|
Corporate
preferred securities
|
|
12,464
|
|
9
|
|
12,473
|
|
Certificates
of deposit
|
|
672
|
|
—
|
|
672
|
|
|
|
$
|
22,961
|
|
$
|
10
|
|
$
|
22,971
|
|
|
|
|
|
|
|
|
|
Longer maturities (all available for sale)
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$
|
1,827
|
|
$
|
(3
|
)
|
$
|
1,824
|
|
Corporate
preferred securities
|
|
1,985
|
|
7
|
|
1,992
|
|
Certificates
of deposit
|
|
384
|
|
—
|
|
384
|
|
|
|
$
|
4,196
|
|
$
|
4
|
|
$
|
4,200
|
|
Investments in debt
securities and put rights that are classified as available for sale or trading
securities are the only assets or liabilities that the Company is required to
measure at their estimated fair value on a recurring basis.
F-11
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
The estimated fair value
is determined using inputs from among the three levels of the fair value
hierarchy set forth in SFAS 157 as follows:
Level 1 inputs –
Unadjusted quoted prices in active markets for identical assets or liabilities,
which prices are available at the measurement date.
Level
2 inputs – Quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that
are not active, inputs other than quoted prices that are observable for the
asset or liability (
i.e.
,
interest rates, yield curves,
etc.
)
and inputs that are derived principally from or corroborated by observable
market data by correlation or other means (market corroborated inputs).
Level
3 inputs – Unobservable inputs that reflect management’s estimates about the
assumptions that market participants would use in pricing the asset or
liability. Management develops these inputs based on the best information available,
including internally-developed data.
In
estimating fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the
extent possible. None of the Company’s financial instruments are measured based
on Level 2 inputs.
As of December 28,
2008, financial assets that are carried at fair value consist of the following
(in thousands):
Description
|
|
Level 1
|
|
Level 3
|
|
Total
|
|
Cash
and cash equivalents
|
|
$
|
11,497
|
|
$
|
—
|
|
$
|
11,497
|
|
Short-term
municipal bonds
|
|
801
|
|
—
|
|
801
|
|
Corporate
preferred securities
|
|
999
|
|
—
|
|
999
|
|
Certificates
of deposit
|
|
288
|
|
—
|
|
288
|
|
Auction
rate securities
|
|
—
|
|
3,295
|
|
3,295
|
|
Put
rights
|
|
—
|
|
605
|
|
605
|
|
Total
assets at estimated fair value
|
|
$
|
13,585
|
|
$
|
3,900
|
|
$
|
17,485
|
|
For financial assets that utilize Level 1 inputs, the
Company utilizes direct observable price quotes in active markets for identical
assets. Due to the lack of observable market quotes on the Company’s ARS
portfolio and related put rights, the Company utilizes valuation models that
rely exclusively on Level 3 inputs including those that are based on management’s
estimates of expected cash flow streams and collateral values, default risk
underlying the security, long term broker credit rating, discount rates and
overall capital market liquidity. The valuation of the Company’s ARS portfolio
and related put rights is subject to uncertainties that are difficult to
predict. Factors that may impact the estimated fair value include changes to
credit ratings of ARS as well as to the assets collateralizing the securities,
rates of default of the underlying assets and collateral value, broker default
risk, discount rates, and evolving market conditions affecting the liquidity of
ARS.
The following table
summarizes activity in the Company’s ARS portfolio and put rights (in
thousands):
Description
|
|
ARS
|
|
Put
Rights
|
|
Total
|
|
Beginning
balance – December 30, 2007
|
|
$
|
7,825
|
|
$
|
—
|
|
$
|
7,825
|
|
Put
rights issued by broker holding ARS portfolio, included in earnings
|
|
—
|
|
605
|
|
605
|
|
Impairment
of ARS portfolio, included in earnings
|
|
(605
|
)
|
—
|
|
(605
|
)
|
Settlements,
net of purchases
|
|
(3,925
|
)
|
—
|
|
(3,925
|
)
|
Total
assets at estimated fair value
|
|
$
|
3,295
|
|
$
|
605
|
|
$
|
3,900
|
|
In November 2008,
the Company accepted an offer from UBS AG (“UBS”), that created new rights and
obligations related to the ARS portfolio (the “Put Rights”). The Put Rights
permit the Company to require UBS to purchase the ARS at par value, at any time
during the period of June 30, 2010 through July 2, 2012. UBS also has
the right, in its discretion, to purchase or sell the ARS at any time until July 2,
2012, so long as par value is received. The Company expects to sell the ARS
under the Put Rights. However, if the Put Rights are not exercised before July 2,
2012 they will expire and UBS will have no further obligation to buy the ARS.
F-12
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
UBS’s obligations under
the Put Rights are not secured by its assets and do not require UBS to obtain
any financing to support its performance obligations under the Put Rights. UBS
has disclaimed any assurance that it will have sufficient financial resources
to satisfy its obligations under the Put Rights and UBS’s obligations are not
guaranteed by any other party.
The Put Rights represent
an asset that is separate from the ARS. The Company recorded $605,000 as the
fair value of the Put Rights asset in interest income. The Company also elected
to measure the Put Rights at fair value under SFAS 159, which permits an
entity to elect the fair value option for recognized financial assets. As a result,
unrealized gains and losses will be included in interest income in future
periods. The Company did not elect the fair value option for its other
financial assets and liabilities.
In connection with the
acceptance of the UBS offer in November 2008, the Company transferred the
ARS from investments available-for-sale to trading securities in accordance
with SFAS 115. The transfer to trading securities reflects management’s
intent to exercise the Put Rights during the period June 30, 2010 to July 3,
2012. Prior to the agreement with UBS, the Company’s intent was to hold the ARS
until the market recovered. At the time of transfer, the $605,000 unrealized
loss on ARS was included in accumulated other comprehensive gain (loss). Upon
transfer to trading securities, the Company recognized a $605,000 loss in
interest income. Unrealized gains and losses will be included in interest
income in future periods. Prior to accepting the UBS offer, the ARS were
recorded as investments available-for-sale.
UBS has provided the Company with a line of credit,
secured by ARS held by UBS, equal to 75% of the estimated fair value of the ARS
held by UBS. Interest is charged at the lower of 30-day LIBOR plus 150 to 275
basis points or the actual interest earned by the ARS. The Company borrowed
$2,661,000 under the line of credit agreement in February 2009.
4.
DEFERRED TELEVISION COSTS
As of December 28,
2008 and December 30, 2007, deferred television costs consist of the
following (in thousands):
|
|
2008
|
|
2007
|
|
In-production
|
|
$
|
1,996
|
|
$ 1,637
|
|
Pre-production
|
|
289
|
|
607
|
|
|
|
$
|
2,285
|
|
$ 2,244
|
|
As of December 28,
2008 and December 30, 2007, the Company had no accrued participation
costs. Based upon management’s estimates as of December 28, 2008, 100% of
capitalized television costs are expected to be recognized during fiscal year
2009, and accordingly, are shown as current assets.
5.
PROPERTY AND EQUIPMENT
As of December 28,
2008 and December 30, 2007, property and equipment consists of the
following (in thousands):
|
|
2008
|
|
2007
|
|
Furniture
and equipment
|
|
$
|
1,767
|
|
$
|
2,024
|
|
Leasehold
improvements
|
|
701
|
|
701
|
|
Software
|
|
836
|
|
425
|
|
Construction
in progress
|
|
204
|
|
277
|
|
|
|
3,508
|
|
3,427
|
|
Less:
accumulated depreciation and amortization
|
|
(2,215
|
)
|
(1,965
|
)
|
Property
and equipment, net
|
|
$
|
1,293
|
|
$
|
1,462
|
|
6.
ASSET IMPAIRMENT, ASSET ABANDONMENT AND INVESTMENT SALE
In 2006, the Company paid
$2,923,000 for an interest (currently 8%) in Cecure Gaming, a developer and
operator of mobile phone casino games. The Company recorded a $1,923,000 impairment
charge in the third quarter of 2008 related to difficulties Cecure was having
in obtaining working capital to finance their business development that
resulted in a significant reduction in staffing. This investment was measured
at implied fair value resulting in an other-than-temporary impairment charge.
The implied fair value measurement was calculated using financial metrics
F-13
WPT Enterprises, Inc.
Notes to Consolidated Financial
Statements
and ratios of comparable
public companies and was measured using Level 3 inputs, as the Company used
unobservable inputs and significant management judgment to value this
investment due to the absence of quoted market prices, inherent lack of
liquidity and the long-term nature of this investment.
In 2007, the Company
wrote off $2,270,000 of online gaming assets as a result of ceasing the
development of a stand-alone online gaming business and joining a third-party
online gaming network.
In 2006, the Company sold
its interest in PokerTek and recognized a $10,455,000 gain on sale. PokerTek
offered an automated poker room to tribal and commercial casinos and card
clubs.
7.
RELATED PARTY TRANSACTIONS
The Company licenses the
World Poker Tour name and logo to Lakes Entertainment, Inc. (“Lakes”), the
Company’s majority owned stockholder until November 2008, in connection
with a casino table game that Lakes developed. The Company is entitled to
receive minimum annual royalty payments or 10% of the gross revenue received by
Lakes from its sale or lease of the game, whichever is greater. During 2008,
2007 and 2006, the Company received $10,000, $10,000 and $30,000, respectively,
in royalty payments related to the game.
The Company entered into
a non-exclusive license agreement in 2004 with an entity controlled by a Lakes
director. The entity licenses the World Poker Tour name, logo and trademark in
connection with the licensee’s production of certain types of apparel for
distribution in authorized channels within the U.S. and in certain
circumstances, Canada. The licensee paid $45,000 in royalties and certain other
fees to the Company during 2007 and 2006. This license agreement expired in September 2007.
8.
DISCONTINUED WPT CHINA OPERATIONS
In January 2009, the
Company began searching for a strategic partner to invest in the WPT China
business. The cash needs to support the growth in this business are greater
than the Company is willing to expend. In March 2009, the Company shut
down the operations of WPT China while continuing to look for a strategic
partner to acquire the WPT China assets. The financial results of WPT China
have been reclassified as discontinued operations.
Summarized operating
results information for the WPT China business is as follows (in thousands):
|
|
2008
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Loss before income taxes
|
|
(2,404
|
)
|
(1,083
|
)
|
—
|
|
Income taxes
|
|
—
|
|
—
|
|
—
|
|
Loss from discontinued operations
|
|
(2,404
|
)
|
(1,083
|
)
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized balance
sheet information for the WPT China business is as follows (in thousands):
|
|
December 28,
2008
|
|
December 30,
2007
|
|
Cash
and cash equivalents
|
|
$
|
168
|
|
$
|
—
|
|
Other
current assets
|
|
233
|
|
118
|
|
Property
and equipment, net
|
|
115
|
|
—
|
|
|
|
|
|
|
|
|
|
F-14
WPT Enterprises, Inc.
Notes to Consolidated Financial Statements
9.
INCOME TAXES
The
federal, state and foreign income tax provision (benefit) is summarized as
follows (in thousands):
|
|
2008
|
|
2007
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
$
|
(74
|
)
|
$
|
3,484
|
|
State
|
|
—
|
|
(25
|
)
|
908
|
|
Foreign
|
|
—
|
|
29
|
|
—
|
|
|
|
—
|
|
(70
|
)
|
4,392
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
—
|
|
—
|
|
—
|
|
State
|
|
—
|
|
—
|
|
—
|
|
Foreign
|
|
—
|
|
—
|
|
—
|
|
|
|
$
|
—
|
|
$
|
(70
|
)
|
$
|
4,392
|
|
Earnings
(loss) for domestic and foreign operations are summarized as follows (in
thousands):
|
|
2008
|
|
2007
|
|
2006
|
|
Earnings (loss) from continuing operations before
income taxes:
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(9,240
|
)
|
$
|
(7,597
|
)
|
$
|
12,161
|
|
Foreign
|
|
(2,805
|
)
|
(1,023
|
)
|
—
|
|
|
|
(12,045
|
)
|
(8,620
|
)
|
12,161
|
|
Loss from discontinued operations before income
taxes
|
|
(2,404
|
)
|
(1,083
|
)
|
—
|
|
|
|
$
|
(14,449
|
)
|
$
|
(9,703
|
)
|
$
|
12,161
|
|
A
reconciliation of the provision (benefit) for income taxes with amounts
determined by applying the statutory U.S. federal income tax rate to earnings
(loss) before income taxes is as follows (in thousands):
|
|
2008
|
|
2007
|
|
2006
|
|
Earnings (loss) from continuing operations before
income taxes
|
|
$
|
(4,095
|
)
|
(34.0
|
)%
|
$
|
(2,931
|
)
|
(34.0
|
)%
|
$
|
4,135
|
|
34.0
|
%
|
State taxes, net of federal benefit
|
|
(715
|
)
|
(5.9
|
)
|
(512
|
)
|
(5.9
|
)
|
658
|
|
5.4
|
|
Foreign operating losses
|
|
1,120
|
|
9.3
|
|
409
|
|
4.8
|
|
—
|
|
—
|
|
Other, net
|
|
(128
|
)
|
(1.1
|
)
|
(239
|
)
|
(2.8
|
)
|
(48
|
)
|
(0.4
|
)
|
Foreign taxes
|
|
—
|
|
—
|
|
29
|
|
0.3
|
|
—
|
|
—
|
|
AMT credits
|
|
—
|
|
—
|
|
(388
|
)
|
(4.5
|
)
|
—
|
|
—
|
|
Increase (decrease) in valuation allowance
|
|
3,818
|
|
31.7
|
|
3,562
|
|
41.3
|
|
(353
|
)
|
(2.9
|
)
|
Income
taxes from continuing operations
|
|
—
|
|
—
|
|
(70
|
)
|
(0.8
|
)%
|
4,392
|
|
36.1
|
%
|
Income
taxes from discontinued operations
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
$
|
—
|
|
—
|
%
|
$
|
(70
|
)
|
(0.8
|
)%
|
$
|
4,392
|
|
36.1
|
|
F-15
WPT Enterprises, Inc.
Notes to Consolidated Financial
Statements
Deferred
income taxes reflect the net 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 the Company’s
deferred tax assets and liabilities are as follows (in thousands):
|
|
2008
|
|
2007
|
|
Deferred Tax Assets:
|
|
|
|
|
|
Current:
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
2,572
|
|
$
|
2,281
|
|
Accruals, reserves and other
|
|
196
|
|
290
|
|
Valuation allowance
|
|
(2,719
|
)
|
(2,484
|
)
|
|
|
49
|
|
87
|
|
Non-current:
|
|
|
|
|
|
Federal net operating losses
|
|
5,273
|
|
2,877
|
|
State net operating losses, net of federal benefit
|
|
937
|
|
488
|
|
Asset impairment charge
|
|
768
|
|
—
|
|
AMT credits
|
|
388
|
|
388
|
|
Other
|
|
17
|
|
39
|
|
Valuation allowance
|
|
(7,280
|
)
|
(3,697
|
)
|
|
|
103
|
|
95
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
Current:
|
|
|
|
|
|
Prepaid expenses
|
|
(133
|
)
|
(137
|
)
|
|
|
(133
|
)
|
(137
|
)
|
Non-current:
|
|
|
|
|
|
Depreciation and amortization
|
|
(19
|
)
|
(45
|
)
|
|
|
(19
|
)
|
(45
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
$
|
—
|
|
The temporary differences
described above represent differences between the tax basis of assets or
liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years when the reported
amounts of the assets or liabilities are recovered or settled. A valuation
allowance has been provided as it is more likely than not that the net deferred
tax assets will not be recovered in the foreseeable future.
At December 28,
2008, the Company has federal and state net operating loss carryforwards of
$15.5 and $15.8 million, respectively. Included in these amounts are $3.7
million of deductions related to stock option exercises that will increase
additional paid-in capital when realized. These federal and state net operating
loss carryforwards expire through 2023 and 2018, respectively. The Company
reviewed the tax positions taken in income tax returns that are subject to
audit and is not aware of any significant uncertain tax positions in those
income tax returns.
10.
SHARE-BASED COMPENSATION
The Company’s 2004 Stock
Incentive Plan (the “2004 Plan”) provides for grants up to
4,200,000 shares of common stock, including the options to purchase up to
1,120,000 shares of common stock issued to employees and consultants prior
to becoming a publicly-traded company. The options vest in equal installments
over three-year to five-year periods, beginning on the first anniversary of the
date of each grant and continue on each subsequent anniversary date until the
option is fully vested. The employee must be employed with the Company on the
anniversary date in order to vest in any shares for that year. Vested options
are exercisable for ten years from the date of grant; however, if the employee
is terminated (voluntarily or involuntarily), any unvested options as of the
date of termination will be forfeited. The Company issues new shares of common
stock upon exercise of options.
Share-based compensation
expense included in selling, general and administrative expense was $728,000,
$2,086,000 and $3,568,000 in 2008, 2007 and 2006, respectively. Share-based
compensation included in cost of revenues in 2008, 2007 and 2006 was $0,
$27,000 and $233,000, respectively. As of December 28, 2008, total
estimated compensation cost related to non-vested share-based options not yet
recognized is $986,000, which is expected to be recognized over the next 45
months on a weighted-average basis.
F-16
WPT Enterprises, Inc.
Notes to Consolidated Financial
Statements
Following
is a summary of the assumptions used to estimate the weighted-average fair
value of the stock options granted using the Black-Scholes pricing model:
|
|
Year ended
December 28, 2008
|
|
Year ended
December 30, 2007
|
|
Year ended
December 31, 2006
|
|
Risk free interest rate
|
|
1.77
|
%
|
4.19
|
%
|
4.61
|
%
|
Expected term
|
|
6.0 to 6.25 years
|
|
6.0 years
|
|
6.5 years
|
|
Expected volatility
|
|
81.27
|
%
|
71.24
|
%
|
78.67
|
%
|
Forfeiture rate
|
|
20.58
|
%
|
14.73
|
%
|
4.13
|
%
|
Expected dividend yield
|
|
0
|
%
|
0
|
%
|
0
|
%
|
Weighted-average fair value
|
|
$
|
0.22
|
|
$
|
2.26
|
|
$
|
3.47
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes stock option activity for 2008, 2007 and
2006:
|
|
|
|
Number of Common Shares
|
|
|
|
Options
outstanding
|
|
Exercisable
|
|
Available
for grant
|
|
Weighted
avg. exercise
price
|
|
Balances at January 1, 2006
|
|
2,158,000
|
|
|
620,333
|
|
283,667
|
|
$
|
7.14
|
|
|
Authorized
|
|
—
|
|
|
—
|
|
1,080,000
|
|
—
|
|
|
Granted
|
|
754,500
|
|
|
—
|
|
(754,500
|
)
|
4.92
|
|
|
Forfeited
|
|
(374,334
|
)
|
|
—
|
|
374,334
|
|
9.21
|
|
|
Exercised
|
|
(220,000
|
)
|
|
—
|
|
—
|
|
0.0049
|
|
|
Balances at December 31, 2006
|
|
2,318,166
|
|
|
1,050,200
|
|
983,501
|
|
6.76
|
|
|
Granted
|
|
1,131,350
|
|
|
—
|
|
(1,131,350
|
)
|
3.42
|
|
|
Forfeited
|
|
(414,999
|
)
|
|
—
|
|
414,999
|
|
7.27
|
|
|
Exercised
|
|
(113,660
|
)
|
|
—
|
|
—
|
|
0.0049
|
|
|
Balances at December 30, 2007
|
|
2,920,857
|
|
|
1,322,206
|
|
267,150
|
|
5.66
|
|
|
Granted
|
|
1,112,000
|
|
|
—
|
|
(1,112,000
|
)
|
0.51
|
|
|
Forfeited/exchanged
|
|
(1,718,268
|
)
|
|
—
|
|
1,718,268
|
|
4.81
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
Balances at December 28, 2008
|
|
2,314,589
|
|
|
1,106,921
|
|
873,418
|
|
$
|
3.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes significant ranges of outstanding and
exercisable options as of December 28, 2008:
Options outstanding
|
|
Options exercisable
|
|
Range of
exercise prices
|
|
Number
outstanding
|
|
Weighted-avg.
remaining
contractual life
|
|
Weighted-avg.
exercise
price
|
|
Number
exercisable
|
|
Weighted-avg.
exercise
price
|
|
Aggregate
Intrinsic
Value
|
|
$0.0049
|
111,340
|
|
|
3.41
|
|
|
$
|
0.0049
|
|
|
111,340
|
|
|
$
|
0.0049
|
|
$
|
49,557
|
|
|
$0.37-4.80
|
1,188,250
|
|
|
9.81
|
|
|
0.78
|
|
|
47,482
|
|
|
3.77
|
|
—
|
|
|
$5.18-9.92
|
1,001,999
|
|
|
5.81
|
|
|
7.72
|
|
|
935,099
|
|
|
7.88
|
|
—
|
|
|
$11.95-14.51
|
12,000
|
|
|
5.93
|
|
|
14.51
|
|
|
12,000
|
|
|
14.58
|
|
—
|
|
|
$15.05-19.50
|
1,000
|
|
|
6.19
|
|
|
19.50
|
|
|
1,000
|
|
|
19.50
|
|
—
|
|
|
|
|
2,314,589
|
|
|
7.75
|
|
|
$
|
3.83
|
|
|
1,106,921
|
|
|
$
|
6.99
|
|
$
|
49,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic
value in the preceding table
represents
the total pre-tax intrinsic value, based on the Company’s closing stock price
of $0.45 on December 28, 2008, which would have been received by the
option holders had they exercised their options as of that date. As of December 28,
2008 and December 30, 2007, the total number of “in-the-money” options was
111,340. The total intrinsic value of options exercised during 2008, 2007 and
2006 was $0 million, $0.5 million and $1.4 million, respectively.
In individually
negotiated transactions, the Company exchanged outstanding stock options held
by certain employees for new stock options on December 10, 2008. The new
stock options have a four year vesting period and one quarter of the stock
options vest annually on the anniversary of the date of grant. The Company
cancelled 847,000 stock options and issued 807,000 stock options to 10
employees. Total incremental estimated compensation cost related to the
exchanged stock options was $134,000.
F-17
WPT Enterprises, Inc.
Notes to Consolidated Financial
Statements
In connection with its
initial public offering on August 9, 2004, the Company issued to its lead
underwriter, a warrant to purchase up to a total of 400,000 shares of common
stock at an exercise price of $12.80 for a period of four years. The warrant
expired August 9, 2008.
11.
EMPLOYEE RETIREMENT PLANS
The Company has a 401(k) employee
savings plan for eligible employees. The Company expensed $169,000 in 2008
related to the 401(k) Safe Harbor Match and $118,000 in 2007 relating to a
discretionary matching 401(k) contribution, including $14,000 and $6,000
in 2008 and 2007, respectively, for discontinued WPT China operations. The
Company made no matching contribution during 2006.
The Company’s post
production group is currently operating under a collective bargaining agreement
with the International Alliance of Theatrical Stage Employees (“IATSE”).
Specified benefit levels are ordinarily not negotiated by or made known to
participating employers. Although it is
possible that a liability would be incurred by the Company in the event of its
withdrawal from participation in, or termination of this plan, such liability
is not subject to reasonable estimation based on available information. Moreover, the Company has no intention of
withdrawing from, and has not been informed of any intention by IATSE to
terminate the plan. Under this agreement, the Company is obligated to make
payments to the Motion Picture Industry and Health Plans. Contributions in
2008, 2007 and 2006 were $86,000, $127,000 and $160,000, respectively.
12.
COMMITMENTS AND CONTINGENCIES
Leases
—The Company has operating leases for office and
production space that expire in 2011. Additionally, the company has an
operating lease for office space in China that expires in July 2009.
Aggregate future minimum lease payments under these leases are as follows:
·
2009: $913,000 (including $27,000 for
discontinued WPT China operations)
·
2010: $916,000
·
2011: $420,000
Rent expense for 2008,
2007 and 2006 was $965,000, $968,000 and $747,000, respectively, including
$70,000 and $11,000 in 2008 and 2007, respectively, for discontinued WPT China
operations. In 2008, the Company recorded a $456,000 charge to sublease office
space in future years at a rate below future lease payments.
China Agreement
—
On August 6,
2007, the Company entered into an agreement expiring in 2012 with a Chinese
government-sanctioned body with authority over certain leisure sports,
including the popular national Chinese card game “Traktor Poker.” During the
term of the agreement, the Company is to receive exclusive branding and certain
marketing and sponsorship rights related to the WPT China National Traktor
Poker Tour. In exchange for these rights, the Company pays an annual fee, which
is currently $555,500 and increases by 10% annually for the remaining years of
the agreement. The Company has not recorded a liability for years three through
five as it has the ability to terminate the agreement unilaterally.
Legal Matters
—The Company is involved in various inquiries,
administrative proceedings and litigation relating to matters arising in the
normal course of business. The Company is not currently a defendant in any
material litigation and is not aware of any threatened litigation that would
have a material effect on the Company. Management is not able to estimate the
minimum loss to be incurred, if any, as a result of the final outcome of these
matters but believes it is not likely to have a material adverse effect on the
Company’s financial position or results of operations and, accordingly, no
provision for loss has been recorded.
F-18
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
13.
SEGMENT INFORMATION
The
operating segments reported below are the segments of the Company for which
separate financial information is available and for which operating results are
evaluated by management in deciding how to allocate resources and in assessing
performance.
Year
ended December 28, 2008 (in thousands):
|
|
|
|
WPT Online
|
|
|
|
|
|
|
|
|
|
|
WPT
Studios
|
|
Gaming
|
|
Non-
gaming
|
|
WPT Global
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
9,839
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9,839
|
|
ClubWPT
|
|
—
|
|
—
|
|
448
|
|
—
|
|
—
|
|
448
|
|
Product
licensing
|
|
—
|
|
—
|
|
—
|
|
2,483
|
|
—
|
|
2,483
|
|
Event
hosting and sponsorship
|
|
1,000
|
|
—
|
|
—
|
|
496
|
|
—
|
|
1,496
|
|
Other
|
|
10
|
|
1,045
|
|
160
|
|
—
|
|
—
|
|
1,215
|
|
Total
revenues
|
|
10,849
|
|
1,045
|
|
608
|
|
2,979
|
|
—
|
|
15,481
|
|
Cost
of revenues
|
|
5,978
|
|
658
|
|
326
|
|
288
|
|
—
|
|
7,250
|
|
Gross
profit
|
|
4,871
|
|
387
|
|
282
|
|
2,691
|
|
—
|
|
8,231
|
|
Total
assets (1)
|
|
4,000
|
|
53
|
|
649
|
|
517
|
|
20,146
|
|
25,365
|
|
Depreciation
and amortization (1)
|
|
264
|
|
—
|
|
155
|
|
—
|
|
288
|
|
707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
total excludes $516 of total assets and $38 of depreciation and amortization
for discontinued WPT China operations.
Revenues
attributed to domestic and foreign operations were $7.1 million and $8.4
million, respectively.
Year
ended December 30, 2007 (in thousands):
|
|
|
|
WPT Online
|
|
|
|
|
|
|
|
|
|
|
WPT
Studios
|
|
Gaming
|
|
Non-
gaming
|
|
WPT Global
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
14,143
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
14,143
|
|
ClubWPT
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Product
licensing
|
|
—
|
|
—
|
|
—
|
|
3,619
|
|
—
|
|
3,619
|
|
Event
hosting and sponsorship
|
|
1,009
|
|
—
|
|
—
|
|
1,574
|
|
—
|
|
2,583
|
|
Other
|
|
23
|
|
1,150
|
|
194
|
|
—
|
|
—
|
|
1,367
|
|
Total
revenues
|
|
15,175
|
|
1,150
|
|
194
|
|
5,193
|
|
—
|
|
21,712
|
|
Cost
of revenues
|
|
6,772
|
|
793
|
|
90
|
|
569
|
|
—
|
|
8,224
|
|
Gross
profit
|
|
8,403
|
|
357
|
|
104
|
|
4,624
|
|
—
|
|
13,488
|
|
Total
assets (1)
|
|
4,076
|
|
570
|
|
145
|
|
955
|
|
35,833
|
|
41,579
|
|
Depreciation
and amortization
|
|
315
|
|
46
|
|
—
|
|
—
|
|
335
|
|
696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
total excludes $118 of total assets for discontinued WPT China operations.
Revenues
attributed to domestic and foreign operations were $16.2 million and $5.5
million, respectively.
F-19
WPT Enterprises, Inc.
Notes to Consolidated Financial
Statements
Year
ended December 31, 2006 (in thousands):
|
|
|
|
WPT Online
|
|
|
|
|
|
|
|
|
|
|
WPT
Studios
|
|
Gaming
|
|
Non-
gaming
|
|
WPT Global
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
19,849
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
19,849
|
|
ClubWPT
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Product
licensing
|
|
—
|
|
—
|
|
—
|
|
3,315
|
|
—
|
|
3,315
|
|
Event
hosting and sponsorship
|
|
1,100
|
|
—
|
|
—
|
|
1,538
|
|
—
|
|
2,638
|
|
Other
|
|
11
|
|
3,150
|
|
298
|
|
—
|
|
—
|
|
3,459
|
|
Total
revenues
|
|
20,960
|
|
3,150
|
|
298
|
|
4,853
|
|
—
|
|
29,261
|
|
Cost
of revenues
|
|
7,918
|
|
1,692
|
|
177
|
|
529
|
|
—
|
|
10,316
|
|
Gross
profit
|
|
13,042
|
|
1,458
|
|
121
|
|
4,324
|
|
—
|
|
18,945
|
|
Total
assets
|
|
2,904
|
|
999
|
|
53
|
|
1,653
|
|
45,731
|
|
51,340
|
|
Depreciation
and amortization
|
|
340
|
|
10
|
|
—
|
|
—
|
|
247
|
|
597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
attributed to domestic and foreign operations were $23.1 million and $6.2
million, respectively.
14.
QUARTERLY FINANCIAL SUMMARY
Unaudited
quarterly financial information for 2008 and 2007 is summarized as follows (in
thousands, except per share amounts):
Year
ended December 28, 2008
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Revenues
|
|
$
|
4,960
|
|
$
|
5,074
|
|
$
|
2,832
|
|
$
|
2,615
|
|
Gross profit
|
|
2,290
|
|
2,290
|
|
1,835
|
|
1,816
|
|
Loss
from operations
|
|
(2,656
|
)
|
(3,558
|
)
|
(4,169
|
)
|
(2,635
|
)
|
Loss
from continuing operations
|
|
(2,292
|
)
|
(3,310
|
)
|
(3,966
|
)
|
(2,477
|
)
|
Loss
from discontinued operations
|
|
(537
|
)
|
(572
|
)
|
(454
|
)
|
(841
|
)
|
Net
loss
|
|
(2,829
|
)
|
(3,882
|
)
|
(4,420
|
)
|
(3,318
|
)
|
Loss
per common share from continuing operations – basic and diluted
|
|
(0.11
|
)
|
(0.16
|
)
|
(0.19
|
)
|
(0.12
|
)
|
Loss
per common share from discontinued operations – basic and diluted
|
|
(0.03
|
)
|
(0.03
|
)
|
(0.02
|
)
|
(0.04
|
)
|
Net
loss per common share – basic and diluted
|
|
(0.14
|
)
|
(0.19
|
)
|
(0.21
|
)
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 30, 2007
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Revenues
|
|
$
|
4,491
|
|
$
|
7,720
|
|
$
|
4,405
|
|
$
|
5,096
|
|
Gross profit
|
|
2,339
|
|
4,633
|
|
3,050
|
|
3,466
|
|
Loss
from operations
|
|
(2,928
|
)
|
(3,587
|
)
|
(2,222
|
)
|
(1,662
|
)
|
Loss
from continuing operations
|
|
(2,279
|
)
|
(3,339
|
)
|
(1,774
|
)
|
(1,158
|
)
|
Loss
from discontinued operations
|
|
—
|
|
—
|
|
(437
|
)
|
(646
|
)
|
Net
loss
|
|
(2,279
|
)
|
(3,339
|
)
|
(2,211
|
)
|
(1,804
|
)
|
Loss
per common share from continuing operations – basic and diluted
|
|
(0.11
|
)
|
(0.16
|
)
|
(0.09
|
)
|
(0.06
|
)
|
Loss
per common share from discontinued operations – basic and diluted
|
|
—
|
|
—
|
|
(0.02
|
)
|
(0.03
|
)
|
Net
loss per common share – basic and diluted
|
|
(0.11
|
)
|
(0.16
|
)
|
(0.11
|
)
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
WPT Enterprises, Inc.
Notes to
Consolidated Financial Statements
15.
SUBSEQUENT EVENTS
These consolidated
financial statements were originally issued on and events through March 6,
2009 were evaluated to determine if adjustments to or disclosures in these
consolidated financial statements were necessary. These consolidated financial
statements were reissued in connection with the filing of this proxy statements
and events through August 31, 2009 were evaluated to determine if
adjustments to or disclosures in these consolidated financial statements were
necessary.
In March 2009, the
Company shut down the operations of WPT China. In the first quarter of 2009,
the financial results of WPT China were reclassified as discontinued
operations. For consistency of presentation among periods, the financial
results of WPT China were reclassified as discontinued operations in these
consolidated financial statements. See Note 8 for summarized operating results
information for the WPT China business.
In the first quarter of
2009, the Company classified deferred post production costs and network
placement fees in deferred television costs. For consistency of presentation
among periods, the Company reclassified $323,000 at December 28, 2008 and
$46,000 at December 30, 2007 of deferred post production and network costs
from other current assets to deferred television costs.
In the second quarter of
2009, the Company classified ClubWPT revenues in a new line in revenues and
classified online gaming revenues in other revenues. For consistency of
presentation among periods, the Company reclassified $448,000 in 2008 ClubWPT
revenues from other revenues to a new line in revenues. There were no ClubWPT
revenues in 2007 or 2006. The Company also reclassified $1,045,000, $1,150,000
and $3,150,000 in 2008, 2007 and 2006, respectively of online gaming revenues
into other revenues.
The Company entered into
two international sponsorship agreements with a non-U.S. online gaming company
(“Sponsor”) on August 3, 2009. Sponsor will be the exclusive online gaming
partner and satellite provider for televised and non-televised World Poker Tour
events in Europe. The contract term is for two tour seasons over 27 months
beginning in October 2009 and contains an option for a third tour season.
Sponsor will also be a sponsor of WPT Season Seven across more than 30 European
territories.
Peerless Media
Ltd. (“Buyer”) and the Company entered into an asset purchase agreement, dated
as of August 24, 2009, pursuant to which the Company will, subject to
specified terms and conditions, including approval of the asset sale by the
Company’s stockholders at the Special Meeting, sell substantially all of the
Company’s operating assets other than cash, investments and certain other
assets to Buyer. Buyer has agreed to pay the Company $12.3 million for the
Company’s operating assets less the amount of certain obligations of an
affiliate of PartyGaming accruing or paid to the Company under the PartyGaming
sponsorship agreement for Seasons Four, Five and Six of the World Poker Tour
and Season One of the Professional Poker Tour from July 10, 2009 through
the close of the asset sale. Buyer has also agreed to pay the Company 5% of
future gross gaming revenues less certain taxes and 5% of other future gross
revenues less certain taxes and costs earned with the purchased assets in perpetuity.
Buyer has agreed that the future gaming and other revenue-based participation
amount will be at least $3 million over the three year period following
the close of the asset purchase agreement, or otherwise Buyer will make up the
shortfall to $3 million at the end of the period. ElectraWorks Ltd. has
guaranteed all of Buyer’s covenants, agreements and other obligations under the
asset purchase agreement.
F-21
WPT
ENTERPRISES, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
June 28, 2009
|
|
December 28, 2008
|
|
|
|
(In thousands, except par value data)
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
13,434
|
|
$
|
11,497
|
|
Investments in
debt securities
|
|
2,540
|
|
2,088
|
|
Accounts
receivable, net of allowances of $662 and $158
|
|
2,037
|
|
2,099
|
|
Deferred
television costs
|
|
1,529
|
|
2,285
|
|
Other
|
|
231
|
|
666
|
|
Current assets
of discontinued operations
|
|
—
|
|
401
|
|
|
|
19,771
|
|
19,036
|
|
|
|
|
|
|
|
Investments in
debt securities and put rights
|
|
5,342
|
|
3,900
|
|
Property and
equipment, net
|
|
971
|
|
1,293
|
|
Investment in
Cecure Gaming
|
|
—
|
|
1,000
|
|
Other
|
|
483
|
|
537
|
|
Long-term assets
of discontinued operations
|
|
—
|
|
115
|
|
|
|
$
|
26,567
|
|
$
|
25,881
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
158
|
|
$
|
487
|
|
Accrued payroll
and related
|
|
399
|
|
269
|
|
Operating lease
reserve
|
|
464
|
|
456
|
|
Other accrued
expenses
|
|
523
|
|
693
|
|
Line of credit
|
|
2,647
|
|
—
|
|
Deferred revenue
|
|
1,228
|
|
1,913
|
|
|
|
5,419
|
|
3,818
|
|
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
Preferred stock,
$0.001 par value; authorized 20,000 shares; none issued or outstanding
|
|
—
|
|
—
|
|
Common stock,
$0.001 par value; authorized 100,000 shares; 20,603 and 20,492 shares issued
and outstanding, respectively
|
|
21
|
|
20
|
|
Additional
paid-in capital
|
|
44,685
|
|
44,561
|
|
Deficit
|
|
(23,550
|
)
|
(22,521
|
)
|
Accumulated
other comprehensive gain (loss)
|
|
(8
|
)
|
3
|
|
|
|
21,148
|
|
22,063
|
|
|
|
$
|
26,567
|
|
$
|
25,881
|
|
See notes to unaudited condensed consolidated financial statements.
F-22
WPT
ENTERPRISES, INC.
Condensed Consolidated Statements of Net Earnings (Loss) and
Comprehensive Earnings (Loss)
(Unaudited)
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 28, 2009
|
|
June 29, 2008
|
|
June 28, 2009
|
|
June 29, 2008
|
|
|
|
(In thousands, except per share data)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
3,040
|
|
$
|
3,402
|
|
$
|
6,605
|
|
$
|
7,002
|
|
ClubWPT
|
|
585
|
|
54
|
|
1,115
|
|
73
|
|
Product
licensing
|
|
366
|
|
573
|
|
1,043
|
|
1,260
|
|
Event hosting
and sponsorship
|
|
448
|
|
691
|
|
1,021
|
|
1,018
|
|
Other
|
|
134
|
|
352
|
|
315
|
|
681
|
|
|
|
4,573
|
|
5,072
|
|
10,099
|
|
10,034
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
1,637
|
|
2,784
|
|
3,702
|
|
5,454
|
|
Gross profit
|
|
2,936
|
|
2,288
|
|
6,397
|
|
4,580
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expense
|
|
2,277
|
|
5,838
|
|
5,460
|
|
10,794
|
|
Asset
impairment
|
|
—
|
|
—
|
|
1,000
|
|
—
|
|
Earnings (loss)
from operations
|
|
659
|
|
(3,550
|
)
|
(63
|
)
|
(6,214
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
Gain on sale of
investment
|
|
—
|
|
—
|
|
—
|
|
11
|
|
Interest, net
|
|
31
|
|
248
|
|
103
|
|
601
|
|
Earnings (loss)
from continuing operations before income taxes
|
|
690
|
|
(3,302
|
)
|
40
|
|
(5,602
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
(117
|
)
|
—
|
|
12
|
|
—
|
|
Earnings (loss)
from continuing operations
|
|
573
|
|
(3,302
|
)
|
52
|
|
(5,602
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income taxes (including $95 and $306 for
shutdown in 2009)
|
|
(97
|
)
|
(581
|
)
|
(1,081
|
)
|
(1,109
|
)
|
Net
earnings (loss)
|
|
476
|
|
(3,883
|
)
|
(1,029
|
)
|
(6,711
|
)
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain
(loss) on securities
|
|
(4
|
)
|
40
|
|
(11
|
)
|
(1,045
|
)
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
earnings (loss)
|
|
$
|
472
|
|
$
|
(3,843
|
)
|
$
|
(1,040
|
)
|
$
|
(7,756
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss)
per common share from continuing operations - basic and diluted
|
|
$
|
0.03
|
|
$
|
(0.16
|
)
|
$
|
—
|
|
$
|
(0.27
|
)
|
Loss per common
share from discontinued operations - basic and diluted
|
|
(0.01
|
)
|
(0.03
|
)
|
(0.05
|
)
|
(0.06
|
)
|
Net
earnings (loss) per common share - basic and diluted
|
|
$
|
0.02
|
|
$
|
(0.19
|
)
|
$
|
(0.05
|
)
|
$
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding - basic
|
|
20,603
|
|
20,603
|
|
20,603
|
|
20,603
|
|
Common stock
equivalents
|
|
468
|
|
—
|
|
209
|
|
—
|
|
Weighted-average
common shares outstanding - diluted
|
|
21,071
|
|
20,603
|
|
20,812
|
|
20,603
|
|
See notes to unaudited condensed consolidated financial statements.
F-23
WPT
ENTERPRISES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six months ended
|
|
|
|
June 28, 2009
|
|
June 29, 2008
|
|
|
|
(In thousands)
|
|
Operating
Activities:
|
|
|
|
|
|
Net loss
|
|
$
|
(1,029
|
)
|
$
|
(6,711
|
)
|
Adjustments to
reconcile net loss to net cash provided by (used in) operating activities of
continuing operations:
|
|
|
|
|
|
Loss from
discontinued operations
|
|
1,081
|
|
1,109
|
|
Depreciation and
amortization
|
|
368
|
|
339
|
|
Share-based
compensation
|
|
124
|
|
617
|
|
Asset impairment
|
|
1,000
|
|
—
|
|
Loss on sale of
assets
|
|
22
|
|
—
|
|
Change in value
of put rights
|
|
150
|
|
—
|
|
Change in value
of ARS portfolio
|
|
(150
|
)
|
—
|
|
Bad debt
provision
|
|
504
|
|
—
|
|
Change in
operating assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
(442
|
)
|
1,395
|
|
Deferred
television costs
|
|
756
|
|
1,336
|
|
Other
|
|
489
|
|
61
|
|
Accounts payable
|
|
(329
|
)
|
202
|
|
Accrued expenses
|
|
(43
|
)
|
(714
|
)
|
Deferred revenue
|
|
(685
|
)
|
(1,745
|
)
|
Net cash
provided by (used in) operating activities of continuing operations
|
|
1,816
|
|
(4,111
|
)
|
Net cash used in
operating activities of discontinued operations
|
|
(565
|
)
|
(983
|
)
|
Net cash
provided by (used in) operating activities
|
|
1,251
|
|
(5,094
|
)
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
Purchase of
property and equipment
|
|
(68
|
)
|
(373
|
)
|
Purchases of
available for sale debt securities
|
|
(1,894
|
)
|
(11,187
|
)
|
Sales/redemptions
of available for sale debt securities
|
|
—
|
|
18,475
|
|
Net cash
provided by (used in) investing activities of continuing operations
|
|
(1,962
|
)
|
6,915
|
|
Net cash used in
investing activities of discontinued operations
|
|
—
|
|
(100
|
)
|
Net cash
provided by (used in) investing activities
|
|
(1,962
|
)
|
6,815
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
Increase in
restricted cash
|
|
—
|
|
(136
|
)
|
Borrowing under
line of credit
|
|
2,661
|
|
—
|
|
Repayments under
line of credit
|
|
(14
|
)
|
—
|
|
Proceeds from
exercise of stock options
|
|
1
|
|
—
|
|
Net cash
provided by (used in) financing activities
|
|
2,648
|
|
(136
|
)
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
1,937
|
|
1,585
|
|
Cash and cash
equivalents at beginning of period
|
|
11,497
|
|
3,852
|
|
Cash and cash
equivalents at end of period
|
|
$
|
13,434
|
|
$
|
5,437
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
11
|
|
$
|
—
|
|
See notes to unaudited
condensed consolidated financial statements.
F-24
WPT Enterprises, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
1.
BUSINESS AND BASIS OF PRESENTATION
These
condensed consolidated financial statements have been prepared by management of
WPT Enterprises, Inc. (the “Company”) pursuant to the rules and
regulations of the Securities and Exchange Commission applicable to interim
financial information. Accordingly, certain information normally included in
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America has been condensed or
omitted. For further information, please refer to the annual audited financial
statements of the Company, and the related notes, included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 28,
2008, from which the information as of that date is derived. Events through August 12,
2009 were evaluated to determine if adjustments to or disclosure in these
condensed consolidated financial statements were necessary. Prior period
revenues for ClubWPT and online gaming were reclassified in order to conform to
the current period presentation.
In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. The results for the current interim periods
are not necessarily indicative of the results to be expected for the full year.
The accounting estimates that require the most significant, difficult and
subjective judgments include:
·
the
valuation of investments in debt securities and put rights;
·
the
valuation of non-marketable equity investments;
·
the
determination of current and deferred income taxes;
·
the
ultimate amount of estimated television revenues and costs;
·
the
recognition of revenues; and
·
the
valuation of share-based compensation.
The
Game Show Network licensed Season Six of the World Poker Tour (“WPT”) and
represented 0% and 41% of the Company’s total revenue for the three months
ended June 28, 2009 and June 29, 2008, respectively and 0% and 45% of
the Company’s total revenue for the six months ended June 28, 2009 and June 29,
2008, respectively. Fox Sports Net (“FSN”) is broadcasting Season Seven of the
WPT television series in 2009 and FullTiltPoker.net is the sponsor of the
television series in the U.S. and Mexico. FullTiltPoker.net represented 30% and
0% of the Company’s total revenue for the three months ended June 28, 2009
and June 29, 2008, respectively and 29% and 0% of the Company’s total
revenue for the six months ended June 28, 2009 and June 29, 2008,
respectively. PartyGaming Plc (“PartyGaming”) is one international sponsor of
the Season One of the Professional Poker Tour (“PPT”) and Seasons Four through
Six of the WPT. PartyGaming represented 35% and 12% of the Company’s total
revenue for the three months ended June 28, 2009 and June 29, 2008,
respectively and 30% and 13% of the Company’s total revenue for the six months
ended June 28, 2009 and June 29, 2008.
Included
in accounts receivable at June 28, 2009 are amounts billed to
FullTiltPoker.net, PartyGaming and Hands-On Mobile that are 28%, 32% and 16% of
the total balance, respectively. Included in accounts receivable at December 28,
2008 are amounts billed to FullTiltPoker.net, PartyGaming and Hands-On Mobile
that are 39%, 24% and 15% of the total balance, respectively.
2.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2008,
the FASB issued FSP 157-1,
Application
of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement
13
and FSP 157-2,
Effective Date of FASB Statement No. 157
.
FSP 157-1 amends SFAS 157 to remove certain leasing transactions from
its scope and was effective upon initial adoption of SFAS 157.
FSP 157-2 delays the effective date of SFAS 157 for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) until the first quarter of 2009. FSP 157-1, FSP 157-2
and SFAS 157 for all non-financial assets and non-financial liabilities
were adopted in the first quarter of 2009 and the adoption of these new
accounting standards did not have a significant impact on the consolidated
financial statements.
In April 2009,
the FASB issued FSP 157-4,
Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That are Not Orderly
.
FSP 157-4 provides guidance in the application of SFAS 157 when the
volume and level of activity for an asset or liability have significantly
decreased and when circumstances indicate that a transaction is not orderly. In
April 2009, the FASB also issued FSP 115-2 and FSP 124-2,
Recognition and Presentation of
Other-Than-Temporary-Impairments
. FSP 115-2 and FSP 124-2
amend the other-than-temporary impairment guidance for debt securities and the
F-25
WPT Enterprises, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
presentation and
disclosure requirements of other-than-temporary impairments of debt and equity
securities. In April 2009, the FASB also issued FSP 107-1 and
APB 28-1,
Interim Disclosures about
Fair Value of Financial Instruments
. FSP 107-1 amends
SFAS 107 to require disclosures about the fair value of financial
instruments for interim reporting periods and in annual financial statements
and also amends APB Opinion 28 to require disclosures in summarized financial
information for interim reporting periods. FSP 157-4, FSP 115-2 and
FSP 124-2, and FSP 107-1 and APB 28-1 were adopted in the second
quarter of 2009 and the adoption of these new accounting standards did not have
a significant impact on the consolidated financial statements.
In December 2007,
the FASB issued SFAS No. 160,
Noncontrolling
Interests in
Consolidated
Financial Statements — an Amendment of ARB No. 51
which
establishes accounting and reporting standards for the noncontrolling or
minority interest in a subsidiary and for the deconsolidation of a subsidiary.
Among the effects of SFAS 160 is the exclusion from net income (loss) of
the noncontrolling or minority interest therein and the relocation of such
noncontrolling or minority interest to the stockholders’ equity section of the
balance sheet. SFAS 160 was adopted in the first quarter of 2009 and the
new accounting standard did not have a significant impact on the consolidated
financial statements.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures
About Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133
. SFAS 161 expands the disclosure
requirements in SFAS 133,
Accounting
for Derivative Instruments and Hedging Activities
, regarding
derivative instruments and hedging activities. SFAS 161 was adopted in the
first quarter of 2009 and the new accounting standard did not have a
significant impact on the consolidated financial statements.
In May 2009,
the FASB issued SFAS No. 165,
Subsequent
Events
. SFAS 165 establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued. SFAS 165 is effective for interim periods
ending after June 15, 2009. SFAS 165 was adopted in the second
quarter of 2009 and the new accounting standard did not have a significant
impact on the consolidated financial statements.
In June 2009, the
FASB issued SFAS No. 168,
The FASB
Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162
. The FASB Accounting Standards
Codification (the “Codification”) will become the authoritative source of U.S.
accounting standards and is effective in the third quarter of 2009. The Codification
changes the referencing of U.S. accounting standards but is not intended to
change existing U.S. accounting standards.
3.
INVESTMENTS IN DEBT SECURITIES AND PUT RIGHTS
As of June 28,
2009, investments in debt securities and put rights consist of the following
(in thousands):
Description
|
|
Cost
|
|
Unrealized
Gains/(Losses)
|
|
Fair Value
|
|
Maturity less than 1 year
(all available for sale)
|
|
|
|
|
|
|
|
Short-term municipal bonds
|
|
$
|
800
|
|
$
|
2
|
|
$
|
802
|
|
Corporate preferred securities
|
|
726
|
|
(2
|
)
|
724
|
|
Certificates of deposit
|
|
1,014
|
|
—
|
|
1,014
|
|
|
|
$
|
2,540
|
|
$
|
—
|
|
$
|
2,540
|
|
Description
|
|
Cost
|
|
Realized/
Unrealized
Gains/(Losses)
|
|
Fair Value
|
|
Maturity 1 year
to 5 years
|
|
|
|
|
|
|
|
Auction rate securities (trading securities)
|
|
$
|
3,295
|
|
$
|
150
|
|
$
|
3,445
|
|
Put rights (trading securities)
|
|
605
|
|
(150
|
)
|
455
|
|
Corporate
preferred securities (available for sale)
|
|
534
|
|
(6
|
)
|
528
|
|
Certificates of deposit (available for sale)
|
|
916
|
|
(2
|
)
|
914
|
|
|
|
$
|
5,350
|
|
$
|
(8
|
)
|
$
|
5,342
|
|
F-26
WPT Enterprises, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
Investments
in debt securities and put rights that are classified as available for sale or
trading securities are the only assets or liabilities that the Company is
required to measure at their estimated fair value on a recurring basis. The
estimated fair value is determined using inputs from among the three levels of
the fair value hierarchy set forth in SFAS 157 as follows:
Level
1 inputs – Unadjusted quoted prices in active markets for identical assets or
liabilities, which prices are available at the measurement date.
Level
2 inputs – Quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that
are not active, inputs other than quoted prices that are observable for the
asset or liability (
i.e.
,
interest rates, yield curves,
etc.
)
and inputs that are derived principally from or corroborated by observable
market data by correlation or other means (market corroborated inputs).
Level
3 inputs – Unobservable inputs that reflect management’s estimates about the
assumptions that market participants would use in pricing the asset or
liability in an orderly market. Management develops these inputs based on the
best information available, including internally-developed data and third party
valuation models.
In
estimating fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs to the
extent possible. None of the Company’s financial instruments are measured based
on Level 2 inputs.
As of June 28,
2009, financial assets that are measured and recorded at fair value on a
recurring basis consist of the following (in thousands):
Description
|
|
Level 1
|
|
Level 3
|
|
Total
|
|
Short-term municipal bonds
|
|
$
|
802
|
|
$
|
—
|
|
$
|
802
|
|
Corporate preferred securities
|
|
1,252
|
|
—
|
|
1,252
|
|
Certificates of deposit
|
|
1,928
|
|
—
|
|
1,928
|
|
Auction rate securities
|
|
—
|
|
3,445
|
|
3,445
|
|
Put rights
|
|
—
|
|
455
|
|
455
|
|
Total assets at estimated fair value
|
|
$
|
3,982
|
|
$
|
3,900
|
|
$
|
7,882
|
|
For financial assets that utilize Level 1 inputs, the
Company utilizes direct observable price quotes in active markets for identical
assets. Due to the lack of observable market quotes on the Company’s auction
rate securities (“ARS”) portfolio and related put rights, the Company utilizes
valuation models that rely exclusively on Level 3 inputs including those that
are based on management’s estimates of expected cash flow streams and
collateral values, default risk underlying the security, long term broker
credit rating, discount rates and overall capital market liquidity. The
valuation of the Company’s ARS portfolio and related put rights is subject to
uncertainties that are difficult to predict. Factors that may affect the
estimated fair value include changes to credit ratings of ARS as well as to the
assets collateralizing the securities, rates of default of the underlying
assets and collateral value, broker default risk, discount rates, and evolving
market conditions affecting the liquidity of ARS.
The
following table summarizes activity in the Company’s ARS portfolio and put
rights (in thousands):
Description
|
|
ARS
|
|
Put Rights
|
|
Total
|
|
Balance – December 28, 2008
|
|
$
|
3,295
|
|
$
|
605
|
|
$
|
3,900
|
|
Change in value of put rights, included in earnings
|
|
—
|
|
(150
|
)
|
(150
|
)
|
Change in value of ARS portfolio, included in
earnings
|
|
150
|
|
—
|
|
150
|
|
Settlements, net of purchases
|
|
—
|
|
—
|
|
—
|
|
Balance – June 28, 2009
|
|
$
|
3,445
|
|
$
|
455
|
|
$
|
3,900
|
|
In November 2008,
the Company accepted an offer from UBS AG (“UBS”) that created new rights and
obligations related to the ARS portfolio (the “Put Rights”). The Put Rights
permit the Company to require UBS to purchase the ARS at par value, at any time
during the period of June 30, 2010 through July 2, 2012. UBS also has
the right, in its discretion, to purchase or sell the ARS at any time until July 2,
2012, so long as par value is received.
F-27
WPT Enterprises, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
The Company expects to
sell the ARS under the Put Rights. However, if the Put Rights are not exercised
before July 2, 2012 they will expire and UBS will have no further
obligation to buy the ARS.
UBS’s
obligations under the Put Rights are not secured by its assets and do not
require UBS to obtain any financing to support its performance obligations
under the Put Rights. UBS has disclaimed any assurance that it will have
sufficient financial resources to satisfy its obligations under the Put Rights
and UBS’s obligations are not guaranteed by any other party.
The
Put Rights represent an asset that is separate from the ARS. The Company
initially recorded $605,000 as the fair value of the Put Rights asset in
interest income. The Company also elected to measure the Put Rights at fair
value under SFAS 159, which permits an entity to elect the fair value
option for recognized financial assets. As a result, unrealized gains and
losses are included in interest income and the value of the Put Rights
increased by $61,000 in the three months ended June 28, 2009 and decreased
by $150,000 in the six months ended June 28, 2009. The Company did not
elect the fair value option for its other financial assets and liabilities.
In
connection with the acceptance of the UBS offer in November 2008, the
Company transferred the ARS from investments available-for-sale to trading
securities in accordance with SFAS 115. The transfer to trading securities
reflects management’s intent to exercise the Put Rights during the period June 30,
2010 to July 3, 2012. Prior to the agreement with UBS, the Company’s
intent was to hold the ARS until the market recovered. At the time of transfer,
the $605,000 unrealized loss on ARS was included in accumulated other
comprehensive gain (loss). Upon transfer to trading securities, the Company
recognized a $605,000 reduction in interest income. Unrealized gains and losses
are included in interest income and the value of the ARS portfolio decreased by
$61,000 in the three months ended June 28, 2009 and increased by $150,000
in the six months ended June 28, 2009. Prior to accepting the UBS offer,
the ARS were recorded as investments available-for-sale.
UBS provided the Company with a line of credit,
secured by ARS held by UBS, equal to 75% of the estimated fair value of the
ARS. The Company borrowed $2,661,000 under the line of credit from UBS in February 2009.
Interest is charged at the actual interest rate earned by the ARS. The line of
credit is due upon demand. At June 28, 2009, $2,647,000 was outstanding
under the line of credit.
4. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents and restricted
cash approximates fair value as measured using level 1 inputs due to the short
period of time to maturity. Investments in debt securities and put rights are
measured and recorded at fair value on a recurring basis and information about
these investments is in Note 3. The investment in Cecure Gaming was fully
impaired in the first quarter of 2009 and information about the impairment of
this investment is in Note 5. The fair value of the Company’s line of credit is
not practicable to estimate because the line of credit, the ARS collateral, the
Put rights and the settlement of certain litigation rights are all interrelated
and result from a settlement by UBS with regulators, attorneys general and
others.
As of June 28, 2009, the estimated fair values of
financial instruments are as follows (in thousands):
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Cash
equivalents
|
|
|
|
$
|
12,140
|
|
$
|
12,140
|
|
Investments
in debt securities and put rights
|
|
|
|
7,882
|
|
7,882
|
|
Investment
in Cecure Gaming
|
|
|
|
—
|
|
—
|
|
Restricted
cash
|
|
|
|
384
|
|
384
|
|
Line
of credit
|
|
|
|
(2,647
|
)
|
Not estimated
|
|
|
|
|
|
|
|
|
|
|
|
5. ASSET IMPAIRMENT
In
2006, the Company paid $2,923,000 for an interest (currently 8%) in Cecure
Gaming Ltd., a developer and operator of mobile phone casino games. The Company
recorded a $1,923,000 impairment charge in the third quarter of 2008 related to
difficulties Cecure was having in obtaining working capital to finance its
business development that resulted in a significant reduction in staffing.
Cecure’s financing difficulties continued into 2009 and the Company recorded an
additional $1,000,000 impairment charge in the first quarter of 2009. This
investment was measured at implied fair value resulting in an
other-than-temporary impairment charge. The implied fair value measurement was
calculated using financial metrics and ratios of comparable public companies
and was measured using Level 3 inputs unobservable inputs with significant
management judgment to value this investment due to the
F-28
WPT Enterprises, Inc.
Notes to Unaudited Condensed
Consolidated Financial Statements
absence of quoted market
prices, inherent lack of liquidity, and the long-term nature of this
investment.
6.
SHARE-BASED COMPENSATION
Share-based
compensation expense was $64,000 and $124,000 for the three and six months
ended June 28, 2009, respectively and $303,000 and $617,000 for the three
and six months ended June 29, 2008, respectively.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value
and compensation cost associated with employee incentive stock options which
requires the consideration of historical employee exercise behavior data and
the use of a number of assumptions including volatility of the Company’s stock
price, the weighted-average risk-free interest rate and the weighted-average
expected life of the options.
The
following values represent the average per grant assumptions used to value
options granted during the three and six months ended June 28, 2009 and June 29,
2008. There have been no significant changes to the assumptions thus far in
2009 and none are expected during the remainder of 2009.
|
|
Three months ended
|
|
Six months ended
|
|
Key valuation assumptions
|
|
June 28, 2009
|
|
June 29, 2008
|
|
June 28, 2009
|
|
June 29, 2008
|
|
Risk-free
interest rate
|
|
2.47
|
%
|
3.38
|
%
|
2.27
|
%
|
3.38
|
%
|
Expected
term
|
|
6.25 years
|
|
6 years
|
|
6.25 years
|
|
6 years
|
|
Expected
dividend yield
|
|
0
|
%
|
0
|
%
|
0
|
%
|
0
|
%
|
Expected
volatility
|
|
88.42
|
%
|
69.95
|
%
|
87.85
|
%
|
69.95
|
%
|
Forfeiture
rate
|
|
24.11
|
%
|
14.14
|
%
|
24.11
|
%
|
14.14
|
%
|
Weighted-average
fair value
|
|
$
|
0.57
|
|
$
|
0.82
|
|
0.38
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes stock option activity during the six months ended June 28,
2009:
|
|
|
|
Number of Common Shares
|
|
|
|
Options
|
|
|
|
Available
|
|
Weighted-avg.
|
|
|
|
outstanding
|
|
Exercisable
|
|
for grant
|
|
exercise price
|
|
Balance
at December 28, 2008
|
|
2,314,589
|
|
1,106,921
|
|
873,418
|
|
$
|
3.83
|
|
Granted
|
|
529,000
|
|
—
|
|
(529,000
|
)
|
0.50
|
|
Forfeited/canceled/exchanged
|
|
(1,238,333
|
)
|
—
|
|
1,238,333
|
|
5.55
|
|
Exercised
|
|
(111,340
|
)
|
—
|
|
—
|
|
0.0049
|
|
Balance
at June 28, 2009
|
|
1,493,916
|
|
189,677
|
|
1,582,751
|
|
$
|
1.51
|
|
The
following table summarizes significant ranges of outstanding and exercisable
options as of June 28, 2009
:
|
|
Options outstanding
|
|
Options exercisable
|
|
Range of
exercise prices
|
|
Number
outstanding
|
|
Weighted-avg.
remaining
contractual
life (in years)
|
|
Weighted-avg.
exercise
price
|
|
Aggregate
intrinsic
value
|
|
Number
exercisable
|
|
Weighted-avg.
exercise
price
|
|
Aggregate
intrinsic
value
|
|
$
|
0.37 — 1.87
|
|
1,257,250
|
|
9.53
|
|
$
|
0.52
|
|
$
|
907,660
|
|
9,746
|
|
$
|
1.37
|
|
$
|
—
|
|
4.26 — 8.00
|
|
223,666
|
|
6.36
|
|
6.26
|
|
—
|
|
166,931
|
|
6.49
|
|
—
|
|
14.51 — 19.50
|
|
13,000
|
|
5.45
|
|
14.89
|
|
—
|
|
13,000
|
|
14.89
|
|
—
|
|
|
|
1,493,916
|
|
9.02
|
|
$
|
1.51
|
|
$
|
907,660
|
|
189,677
|
|
$
|
6.81
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate intrinsic value in the preceding table
represents the total pre-tax intrinsic value, based on the
Company’s closing stock price of $1.25 on June 28, 2009, which would have
been received by the option holders had they exercised their options as of that
date. As of June 28, 2009, there were no exercisable “in-the-money” stock
options. The total intrinsic value of options exercised during the three and
six months ended June 28, 2009 was $0 and $44,000, respectively.
As of June 28, 2009, total unrecognized
compensation cost related to non-vested options was $690,000, which is expected
to be recognized over the next 40 months on a weighted-average basis.
F-29
WPT
Enterprises, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
7.
DISCONTINUED WPT CHINA OPERATIONS
In January 2009,
the Company began searching for a strategic partner to invest in the WPT China
business. The cash needs to support the growth in that business was greater
than the Company was willing to expend. In March 2009, the Company shut
down the operations of WPT China while continuing to look for a strategic
partner to acquire the WPT China assets. The financial results of WPT China
have been reclassified as discontinued operations.
The
Company incurred $306,000 of costs to shutdown the WPT China business during
the six months ended June 28, 2009, consisting of $30,000 of employee
severance, $170,000 of contract termination costs and $106,000 of software
write down costs. During the three months ended June 28, 2009, the Company
incurred $95,000 of shutdown costs.
Summarized
operating results information for the WPT China business is as follows (in
thousands):
|
|
Three months ended
|
|
Six months ended
|
|
|
|
June 28, 2009
|
|
June 29, 2008
|
|
June 28, 2009
|
|
June 29, 2008
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Loss before income taxes
|
|
(95
|
)
|
(581
|
)
|
(1,113
|
)
|
(1,109
|
)
|
Income taxes
|
|
(2
|
)
|
—
|
|
32
|
|
—
|
|
Loss from discontinued operations
|
|
(97
|
)
|
(581
|
)
|
(1,081
|
)
|
(1,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized balance sheet information for the WPT China
business is as follows (in thousands):
|
|
June 28, 2009
|
|
December 28, 2008
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
$
|
168
|
|
Other current assets
|
|
—
|
|
233
|
|
Property and equipment, net
|
|
—
|
|
115
|
|
|
|
|
|
|
|
|
|
8.
INCOME TAXES
The
Company expects to pay federal alternative minimum tax on the utilization of
federal net operating losses in 2009 and California income taxes due to the
suspension of the availability of California net operating losses in 2009. The
Company utilizes net operating losses from operations before utilizing net
operating losses generated from the exercise of stock options. The income tax
benefit/provision for the three and six months ended June 28, 2009 is
based on the estimated effective income tax rate for 2009. There was no income
tax benefit for the three and six months ended June 29, 2008 due to the
net losses for the periods. Based on the Company’s relatively limited and
volatile earnings history, the Company recorded a full valuation allowance for
the net deferred tax assets as management currently believes it is more likely
than not that deferred tax assets will be realized in the foreseeable future.
9.
NET EARNINGS (LOSS) PER COMMON SHARE
Basic
net earnings (loss) per common share is calculated by dividing net earnings
(loss) by the weighted-average number of common shares outstanding during the
period. Shares for certain stock options granted to Company employees are
included in the computation after the options have vested when the shares are
issuable for minimal cash consideration in relation to the fair value of the
options. Diluted earnings per common share is calculated by adjusting
weighted-average outstanding shares, assuming the conversion of all potentially
dilutive stock options and awards (common stock equivalents). However, common
stock equivalents are not used to calculate diluted earnings per share for loss
periods because the effect would be anti-dilutive. There were 468,000 and 1,000
common stock equivalents for the three months ended June 28, 2009 and June 29,
2008, respectively. There were 209,000 and 2,000 common stock equivalents for
the six months ended June 28, 2009 and June 29, 2008, respectively.
The Company excluded 274,000 and 2,916,000 of weighted average outstanding
stock options for the three months ended June 28, 2009 and June 29,
2008, respectively, and excluded 569,000 and 2,921,000 of weighted average
outstanding stock options for the six months ended June 28, 2009 and June 29,
2008, respectively, from the calculation of diluted net earnings (loss) per
common share because the exercise prices of these stock options were greater
than the average market value of the Company’s common stock. These stock
options could be included in the calculation in the future if the average
market value of the Company’s common stock exceeds the exercise price of these
stock options.
F-30
WPT
Enterprises, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
10.
CONTINGENCIES
The
Company is involved in various inquiries, administrative proceedings and
litigation relating to matters arising in the normal course of business. The
Company is not currently a defendant in any material litigation and is not aware
of any threatened litigation that could have a material effect on the Company.
Management is not able to estimate the minimum loss to be incurred, if any, as
a result of the final outcome of these matters but believes they are not likely
to have a material adverse effect upon the Company’s financial position or
results of operations and, accordingly, no provision for loss has been
recorded.
11.
SEGMENT INFORMATION
The
operating segments reported below are the segments of the Company for which
separate financial information is available and for which operating results are
evaluated by the chief operating decision maker in deciding how to allocate
resources and assess performance.
Three
months ended June 28, 2009 (in thousands):
|
|
WPT
|
|
WPT Online
|
|
WPT Global
|
|
|
|
|
|
|
|
Studios
|
|
Gaming
|
|
Non-gaming
|
|
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
3,040
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,040
|
|
ClubWPT
|
|
—
|
|
—
|
|
585
|
|
—
|
|
—
|
|
585
|
|
Product licensing
|
|
—
|
|
—
|
|
—
|
|
366
|
|
—
|
|
366
|
|
Event hosting and sponsorship
|
|
225
|
|
—
|
|
—
|
|
223
|
|
—
|
|
448
|
|
Other
|
|
—
|
|
108
|
|
3
|
|
23
|
|
—
|
|
134
|
|
|
|
3,265
|
|
108
|
|
588
|
|
612
|
|
—
|
|
4,573
|
|
Cost of revenues
|
|
1,285
|
|
—
|
|
310
|
|
42
|
|
—
|
|
1,637
|
|
Gross profit
|
|
1,980
|
|
108
|
|
278
|
|
570
|
|
—
|
|
2,936
|
|
Total assets
|
|
3,012
|
|
70
|
|
718
|
|
445
|
|
22,322
|
|
26,567
|
|
Depreciation and amortization
|
|
55
|
|
—
|
|
73
|
|
—
|
|
45
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
attributed to domestic and international operations were $2.7 million and
$1.9 million, respectively.
Three
months ended June 29, 2008 (in thousands):
|
|
WPT
|
|
WPT Online
|
|
WPT Global
|
|
|
|
|
|
|
|
Studios
|
|
Gaming
|
|
Non-gaming
|
|
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
3,402
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,402
|
|
ClubWPT
|
|
—
|
|
—
|
|
54
|
|
—
|
|
—
|
|
54
|
|
Product licensing
|
|
—
|
|
—
|
|
—
|
|
573
|
|
—
|
|
573
|
|
Event hosting and sponsorship
|
|
625
|
|
—
|
|
—
|
|
66
|
|
—
|
|
691
|
|
Other
|
|
—
|
|
320
|
|
16
|
|
16
|
|
—
|
|
352
|
|
|
|
4,027
|
|
320
|
|
70
|
|
655
|
|
—
|
|
5,072
|
|
Cost of revenues
|
|
2,473
|
|
203
|
|
44
|
|
64
|
|
—
|
|
2,784
|
|
Gross profit
|
|
1,554
|
|
117
|
|
26
|
|
591
|
|
—
|
|
2,288
|
|
Total assets (1)
|
|
1,629
|
|
327
|
|
935
|
|
694
|
|
28,622
|
|
32,207
|
|
Depreciation and amortization (1)
|
|
64
|
|
—
|
|
41
|
|
—
|
|
78
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The total excludes $94 of total assets
and $8 of depreciation and amortization for discontinued WPT China operations.
Revenues
attributed to domestic and international operations were $3.8 million and
$1.3 million, respectively.
F-31
WPT
Enterprises, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
Six
months ended June 28, 2009 (in thousands):
|
|
WPT
|
|
WPT Online
|
|
WPT Global
|
|
|
|
|
|
|
|
Studios
|
|
Gaming
|
|
Non-gaming
|
|
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
6,605
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,605
|
|
ClubWPT
|
|
—
|
|
—
|
|
1,115
|
|
—
|
|
—
|
|
1,115
|
|
Product licensing
|
|
—
|
|
—
|
|
—
|
|
1,043
|
|
—
|
|
1,043
|
|
Event hosting and sponsorship
|
|
575
|
|
—
|
|
—
|
|
446
|
|
—
|
|
1,021
|
|
Other
|
|
—
|
|
244
|
|
18
|
|
53
|
|
—
|
|
315
|
|
|
|
7,180
|
|
244
|
|
1,133
|
|
1,542
|
|
—
|
|
10,099
|
|
Cost of revenues
|
|
2,975
|
|
—
|
|
607
|
|
120
|
|
—
|
|
3,702
|
|
Gross profit
|
|
4,205
|
|
244
|
|
526
|
|
1,422
|
|
—
|
|
6,397
|
|
Depreciation and amortization (1)
|
|
130
|
|
—
|
|
147
|
|
—
|
|
91
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The total excludes $8 of depreciation and
amortization for discontinued WPT China operations.
Revenues
attributed to domestic and international operations were $5.9 million and
$4.2 million, respectively.
Six
months ended June 29, 2008 (in thousands):
|
|
WPT
|
|
WPT Online
|
|
WPT Global
|
|
|
|
|
|
|
|
Studios
|
|
Gaming
|
|
Non-gaming
|
|
Marketing
|
|
Corporate
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Television
|
|
$
|
7,002
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
7,002
|
|
ClubWPT
|
|
—
|
|
—
|
|
73
|
|
—
|
|
—
|
|
73
|
|
Product licensing
|
|
—
|
|
—
|
|
—
|
|
1,260
|
|
—
|
|
1,260
|
|
Event hosting and sponsorship
|
|
725
|
|
—
|
|
—
|
|
293
|
|
—
|
|
1,018
|
|
Other
|
|
—
|
|
567
|
|
32
|
|
82
|
|
—
|
|
681
|
|
|
|
7,727
|
|
567
|
|
105
|
|
1,635
|
|
—
|
|
10,034
|
|
Cost of revenues
|
|
4,844
|
|
384
|
|
73
|
|
153
|
|
—
|
|
5,454
|
|
Gross profit
|
|
2,883
|
|
183
|
|
32
|
|
1,482
|
|
—
|
|
4,580
|
|
Depreciation and amortization (1)
|
|
129
|
|
—
|
|
52
|
|
—
|
|
158
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The total excludes $17 of depreciation
and amortization for discontinued WPT China operations.
Revenues
attributed to domestic and international operations were $6.9 million and
$3.1 million, respectively.
11.
SUBSEQUENT EVENTS
These
unaudited condensed consolidated financial statements were originally issued on
and events through August 12, 2009 were evaluated to determine if
adjustments to or disclosures in these consolidated financial statements were
necessary. These unaudited condensed consolidated financial statements were
reissued in connection with the filing of this proxy statements and events
through August 31, 2009 were evaluated to determine if adjustments to or
disclosures in these consolidated financial statements were necessary.
The
Company entered into two international sponsorship agreements with a non-U.S.
online gaming company (“Sponsor”) on August 3, 2009. Sponsor will be the
exclusive online gaming partner and satellite provider for televised and
non-televised World Poker Tour events in Europe. The contract term is for two
tour seasons over 27 months beginning in October 2009 and contains an
option for a third tour season. Sponsor will also be a sponsor of WPT Season
Seven across more than 30 European territories.
F-32
WPT
Enterprises, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
Peerless Media Ltd. (“Buyer”) and the Company entered
into an asset purchase agreement, dated as of August 24, 2009, pursuant to
which the Company will, subject to specified terms and conditions, including
approval of the asset sale by the Company’s stockholders at the Special
Meeting, sell substantially all of the Company’s operating assets other than
cash, investments and certain other assets to Buyer. Buyer has agreed to pay
the Company $12.3 million for the Company’s operating assets less the
amount of certain obligations of an affiliate of PartyGaming accruing or paid
to the Company under the PartyGaming sponsorship agreement for Seasons Four,
Five and Six of the World Poker Tour and Season One of the Professional Poker
Tour from July 10, 2009 through the close of the asset sale. Buyer has
also agreed to pay the Company 5% of future gross gaming revenues less certain
taxes and 5% of other future gross revenues less certain taxes and costs earned
with the purchased assets in perpetuity. Buyer has agreed that the future
gaming and other revenue-based participation amount will be at least
$3 million over the three year period following the close of the asset
purchase agreement, or otherwise Buyer will make up the shortfall to
$3 million at the end of the period. ElectraWorks Ltd. has guaranteed all
of Buyer’s covenants, agreements and other obligations under the asset purchase
agreement.
F-33
Annex A
ASSET PURCHASE AGREEMENT
This Asset
Purchase Agreement is entered into as of August 24, 2009, by and between
Peerless Media Ltd., a Gibraltar private limited company (“
Buyer
”), and
WPT Enterprises Inc
., a Delaware corporation (“
Seller
”).
A.
Seller engages in the business of
developing, producing, marketing and licensing televised programming based on
poker themes, including through (i) providing multi-media entertainment
services through the domestic and international licensing of television broadcasts,
international television sponsorship, and casinos and card rooms that host
televised events; (ii) offering branded consumer products, and corporate
sponsorship and management of televised and live events; (iii) operating
international and domestic subscription service and freeplay online gaming
websites; and (iv) developing the Chinese national card game (known as Tuo
La Ji or Traktor Poker) (the foregoing, excluding the business of Seller
relating to the Excluded Assets, is referred to herein as the “
Business
”).
B.
Seller desires to sell to Buyer, on the
terms and conditions set forth herein, substantially all of the assets of
Seller, other than the Excluded Assets (as defined below).
C.
Buyer desires to purchase substantially
all of the assets of Seller, other than the Excluded Assets, and is prepared to
assume the liabilities and obligations of Seller as set out in this Agreement,
other than the Excluded Liabilities (as defined below), on the terms and
conditions set forth herein.
Now, therefore, in
consideration of the mutual agreements, representations, warranties and
covenants set forth below, and intending to be legally bound, Buyer and Seller
agree as follows:
1.
DEFINITIONS; INTERPRETATION
.
1.1.
DEFINITIONS
.
As used in this Agreement, the following terms shall have the following
meanings:
1.1.1.
“
Acceptable Confidentiality
Agreement
” has the meaning set forth in
Section 6.2.2
.
1.1.2.
“
Accounts Payable
”
means all amounts owing by a Person for goods received by or services rendered
to such Person.
1.1.3.
“
Accounts Receivable
”
means all rights of a Person to payment for goods sold or leases or for
services rendered.
1.1.4.
“
Acquisition
”
has the meaning set forth in
Section 6.1.4
.
1.1.5.
“
Acquisition Notice
”
has the meaning set forth in
Section 7.12.2.1
.
1.1.6.
“
Acquisition Proposal
”
has the meaning set forth in
Section 6.2.2
.
1.1.7.
“
Affiliate
”
means with respect to any Person, a Person directly or indirectly controlling,
controlled by or under common control with such Person, where “
control
” means the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, contract or otherwise.
1.1.8.
“
Agreement
”
means this Asset Purchase Agreement, together with all of its exhibits and
schedules, as the same may be amended, restated, supplemented or otherwise
modified from time to time.
1.1.9.
“
Allocation Schedule
”
has the meaning set forth in
Section 7.11
.
1.1.10.
“
Alternative Acquisition
Agreement
” has the meaning set forth in
Section 6.2.4.1.
1.1.11.
“
Assumed Liabilities
”
has the meaning set forth in
Section 2.3
.
1.1.12.
“
Assumption Agreement
”
has the meaning set forth in
Section 8.2.2
.
1.1.13.
“
Base Payment
”
has the meaning set forth in
Section 3.1.1
.
A-1
1.1.14.
“
Basket Amount
” has the meaning set forth in
Section
9.6.1
.
1.1.15.
“
Bill of Sale
”
has the meaning set forth in
Section 8.2.1
.
1.1.16.
“
Business
” has the meaning set forth in the recitals to
this Agreement.
1.1.17.
“
Business
Day
” means any day which is not a Saturday, Sunday or a public or
bank holiday in Los Angeles, California, U.S.A.
1.1.18.
“
Buyer
” has the
meaning set forth in the preamble to this Agreement.
1.1.19.
“
Buyer Acquisition
Transaction
” has the meaning set forth in
Section 7.12.1
.
1.1.20.
“
Buyer Indemnified Person
”
has the meaning set forth in
Section 9.2
.
1.1.21.
“
Centaurus Agreement
”
means the Services and License Agreement dated as of November 2, 2007 by
and between Seller and Centaurus Games, LLC (as assignee of Ultimate Blackjack
Tour, LLC), as amended pursuant to Amendment One to Services and License
Agreement dated as of February 20, 2008, as further amended pursuant to
Amendment Two to Services and License Agreement dated as of April 24,
2008.
1.1.22.
“
Change of Company
Recommendation
” has the meaning set forth in
Section 6.2.4
.
1.1.23.
“
China Venture
”
means Seller’s interest in (i) WPT ASIA (Beijing) Consulting Co., Ltd. (“
WPT China
”), (ii) that certain Cooperation Agreement
dated July 26, 2007 by and between WPT China (as assignee of Seller) and
China Leisure Sports Administrative Center, as amended pursuant to that certain
Amendment No. 1 dated March 15, 2009 and that certain letter
agreement dated March 15, 2009, and (iii) all related and associated
rights, arrangements and agreements.
1.1.24.
“
Closing
”
means the consummation of the transactions contemplated hereby.
1.1.25.
“
Closing Date
”
has the meaning set forth in
Section 8.1
.
1.1.26.
“
Company Recommendation
”
has the meaning set forth in
Section 6.1.6
.
1.1.27.
“
Confidential Information
”
has the meaning set forth in
Section 7.6
.
1.1.28.
“
Confidentiality Agreement
”
means that certain confidentiality agreement entered into as of January 16,
2009 by and between Seller and Bay Management Limited, the terms of which are
hereby incorporated in this Agreement.
1.1.29.
“
Consent
” has
the meaning set forth in
Section 4.6
.
1.1.30.
“
Contracts
”
means contracts, agreements, arrangements, understandings, commitments, leases
or licenses to which Seller is party or by which Seller is bound in effect on
the date hereof.
1.1.31.
“
Damages
” has
the meaning set forth in
Section 9.2
.
1.1.32.
“
Database
” has
the meaning set forth in
Section
2.1.1.4
.
1.1.33.
“
Designs
” has
the meaning set forth in
Section
2.1.1.2
.
1.1.34.
“
DGCL
” means
Delaware General Corporation Law.
1.1.35.
“
Domain Names
”
has the meaning set forth in
Section
2.1.1.3
.
1.1.36.
“
Escrow
Agent
” has the meaning set
forth in
Section 2.6
.
1.1.37.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
1.1.38.
“
Excluded Assets
”
has the meaning set forth in
Section 2.2
.
1.1.39.
“
Excluded Contracts
”
has the meaning set forth in
Section 2.2.10
.
1.1.40.
“
Excluded Liabilities
”
has the meaning set forth in
Section 2.4
.
1.1.41.
“
Full Initial Payment
Reimbursement
” has the meaning set forth in
Section 10.3.1.
A-2
1.1.42.
“
Fundamental Representation
”
has the meaning set forth in
Section 9.1.2
.
1.1.43.
“
GAAP
” means
United States generally accepted accounting principles, consistently applied.
1.1.44.
“
Governmental
Authorizations
” has the meaning set forth in
Section 4.4
.
1.1.45.
“
Governmental
Entity
” means any federal, state, municipal or other governmental
authority, department, commission, board, agency or other instrumentality
(domestic or foreign).
1.1.46.
“
Gross Gaming Revenue
”
has the meaning set forth in
Section 3.2.1.1
.
1.1.47.
“
IFRS
”
means International Financial Reporting Standards as issued by the
International Accounting Standards Board, consistently applied.
1.1.48.
“
Indemnified Party
”
has the meaning set forth in
Section 9.5.1
.
1.1.49.
“
Indemnifying Party
”
has the meaning set forth in
Section 9.5.1
.
1.1.50.
“
Initial Payment
”
has the meaning set forth in
Section 3.1.
1.1.51.
“
Initial Payment
Reimbursement
” has the meaning set forth in
Section 10.3.2.
1.1.52.
“
Intellectual Property
”
has the meaning set forth in
Section 2.1.1.7
.
1.1.53.
“
Jams
” has the
meaning set forth in
Appendix A
.
1.1.54.
“
Knowledge
”
means, (a) with respect to a Person that is an individual, the current
actual knowledge of such Person without any duty to investigate, and (b) with
respect to a Person that is a corporation, limited liability company,
partnership or other entity, the current actual knowledge of the President,
CEO, CFO, Secretary and Manager of such corporation, limited liability company,
partnership or other entity without any duty to investigate (including, without
limitation, in the case of Seller, the current actual knowledge of Lyle Berman,
Steve Lipscomb, Adam Pliska and Rohin Malhotra without any duty to
investigate).
1.1.55.
“
Law
” means any
federal, state, local or foreign law, statute or ordinance, common law, or any rule or
regulation of any Governmental Entity.
1.1.56.
“
License Agreement
”
has the meaning set forth in
Section 2.5
.
1.1.57.
“
Lien
”
means any mortgage, pledge, lien, security interest, encumbrance, charge or
other third-party claim.
1.1.58.
“
Material
Adverse Effect
” with respect to a Person, means any event, change or
effect that is materially adverse to the financial condition, assets, business
or results of operations of such Person.
1.1.59.
“
Material Contract
”
has the meaning set forth in
Section 4.14.1
.
1.1.60.
“
Non-Material Contract
”
has the meaning set forth in Section 4.14.2.
1.1.61.
“
Notice Period
”
has the meaning set forth in Section 6.2.4.1.
1.1.62.
“
Other Revenue
”
has the meaning set forth in
Section 3.2.1.2
.
1.1.63.
“
Outside Date
”
has the meaning set forth in
Section 10.1.2
.
1.1.64.
“
Parent
” means
ElectraWorks Limited, a Gibraltar private limited company.
1.1.65.
“
Partial Initial Payment
Reimbursement
” has the meaning set forth in
Section 10.3.2.
1.1.66.
“
PartyGaming International
Contracts
” has the meaning
set forth in
Section 2.6.
1.1.67.
“
PartyGaming Sponsorship
Agreement
” has the meaning
set forth in
Section 2.6.
1.1.68.
“
Permits
” has
the meaning set forth in
Section 4.9
.
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1.1.69.
“
Permitted Liens
”
has the meaning set forth in
Section 4.7
.
1.1.70.
“
Person
”
means an individual, corporation, limited liability company, firm, joint
venture, partnership, association, trust, unincorporated organization,
government or political entity or any department, political subdivision or
agent or instrumentality thereof, or other entity or organization, whether or
not a legal entity.
1.1.71.
“
PG Escrow Account
”
has the meaning set forth in
Section 2.6.
1.1.72.
“
PG
Escrow Agreement
” has
the meaning set forth in
Section 2.6.
1.1.73.
“
PG Escrow Cash
”
has the meaning set forth in
Section 2.6.
1.1.74.
“
Prime
Rate
” means the Prime rate of interest as reported from time to time
in the Wall Street Journal.
1.1.75.
“
Proxy Statement
”
has the meaning set forth in
Section 6.1.1
.
1.1.76.
“
Purchase Price
”
has the meaning set forth in
Section 3.1
.
1.1.77.
“
Purchased Assets
”
has the
meaning set forth in
Section 2.1
.
1.1.78.
“
Records
” has
the meaning set forth in
Section 3.2.6
.
1.1.79.
“
Representatives
”
has the meaning set forth in
Section 6.2.1
.
1.1.80.
“
Requisite Stockholder Vote
”
has the meaning set forth in
Section 6.1.4
.
1.1.81.
“
Restraint
” has
the meaning set forth in
Section 10.1.6
.
1.1.82.
“
Revenue Assurance Period
”
has the meaning
set forth in
Section 3.2.4
.
1.1.83.
“
Revenue Payments
”
has the meaning set forth in
Section 3.2.2
.
1.1.84.
“
Revenue Report
”
has the meaning set forth in
Section 3.2.3
.
1.1.85.
“
RP Escrow Account
”
has the meaning set forth in
Section 3.2.5
.
1.1.86.
“
RP
Escrow Agreement
” has the meaning set forth
in
Section 3.2.5
.
1.1.87.
“
RP
Escrow Cash
” has the meaning set forth in
Section 3.2.5
.
1.1.88.
“
SEC
” has the
meaning set forth in
Section 6.1.1
.
1.1.89.
“
Seller
”
has the meaning set forth in the
preamble to this Agreement.
1.1.90.
“
Seller Indemnified Person
”
has the meaning set forth in
Section 9.3
.
1.1.91.
“
Shares
” means
shares of Common Stock of Seller.
1.1.92.
“
Software
” has
the meaning set forth in
Section
2.1.1.6
.
1.1.93.
“
Stockholders Meeting
”
has the meaning set forth in
Section 6.1.4
.
1.1.94.
“
Subsidiaries
”
of a corporation, limited liability company, limited partnership, association
or partnership means any legal entity of which such corporation, limited
liability company, limited partnership, association or partnership (either
alone or through or together with any other Subsidiary or Subsidiaries thereof)
is the general partner or managing entity or of which at least a majority of
the stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or others
performing similar functions of such legal entity, is directly or indirectly
owned or controlled by such corporation, limited liability company, limited
partnership, association or partnership (either alone or through or together
with any other Subsidiary or Subsidiaries thereof).
1.1.95.
“
Superior Proposal
”
has the meaning set forth in
Section 6.2.2
.
1.1.96.
“
Survival Period
”
has the meaning set forth in
Section 9.1.4
.
1.1.97.
“
Tangible Property
”
has the meaning set forth in
Section 2.1.2
.
1.1.98.
“
Tax(es)
”
means all taxes, however denominated, including any interest,
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penalties or other
additions to tax imposed in respect thereof by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any such
government.
1.1.99.
“
Termination Fee
”
has the meaning set forth in
Section 10.2.1
.
1.1.100.
“
Trademarks
” has
the meaning set forth in
Section
2.1.1.1
.
1.1.101.
“
Transaction Documents
”
means this Agreement and the other documents, agreements or instruments
delivered in connection with the consummation of the transactions contemplated
hereby.
1.1.102.
“
Transferring Employees
”
has the meaning set forth in
Section 7.9.1
.
1.1.103.
“
Users
” has the
meaning set forth in
Section
2.1.1.4
.
1.1.104.
“
White Label Sites
”
has the meaning set forth in
Section 7.12.3
.
1.1.105.
“
WPT Celebrity Invitational
”
means the invitation-only event traditionally held at the Commerce Casino in
February/March with invitations extended to high profile Hollywood
celebrities and top poker players as well as select VIPs.
1.2.
INTERPRETATION
.
In this Agreement:
1.2.1.
words in the singular include the plural
and words in the plural include the singular;
1.2.2.
unless otherwise indicated, references to
sections, exhibits or schedules mean sections, exhibits or schedules of this
Agreement;
1.2.3.
the division of the provisions of this
Agreement into Sections and sub-Sections, and the headings used in this
Agreement, are for convenience of reference only, and shall not be construed as
having any substantive significance or as indicating that all the provisions of
this Agreement relating to any topic are to be found in any particular Section;
1.2.4.
references to any act, regulation, code
of practice or statutory order include any amendment, re-enactment or extension
of that act, regulation, code of practice or statutory order and in the case of
an act include any relevant regulation, code of practice or order made under
it;
1.2.5.
in the event of any conflict or
inconsistency between any exhibit or schedule and the other terms and
conditions of this Agreement, the provisions of the other terms and conditions
of this Agreement shall prevail;
1.2.6.
except as expressly otherwise provided in
this Agreement, any reference to “writing” or “written” includes faxes and any
legible reproduction of words delivered in permanent and tangible form, but does not include e-mail, SMS and similar
means of communication; and
1.2.7.
reference to the words “include” or “including”
or similar words are to be construed without limitation to the generality of
the preceding words.
2.
SALE AND PURCHASE
.
2.1.
TRANSFER OF ASSETS AT THE CLOSING
.
Subject to the terms and conditions of this Agreement, at the Closing
Seller shall sell, assign, grant, transfer, and deliver (or cause to be sold,
assigned, granted, transferred and delivered) to Buyer and Buyer shall purchase
and accept from Seller as of the Closing Date, free and clear of all Liens
(other than Permitted Liens),
all of Seller’s
right, title and
interest, including all intellectual property rights, in and to all of Seller’s
properties
and assets (other than the Excluded Assets) of every kind and nature, real,
personal or mixed, tangible or intangible, wherever located (collectively, the “
Purchased Assets
”), including, without limitation:
2.1.1.
All right, title and interest of
Seller in, to and under:
2.1.1.1.
All trademarks, service marks, trade
names, brand names, logos, slogans and trade references, in each case whether
registered, under application or otherwise, owned by Seller, including,
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without limitation, those
listed on
Schedule 2.1.1.1
attached hereto, together with (i) any licenses with respect thereto; (ii) the
goodwill and the business appurtenant thereto; and (iii) to the extent in
Seller’s possession or control, any file histories, correspondence, application
documents, search reports, documents concerning the prosecution history,
enforcement or maintenance of rights, or restrictions on use, with respect to
the trademarks, service marks, trade names, brand names, logos, slogans and
trade references set forth in this Section, including, without limitation, any
such documents with respect to applications or registrations abandoned on or
before the Closing Date (collectively, the “
Trademarks
”);
2.1.1.2.
All graphics and graphic elements, art
work, copy, design, look or appearance, flow charts and software, whether in
written, physical, digitalized or visual form owned by Seller, including those
described in
Schedule 2.1.1.2
attached hereto, including any and all intellectual property and any other
proprietary rights associated therewith existing at any time under any Laws,
including, without limitation, any trademark, service mark, trade name, brand
name and/or copyright rights relating thereto, all registration and pending
applications to register such rights, together with all such rights inhering in
or protecting names and marks derivative of or similar to the same and the
right to register any of the foregoing anywhere in the world (collectively, the “
Designs
”);
2.1.1.3.
All domain names owned by Seller,
including those listed in
Schedule 2.1.1.3
attached hereto, including (i) all goodwill associated therewith and
inhering therein, (ii) to the extent in Seller’s possession or control,
originals of all files, correspondence and other records relating to or
reflecting Seller’s registration of such domain names or any and all right and
interest therein, (iii) any and all intellectual property and any other
proprietary rights associated therewith existing at any time under any Laws,
including, without limitation, any trademark, service mark, trade name, brand
name and/or copyright rights relating thereto, all registration and pending
applications to register such rights, together with all such rights inhering in
or protecting names and marks derivative of or similar to the domain names and
the right to register any of the foregoing anywhere in the world, and (iv) any
and all rights of Seller pertaining to the domain names arising under its
agreements with any and all domain name registrars (collectively, the “
Domain Names
”);
2.1.1.4.
All information owned by Seller, if any,
collected about users of Seller’s websites that are operated on any of the
Domain Names since the commencement of business on such Domain Names (“
Users
”), including, without limitation,
such users’ identity and their betting history, and including all marketing
data, plans and strategies, forecasts, customer and supplier lists and
relations, operating procedures, pricing methods and future plans, including,
all goodwill associated therewith and inhering therein (the “
Database
”), and including, to the extent in
Seller’s possession or control, originals of all files, information
correspondence and other records relating to or reflecting the Database and any
and all right and interest therein, any and all intellectual property and any
other proprietary rights associated therewith existing at any time under any
Laws, and any and all rights of Seller pertaining to the Database arising under
its agreements with Users and any and all other third parties;
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2.1.1.5.
All works of authorship or other
intellectual property rights authored, discovered, developed, made, perfected,
improved, designed, engineered, acquired, produced, conceived or first reduced
to practice by Seller or its employees or agents used by Seller in the conduct
of the Business or developed by Seller for use in the Business, in any stage of
development, including, without limitation, patents, patent applications,
trademarks, service marks, copyrights, copyright registrations, trade names, inventions,
ideas, designs, concepts, techniques, methods, processes, technology, formulae,
trade secrets, brands, license rights, specifications, technical manuals and
data, domain names, product information and data, work-in-progress, customer
lists, business and marketing plans as well as the television shows listed in
Schedule 2.1.1.5
together with
associated materials, including, but not limited to physical media such as
tapes, dubs, written materials, and similar items;
2.1.1.6.
All software or other intellectual
property rights that Seller has licensed from third parties and are being used
in the Business, and the rights of Seller under all licenses to use the same,
including, without limitation, those listed in
Schedule
2.1.1.6
attached hereto, including, without limitation, to the extent in Seller’s
possession or control, source code, object code, flow charts, coding sheets,
programmer’s notes, code documentation, routines, engineering specifications,
know-how and other rights pertaining to the same (collectively, the “
Software
”); and
2.1.1.7.
Any other intellectual or intangible
property embodied in or pertaining to the Business, whether pending, applied
for or issued, wherever filed (collectively with
subsections 2.1.1.1
through
2.1.1.6
, the “
Intellectual
Property
”);
2.1.2.
All tangible personal property owned by Seller, other than excluded
tangible personal property listed on
Schedule 2.2.11
attached hereto, wherever located, that is used or licensed, intended to be
used, licensed or sold, or held for use, license or sale by or on behalf of
Seller in connection, directly or indirectly, with the Business, including all
hardware, computers, servers, peripheral equipment, computing or communications
devices, equipment, supplies, works in progress, furniture owned by Seller, in
each such case whether such tangible personal property is then held by any of
these parties, is in transit or is in the possession of a subcontractor,
licensee, consignee, agent or other Person, including, without limitation, the
items listed on
Schedule 2.1.2
attached hereto (the
“Tangible Property
”);
2.1.3.
All rights in and under any Contracts relating to the Business,
including, without limitation, the Contracts listed on
Schedule 2.1.3
attached hereto, including all
goodwill associated therewith and inhering therein and, to the extent in Seller’s
possession or control, originals of all files, information, correspondence and
other records relating to or reflecting such Contracts, and any and all
intellectual property and any other proprietary rights associated therewith
existing at any time under any Laws;
2.1.4.
All permits, authorizations, consents and approvals of any Governmental
Entity used in connection with the Business to the extent transferable by
applicable Law, including, without limitation, the items listed on
Schedule 2.1.4
attached hereto;
2.1.5.
All books, records files and papers, whether in hard copy or electronic
format, used in the Business, including, without limitation, engineering
information, sales and promotional literature, manuals and data, sales and
purchase correspondence, lists of present, former and prospective suppliers or
customers, personnel and employment records (to the extent allowable under
applicable Law), in each case, to the extent in Seller’s possession or
control. Seller shall be
A-7
allowed access to or a copy of accounting records in
order to meet audit, income tax and SEC filing obligations;
2.1.6.
All goodwill associated with the Business or the Purchased Assets; and
2.1.7.
All Accounts Receivable as of the Closing Date under (i) the
PartyGaming Sponsorship Agreement or the PartyGaming International Contracts
and (ii) the Centaurus Agreement.
2.2.
EXCLUDED ASSETS
.
Notwithstanding any provision of
Section 2.1
, the following
assets of Seller shall be excluded from the Purchased Assets, and all rights
in, such assets shall remain exclusively with Seller (collectively, the “
Excluded Assets
”):
2.2.1.
all securities, equity interests,
corporate minute books, stock transfer books, corporate seals and other
documents relating to the organization, maintenance and existence of Seller and
each of its Subsidiaries as entities;
2.2.2.
all taxpayer and other identification
numbers;
2.2.3.
all Tax returns filed and associated Tax
records and rights to refunds or claims to overpayments attributed to Tax
payments made;
2.2.4.
all cash, cash balances, deposits and
cash equivalents as of the Closing Date;
2.2.5.
all insurance policies and bonds and all
prepaid expenses and deposits related thereto;
2.2.6.
all prepaid expenses relating to the
operation of the Business or the Purchased Assets;
2.2.7.
all rights, claims, credits, causes of
action or rights of set-off, and all rights to payment as a consequence of
claims for refunds, rights of set off, rights of recovery and claims or causes
of action relating to or in connection with the matters listed in
Schedule 2.2.7
attached
hereto, whether arising before or after the Closing Date;
2.2.8.
all rights of Seller under this Agreement
and all other Transaction Documents;
2.2.9.
all rights of Seller with respect to the
China Venture, whether arising before or after the Closing Date;
2.2.10.
all rights of Seller under the Contracts
listed on
Schedule 2.2.10
attached hereto (the “
Excluded Contracts
”)
and all revenues and other proceeds arising in connection therewith, whether
arising before or after the Closing Date;
2.2.11.
all tangible personal property listed on
Schedule 2.2.11
attached hereto;
2.2.12.
all Accounts Receivable of Seller as of
the Closing Date accruing, arising out of or relating to the Business or the
Purchased Assets, other than (i) any Accounts Receivable under the
PartyGaming Sponsorship Agreement or the PartyGaming International Contracts
and (ii) any Accounts Receivable under the Centaurus Agreement; and
2.2.13.
the assets listed on
Schedule
2.2.13
attached hereto.
2.3.
ASSUMPTION OF LIABILITIES
.
On the Closing Date, Buyer will deliver to Seller the Assumption
Agreement pursuant to which Buyer will, subject to the terms and conditions of
this Agreement, effective as of the Closing Date, assume and agree to perform,
discharge and satisfy, in accordance with their respective terms and subject to
the respective conditions thereof, all obligations, duties and liabilities
accruing, arising out of or relating to the conduct or operation of the
Business, or the ownership or use of the Purchased Assets, after the Closing
Date (collectively, the “
Assumed Liabilities
”).
2.4.
EXCLUDED LIABILITIES
.
Buyer shall not assume and shall not be liable for, and Seller shall
retain and remain solely liable for the following obligations, duties and
liabilities of Seller (collectively, the “
Excluded Liabilities
”):
2.4.1.
Any obligations, duties and liabilities accruing, arising out of or
relating to the conduct or operation of the Business, or the ownership or use
of the Purchased
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Assets, on or up to and as of the Closing Date,
including, without limitation, all Accounts Payable of Seller as of the Closing
Date accruing, arising out of or relating to the Business or the Purchased
Assets;
2.4.2.
Any
obligations, duties and liabilities of Seller under
each of the Excluded Contracts;
2.4.3.
Any obligation, duties and liabilities of Seller with respect to the
Excluded Assets;
2.4.4.
Any liability or obligation for Taxes (i) attributable to or
imposed upon Seller or any of its Affiliates, or (ii) imposed upon the
Purchased Assets, in each case, for any period (or portion thereof) prior to
the Closing Date;
2.4.5.
Any fees or expenses of Seller incurred
in connection with the making or performance of this Agreement and the
transactions contemplated hereby, other than and to the extent specifically
provided herein; and
2.4.6.
Any obligation, duties and liabilities of Seller listed on
Schedule 2.4.6
attached
hereto.
2.5.
LIMITED LICENSE
.
To allow Seller to perform its undertakings to third parties with
respect to the Excluded Assets, including, without limitation, (i) under
each of the Excluded Contracts, and (ii) for a period of nine (9) months
following the Closing Date, with respect to the China Venture, including any
amendments or modifications to the China Venture , at the Closing Buyer and Seller
shall enter into a Limited License Agreement in the form of
Exhibit A
attached hereto (the “
License Agreement
”), pursuant to which
Buyer grants to Seller a non-exclusive license to use certain Purchased Assets
in the circumstances, and subject to the terms and conditions, set forth in the
License Agreement.
2.6.
SPONSORSHIP AGREEMENT; PG ESCROW
.
Reference is made to that certain Television Sponsorship Agreement dated
November 31, 2006 by and between iGlobalMedia Marketing (Gibraltar)
Limited, dba PartyGaming Marketing (Gibraltar), and Seller (the “
PartyGaming Sponsorship Agreement
”) and the contracts,
agreements, arrangements, understandings, commitments entered into pursuant to
or under the PartyGaming Sponsorship Agreement (collectively, the “
PartyGaming International Contracts
”). All amounts payable to Seller under the
PartyGaming Sponsorship Agreement and the PartyGaming International Contracts
from and after July 10, 2009 and until the Closing Date shall be remitted
to an escrow agent mutually satisfactory to Buyer and Seller, on behalf of and
for the benefit of Seller, as escrow agent (which escrow agent may or may not
be the same Person with respect to the various escrow accounts described in
this Agreement but, in any case, shall
be mutually satisfactory to Buyer and Seller) (the “
Escrow Agent
”)
(such amounts, collectively, the “
PG Escrow Cash
”),
to be held by the Escrow Agent in accordance with the provisions of the Escrow
Agreement in the form of
Exhibit B-1
,
being executed and delivered by the parties hereto and by the Escrow Agent
simultaneously with the execution and delivery of this Agreement (the “
PG
Escrow Agreement
”). The escrow account established pursuant to
the PG Escrow Agreement is referred to as the “
PG Escrow
Account
.” At Closing, all
amounts on deposit in the PG Escrow Account shall be distributed to Seller and
credited to Buyer on a Dollar for Dollar basis against the payment of the Base
Payment portion of the Purchase Price.
If this Agreement is terminated prior to the Closing pursuant to
Section 10.1
,
all amounts on deposit in the PG Escrow Account shall be distributed to Seller.
2.7.
PURCHASE OF CLUBWPT.COM SUBSCRIPTION
BUSINESS
. The parties hereto acknowledge that the
ClubWPT.com subscription business is a Purchased Asset. Prior to the Closing, the License Agreement
shall be amended as necessary to exclude the ClubWPT.com subscription business.
3.
CONSIDERATION; ESCROW
.
3.1.
CONSIDERATION
.
In consideration of Seller’s entry into this Agreement, the acquisition
of the Purchased Assets under
Section 2
and all other undertakings
and agreements contained herein, Buyer agrees to pay to Seller the following
(collectively, the “
Purchase Price
”):
3.1.1.
at the Closing, Twelve Million Three Hundred Thousand Dollars
(US$12,300,000)
(the
“
Base Payment
”), payable by wire
transfer of immediately available funds to Seller’s bank account, details of
which shall be
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provided to Buyer
in writing at least seventy-two (72) hours prior to the anticipated time
of the Closing; and
3.1.2.
commencing on the Closing Date, on a going-forward monthly basis
thereafter without expiration, the Revenue Payments (as defined below), payable
as provided in
Section 3.2
below.
Buyer and Seller have agreed
that the amount of One Million Dollars (the “
Initial
Payment
”) shall be promptly paid by Buyer to, or as directed by,
Seller upon the execution of this Agreement by Buyer and Seller, but in no
event later than one (1) Business Day following such execution, and that
such amount shall be credited on a dollar for dollar basis against the payment
of the Base Payment.
3.2.
REVENUE SHARING; RP ESCROW
.
3.2.1.
For purposes hereof, the following terms shall have the following
meanings:
3.2.1.1.
“
Gross
Gaming Revenue
” means the sum of all revenues of Buyer and its
Affiliates generated by the Business with the Purchased Assets that are
attributable to gaming, including, without limitation, revenues from house win,
rake and commission, revenues from the use or exploitation of any of the
Trademarks that are attributable to gaming, revenues from the use or
exploitation of any of the Domain Names that are attributable to gaming, or
revenues from land-based (if any) or online gaming operations,
less
any value added Tax, gaming Tax
or other revenue-related Tax arising in connection therewith, as determined in
accordance with IFRS.
3.2.1.2.
“
Other
Revenue
” means all revenues of Buyer and its Affiliates generated by
the Business with the Purchased Assets, other than Gross Gaming Revenue,
less
(i) any value added Tax or
revenue-related Tax and (ii) actual out-of-pocket costs incurred by Buyer
or its Affiliates (provided, however, that if such costs involve payment to
Persons who are Affiliates or related parties of the Buyer, the amount deducted
shall only be the fair market value of the products or services provided, which
shall be determined in reference to the lesser of the costs of similar products
and services that could be obtained from an unrelated third party on an arms’-length
basis and the average cost of similar services provided by non-Affiliates to
Buyer and its Affiliates), arising in connection therewith, as determined in
accordance with IFRS.
Notwithstanding
anything to the contrary in this clause
Section 3.2.1
where a new
revenue stream is created by Buyer and/or its Affiliates in relation to
Section 3.2.1.1
or
Section 3.2.1.2
which uses the Purchased Assets that revenue
shall be subject to the revenue sharing arrangements hereunder.
3.2.2.
Commencing on the Closing Date, on a going-forward monthly basis
thereafter without expiration, Seller shall be entitled to receive from Buyer,
and Buyer shall be obligated to pay to Seller, in accordance with this
Section 3.2
,
the following amounts (collectively, the “
Revenue Payments
”):
3.2.2.1.
5% (five percent) of Gross Gaming
Revenue; and
3.2.2.2.
5% (five percent) of Other Revenue.
3.2.3.
Buyer shall make each Revenue Payment (
less
any amounts to be remitted to the Escrow Agent pursuant to
Section 3.2.4
below) to Seller in cash on a monthly basis in arrears, not later than thirty
(30) calendar days after the end of each calendar month during which the
related revenue was actually received or recognized by the Buyer or its
Affiliates (i.e., a Revenue Payment with respect to Gross Gaming Revenue or
Other Revenue received in July shall be payable not later than August 30). Contemporaneously with the making of each
Revenue Payment, Buyer shall submit to Seller a detailed report (each, a “
Revenue
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Report
”), setting forth the data reasonably
needed for Seller to track the Revenue Payment it is owed under this Agreement;
provided
,
however
, that if Buyer is bound by confidentiality
undertakings to un-Affiliated third parties (e.g., customers), a Revenue Report
need not contain identifying details with respect to such un-Affiliated third
party. The obligation of Buyer to make a
Revenue Payment to Seller hereunder with respect to Gross Gaming Revenue or
Other Revenue shall accrue upon such Gross Gaming Revenue or Other Revenue
being actually received by Buyer or Buyer’s Affiliates.
3.2.4.
Notwithstanding the foregoing, in no
event shall the Revenue Payments made by Buyer to Seller pursuant to this
Section 3.2
be less than an aggregate amount of Three Millions Dollars (US$3,000,000) over
the course of the three (3) years immediately following the Closing Date
(the “
Revenue Assurance Period
”). If on the three (3) year anniversary of
the Closing Date, the Revenue Payments made to Seller during the preceding
three (3) year period were less than Three Million Dollars (US$3,000,000)
in the aggregate, Buyer shall immediately pay to Seller by wire transfer of
immediately available funds the amount of such shortfall, less any remittance
to the Escrow Agent that is required pursuant to
Section 3.2.5
.
3.2.5.
For
purposes of Seller’s indemnification obligations set forth in this Agreement,
out of each Revenue Payment accruing to
Seller pursuant to
Section 3.2.3
prior to
the two (2) year anniversary
of the Closing Date, Buyer
shall deduct and remit to the
Escrow Agent an amount equal to twenty percent (20%) of each such Revenue
Payment (such amounts, collectively, the “
RP
Escrow Cash
”), to be held by the
Escrow Agent in accordance with the provisions of
Section 9.4
hereof and the Escrow Agreement in the form of
Exhibit B-2
, to be executed and delivered by the
parties hereto and by the Escrow Agent at the Closing (the “
RP
Escrow Agreement
”),
which amounts shall be remitted by wire transfer of immediately available funds
to the Escrow Agent’s bank account, not later than thirty (30) calendar days
after the end of each calendar month during which the corresponding Revenue
Payment accrues (i.e., if a Revenue Payment accrues in July, twenty percent
(20%) shall be remitted to the Escrow Agent not later than August 30). The escrow account established pursuant to
the RP Escrow Agreement is referred to as the “
RP Escrow
Account
.”
3.2.6.
While this Agreement is in effect and for a period of at least
three (3) years thereafter, Buyer shall maintain such books and
records (collectively, “
Records
”)
as are necessary to substantiate Gross Gaming Revenue and Other Revenue and
that the Revenue Payments, the payments of RP Escrow Cash and the revenue reports
submitted to Seller by Buyer are accurate in all respects. All Records shall be maintained in accordance
with IFRS. Once during every twelve (12)
month period from and after the execution hereof, Seller or its agents or
representatives who have undertaken confidentiality commitments in favor of
Buyer in form and scope substantially similar to the confidentiality
commitments of Seller hereunder, shall have the right at Seller’s own expense,
during normal business hours, upon at least ten (10) calendar days written
notice to examine and audit, and Buyer shall make available to Seller Buyer’s
personnel and all of the Records.
Following the Closing, so long as Buyer remains obligated to make
Revenue Payments to Seller hereunder, Seller shall have the right once each
calendar quarter, during normal business hours, upon at least seven (7) calendar
days written notice to Buyer, to have its Representatives (up to a maximum of
two (2) persons) to meet either in-person or by teleconference, at the
sole discretion of Seller, with one (1) or more executive officers of
Buyer that are familiar with the Business and other ongoing operations of Buyer
to discuss the Business and other ongoing operations of Buyer as they pertain
to the Revenue Payments.
3.3.
PAYMENTS HEREUNDER
.
All payments due under this Agreement shall be payable in United States
dollars ($). Conversion of foreign
currency to U.S. dollars shall be made at the same rate as that which is used
in Buyer’s general ledger for that time period so long as that rate is
reasonable. Each payment shall reference
this Agreement and identify the obligation
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under this Agreement that the payment satisfies. Buyer
shall be entitled to withhold and deduct any and all mandatory payments, taxes,
duties and the like for which Seller is liable and which Buyer is required to
withhold or deduct under applicable Law.
Any payments by Buyer that are not paid on or before the date such
payments are due under this Agreement shall bear interest, to the extent
permitted by Law, at one percentage point above the Prime Rate reported on the
date payment is due. Any payment due
hereunder on a day that is not a Business Day shall be made on the first
Business Day thereafter.
3.4.
NON-CIRCUMVENTION
.
It is the intent of the parties that Seller, through its right to
receive Revenue Payments, will have an ongoing participation in the revenue
generated by the
“World Poker Tour” and “Professional Poker Tour”
brands (and the other Purchased Assets), and that the Purchased Assets shall
generate identifiable revenues which shall be included in the calculation of
Revenue Payments. The Buyer
shall not take any action or omit to take
any action the purpose or effect of which is to undermine such ongoing
participation by exploiting
“World Poker Tour” and “Professional Poker Tour”
brands (and the other Purchased Assets) in such a manner as makes or would make
it difficult to
track
Seller’s participation and to remunerate Seller to the full extent contemplated
herein. Additionally, Buyer shall not
circumvent or evade or attempt to circumvent or evade its obligations to Seller
under this Agreement, including, without limitation, its obligation to make
material and reasonable efforts to generate Gross Gaming Revenue and Other
Revenue and to make Revenue Payments to Seller, nor shall Buyer induce or
conspire with any third party, including, but not limited to, any of its
Affiliates, to circumvent or evade or attempt to circumvent or evade any such obligations. For purposes of clarity, nothing in this
paragraph is intended to restrict the Buyer’s right to conduct its own business
as it sees fit.
4.
REPRESENTATIONS AND WARRANTIES OF
SELLER
. Subject to
the overriding principle that obligations and liabilities associated with the
Acquired Assets up until Closing Date shall remain with Seller and thereafter
with Buyer and pursuant to the mechanism set forth in
Section 9.6.4
herein,
each
representation and warranty set forth below is qualified by any exception or
disclosure set forth in the Seller Disclosure Schedule attached hereto (the “
Seller Disclosure Schedule
”). Such Seller Disclosure Schedule is arranged
in numbered and lettered sections corresponding to the numbered and lettered
sections contained in this
Section 4
, and disclosures in each
section of such Seller Disclosure Schedule qualify only the corresponding
numbered and lettered section of this
Section 4
(it being
understood that any matter disclosed in any section of the Seller Disclosure Schedule
shall be deemed to be disclosed in any other section of the Seller Disclosure
Schedule if (i) it is readily apparent from such disclosure that it
applies to such other section or (ii) such disclosure is cross-referenced
in such other section). In all other
respects, each representation and warranty set out in this
Section 4
is not qualified in any way whatsoever, except as otherwise provided in this
Agreement or any exhibit or schedule hereto, will be deemed to be repeated at
and will not merge on Closing or by reason of the execution and delivery of any
agreement, document or instrument at the Closing, is given with the intention
that liability is not confined to breaches discovered before Closing, is
separate and independent and is made and given as of the date hereof with the
intention of inducing Buyer to enter into this Agreement. Seller represents and warrants to the Buyer
as follows:
4.1.
ORGANIZATION, STANDING AND POWER
.
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
Seller has the requisite corporate power and authority to own, lease and
operate its properties and to carry on the Business as now being conducted,
except where the failure to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a Material Adverse
Effect on the Purchased Assets or the Business.
Seller is duly qualified or licensed as foreign corporations to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on the Purchased Assets or the
Business.
4.2.
AUTHORITY
. The execution
and delivery of this Agreement by Seller and of the other Transaction Documents
to be executed and delivered by Seller, the performance by Seller of its
obligations hereunder and thereunder, and the consummation by Seller of the
transactions contemplated hereby and thereby will, on the Closing Date (but not
on the date of this Agreement), have been duly authorized by all necessary
action by the board of directors of Seller, and no other act or proceeding on
the part of or on behalf of Seller will be necessary on
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the Closing Date to approve the execution and delivery
of this Agreement and the other Transaction Documents to be executed and
delivered by Seller, the performance by Seller of its obligations hereunder and
thereunder and the consummation of the transactions contemplated hereby and
thereby. Seller has the requisite power
and authority to execute and deliver this Agreement and on the Closing Date
will have the requisite power and authority to execute and deliver all of the
other Transaction Documents to be executed and delivered by Seller pursuant
hereto, and to consummate the transactions hereby and thereby contemplated and
to take all other actions required to be taken by Seller pursuant to the
provisions hereof and thereof.
4.3.
EXECUTION AND BINDING EFFECT
.
This Agreement has been duly and validly executed and delivered by
Seller and constitutes, and the other Transaction Documents to be executed and
delivered by Seller pursuant hereto, upon their execution and delivery by
Seller, will constitute (assuming, in each case, the due and valid
authorization, execution and delivery thereof by Buyer), legal, valid and
binding agreements of Seller enforceable against Seller in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, moratorium, insolvency, reorganization, fraudulent
conveyance or other Laws affecting the enforcement of creditors’ rights
generally or by general equitable principles, including, without limitation,
those limiting the availability of specific performance, injunctive relief and
other equitable remedies and those providing for equitable defenses.
4.4.
CONSENTS AND APPROVALS OF GOVERNMENTAL
ENTITIES
. Other than (i) the permits,
authorizations, consents and approvals of any Governmental Entity which are
listed in
Section 4.4
of the Seller Disclosure Schedule, and (ii) filings and/or notices under
the Exchange Act or the rules of NASDAQ (the “
Governmental Authorizations
”), there is no
requirement applicable to Seller to make any filing, declaration or
registration with, or to obtain any permit, authorization, consent or approval
of, any Governmental Entity as a condition to the consummation by Seller of the
transactions contemplated by this Agreement and the other Transaction Documents
to be executed and delivered by Seller pursuant hereto or the consummation by
Seller of the transactions contemplated herein or therein.
4.5.
NO VIOLATION
.
Except as set forth in
Section 4.5
of the Seller Disclosure Schedule, neither the execution, delivery and
performance of this Agreement and all of the other Transaction Documents to be
executed and delivered by Seller pursuant hereto, nor the consummation of the
transactions contemplated hereby or thereby, will, with or without the passage
of time or the delivery of notice or both, (a) conflict with, violate or
result in any breach of the terms, conditions or provisions of the Certificate
of Incorporation or Bylaws of Seller, (b) conflict with or result in a
violation or breach of, or constitute a default (or give rise to any right of
termination, cancellation or acceleration) under any contract, notice, bond,
mortgage, indenture, license, franchise, permit, agreement, lease or other
instrument or obligation to which Seller is a party or by which Seller or any
of the Purchased Assets may be bound, including the Material Contracts, but
excluding the Non-Material Contracts, (c) violate any Law or order, writ,
injunction or decree of any Governmental Entity applicable to Seller or by
which any properties or assets of Seller may be bound.
4.6.
CONSENTS
.
Section 4.6
of the Seller
Disclosure Schedule sets forth each Material Contract requiring a consent as a
result of the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby (each, a “
Consent
”).
The affirmative votes of the holders of at least a majority of the
outstanding Shares are the only votes of the holders of any of Seller’s capital
stock necessary to approve this Agreement and the transactions contemplated
hereby under applicable Law, Seller’s organizational documents or any Contract
to which Seller is a party or is otherwise bound.
4.7.
ASSETS GENERALLY
.
4.7.1.
The Purchased Assets include all properties, tangible and intangible,
currently used by Seller in operating the Business and necessary for Buyer, if
it so desires, to operate the Business after the Closing Date in a manner
substantially equivalent to the manner currently operated by Seller, other than
the Excluded Assets. Other than the
Consents and the Governmental Authorizations, no other licenses or consents
from any other Person are necessary for Buyer, if it so desires, to operate the
Business in substantially the manner currently operated by Seller.
4.7.2.
Seller holds good and valid title, license to or leasehold interest in
all of the
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Purchased Assets, free and clear of all Liens, except
for Liens described in
Section 4.7.2
of the Seller Disclosure
Schedule (“
Permitted Liens
”). Upon consummation of the transactions
contemplated by this Agreement, Buyer will acquire good and valid title,
license or leasehold interest to the Purchased Assets, free and clear of any
Liens, other than Permitted Liens.
4.7.3.
All of the Purchased Assets are in good operating condition and repair,
normal wear and tear excepted, as required for their use in the Business as now
being conducted, and no written notice of any material violation of any Law
relating to any of the Purchased Assets or Assumed Liabilities has been
received by Seller.
4.8.
INTELLECTUAL PROPERTY
.
4.8.1.
The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not breach, violate
or conflict with any instrument or agreement governing any Intellectual
Property forming part of the Purchased Assets and, to the Knowledge of Seller
will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any Intellectual Property or in any material way
impair the right of Buyer or any of its Affiliates to use, sell, license or
dispose of, or to bring any action for the infringement of, any Intellectual
Property or portion thereof.
4.8.2.
Except as set forth in
Section 4.8.
2
of the Seller Disclosure Schedules, neither the development, manufacture, marketing,
license, sale or use of any product or intellectual property currently
licensed, used or sold by Seller in the Business or currently under development
in the Business violates any license or agreement to which Seller is a party,
or infringes any copyright, trademark, service mark, trade secret or other
intellectual property, or to the Knowledge of Seller, any patent, of any other
party. All registered Intellectual
Property (including, without limitation, trademarks, domain names, service
marks, patents and copyrights) are subsisting and, to the Knowledge of Seller,
valid. There is no pending or, to the
Seller’s Knowledge, threatened claim against the Company or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any of the Purchased Assets (including, without limitation, the Intellectual
Property) necessary or required for, or used in, the conduct of the Business
nor, to Seller’s Knowledge, is there any basis for any such claim, nor has
Seller received any written notice asserting that any such Purchased Asset
(including, without limitation, the Intellectual Property) or the proposed use,
sale, license or disposition thereof conflicts or will conflict with the rights
of any other party, nor, to Seller’s Knowledge, is there any basis for any such
assertion. To Seller’s Knowledge, there
is no material unauthorized use, infringement or misappropriation on the part
of any third party of the Purchased Assets (including, without limitation, the
Intellectual Property).
4.8.3.
Section 4.8.3
of the Seller Disclosure Schedule
contains a complete and accurate list of all applications, filings and other
formal actions made or taken pursuant to any Law by Seller to perfect or
protect its interest in the Intellectual Property, including, without
limitation, all patents, patent applications, trademarks, trademark
applications, service marks and copyright or mask work registrations.
4.8.4.
Seller has taken commercially reasonable steps to maintain the secrecy
and confidentiality of those of the Purchased Assets (including without
limitation the Intellectual Property) which are of a confidential or
proprietary nature.
4.8.5.
All fees to maintain Seller’s rights in the Intellectual Property,
including, without limitation, patent and trademark registration and
prosecution fees and all professional fees in connection therewith pertaining
to the Intellectual Property due and payable prior to the Closing Date, have
been paid by Seller.
4.9.
LICENSES AND PERMITS
.
Seller (i) holds all material consents, approvals, registrations,
certifications, authorizations, permits and licenses (collectively, the “
Permits
”), and (ii) has made all filings with, or
notifications to, all Governmental Entities, in each case, in compliance with
applicable requirements of all Laws required for the operation of the Business
in the manner that it is currently being conducted by Seller. Seller is in compliance with all Laws
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relating to the products manufactured or services
offered by the Business or otherwise related to the Business, except for such
non-compliance which could not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Business or the Purchased Assets. Seller has not received any written notice
that any Permit used in the Business is invalid or has been or is being
suspended, canceled or revoked. There is
no investigation or inquiry to which Seller is a party or, to Seller’s
Knowledge, pending or threatened against Seller, relating to the compliance of
Seller with any applicable Laws.
4.10.
EMPLOYEES; CONSULTANTS
.
4.10.1.
Section 4.10.1
of the Seller Disclosure Schedule sets
forth the names, compensation levels (including bonuses, commissions, and
deferred compensation), share option position, if any, pensions (including
those required by all applicable Laws), retirement benefits, company cars,
profit sharing, any interests in any incentive compensation plan, unused
accrued vacation, and job titles of all of the employees and consultants
engaged by Seller in connection with the Business as of the date hereof. A copy of all written (and a summary
description of any oral) agreements described in this
Section 4.10
have been made available to
Buyer prior to the date hereof.
4.10.2.
Seller has complied in all material
respects with all legal requirements relating to employment, wages, hours,
benefits, pensions, the payment of social security and similar taxes. Seller is not liable to any Governmental
Entity or other Person for the payment of any damages, taxes, fines, penalties,
or other amounts, however designated, for failure to comply with any of the
foregoing legal requirements.
4.10.3.
Except as set forth in
Section 4.10.3
of the Seller Disclosure Schedules, The employment of each officer and employee
of Seller is terminable upon not more than thirty (30) days prior notice at the
will of Seller. To Seller’s Knowledge,
no officer nor any employee intends to terminate their employment with Seller,
nor does Seller have a present intention to terminate any of the foregoing,
except for such terminations which shall occur in connection with the Closing
as contemplated hereunder.
4.10.4.
Except as set forth on
Section 4.10.4
of the Seller Disclosure Schedule, Seller is not a party to
a collective bargaining agreement with any trade union, Seller’s employees are
not members of a trade union certified as a bargaining agent with Seller, and
no proceedings to implement any such collective bargaining agreement or
certifications are pending.
4.11.
EMPLOYEE BENEFIT AND COMPENSATION PLANS
.
Seller will retain liability for, and on account of, any employee
benefit plan of Seller, including, but not limited to, liabilities Seller may
have to such employees under all of Seller’s employee benefit schemes,
incentive compensation plans, bonus plans, pension and retirement plans,
vacation, profit-sharing plans (including any profit-sharing plan with a
cash-or-deferred arrangement) share purchase and option plans, savings and
similar plans, medical, dental, travel, accident, life, disability and other
insurance and other plans or arrangements, whether written or oral and whether “qualified”
or “non-qualified,” or to any employee as a result of termination of employment
by Seller as contemplated by this Agreement, except to the extent the same is
assumed by Buyer in accordance herewith.
4.12.
TAXES
. All Taxes of
Seller with respect to the Business and the Purchased Assets have been or will
be paid by Seller for all periods (or portions thereof) prior to and including
the Closing Date. Seller has duly filed
(or will file prior to the Closing Date) all returns and reports of Taxes
required to be filed prior to such date with respect to the Business and
Purchased Assets, and all such returns and reports are true and correct in all
material respects. There are no Liens
for Taxes on any of the Purchased Assets, other than Liens for Taxes not yet
due and payable or which are being contested in good faith. Seller has complied in all material respects
with all Tax reporting obligations relating to income and employment Taxes due
with respect to compensation paid to employees or independent contractors
providing services to the Business. There
are no pending or, to Seller’s Knowledge, threatened proceedings with respect
to Taxes of Seller pertaining to the Business or the Purchased Assets, and
there are no outstanding waivers or extensions of statutes of limitations with
respect to assessments of such Taxes.
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4.13.
COMPLIANCE WITH LAW
. The operation
of the Business by Seller has been conducted in all material respects in
accordance with all applicable Laws, and other requirements of Governmental
Entities having jurisdiction over the same.
4.14.
CONTRACTS
.
4.14.1.
Section 4.14
of the Seller Disclosure Schedule
contains a list of each Contract that is a Material Contract (as defined
below), including, without limitation, such Material Contracts that are:
Customer Agreements, material distributor, broker, franchise, agency and dealer
contracts and agreements of the Business and material sales promotion, market
research, marketing and advertising contracts and agreements of the Business;
material management contracts with independent contractors or consultants (or
similar arrangements) of the Business; contracts and agreements (excluding
routine checking account overdraft agreements involving petty cash amounts) under which the Business
has created, incurred, assumed or guaranteed indebtedness of itself or of any
third-party Person or under which the Business has imposed a security interest
or lien on any of its assets, whether tangible or intangible, to secure
indebtedness; contracts and agreements that limit the ability of any Person
related to the Business, or any of its affiliates, to compete in any line of
business or in any geographic area or during any period of time, or to solicit
any customer or client; material contracts pursuant to which the Business has
agreed to supply products to a customer at specified prices, whether directly
or through a specific distributor, manufacturer’s representative or
dealer. For purposes of this Agreement, “
Material Contract
” means a Contract pursuant to which Seller
is contractually obligated to make payments in excess of One Hundred Thousand
Dollars (US$100,000) in the aggregate over the remaining term of the Contract;
provided
,
however
, that “Material Contract” shall not include (i) any
Contract that is terminable by Seller at a cost of no more than One Hundred
Thousand Dollars (US$100,000), (ii) the PartyGaming Sponsorship Agreement
or any PartyGaming International Contract or (iii) any Excluded
Contract. For the avoidance of doubt,
Seller shall not be obligated to list in
Section 4.14
of the Seller Disclosure Schedule any
Contract that is not a Material Contract.
The Contracts relating to the Business or Purchased Assets that have not
been disclosed in the Seller Disclosure Schedule or in any of the other
schedules to this Agreement do not contractually obligate the Seller to make
payments in excess of Five Hundred Thousand Dollars (US$500,000) in the
aggregate over the remaining term of such Contracts (for clarity, if a Contract
is terminable by Seller only amounts that Seller is contractually obligated to
pay notwithstanding the termination shall be counted for purposes of this
representation and warranty).
4.14.2.
Each Material Contract is a legal, valid and binding
obligation of the parties thereto; Seller is in compliance therewith except for
such failure to comply which would not reasonably be expected to have a
Material Adverse Effect on the Business or the Purchased Assets; to Seller’s
Knowledge, the other party thereto is not in default thereunder, nor has any
Material Contract been canceled by the other party; and Seller is not in
receipt of any claim of default by Seller under any Material Contracts. Seller has made available to Buyer true and
complete copies of all Material Contracts together with all amendments, waivers
or other changes thereto. Seller is in
compliance with each Contract relating to the Business or Purchased Assets that
is not a Material Contract (the “
Non-Material
Contracts
”), except for such failure to comply which would not
reasonably be expected to have a Material Adverse Effect on the Business or the
Purchased Assets.
4.15.
LITIGATION; OTHER CLAIMS
.
4.15.1.
There are no claims, actions, suits, inquiries,
proceedings, or investigations against Seller, or any of their respective
officers, directors or stockholders, relating to the Business or the Purchased
Assets which are currently pending or, to the Knowledge of Seller, threatened
against Seller, at Law or in equity or before or by any Governmental Entity, or
which challenges or seeks to prevent,
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enjoin, alter or materially delay any of the
transactions contemplated hereby, nor, to the Knowledge of Seller, is there any
basis for such claims, actions, suits, inquiries, proceedings, or
investigations; and, to the Knowledge of Seller, no Governmental Entity has at
any time challenged or questioned the legal right of Seller to offer or sell
any of the products or services currently offered by it in connection with the
Business; in each such case, other than claims, actions, suits, inquiries,
proceedings, investigations, or challenges that target the gaming or poker
industries, or any subset thereof, generally and that are not particular to
Seller, the Business and the manner in which Seller conducts the Business and
other than as set forth in
Section 4.15.1
of the Seller Disclosure
Schedule. It is specifically represented
that Seller has conducted its subscription model gaming business based on its
good faith interpretation of legal advice obtained in each relevant jurisdiction.
4.15.2.
There are no grievance or arbitration proceedings
pending or, to the Knowledge of Seller, threatened, and there are no actual or,
to the Knowledge of Seller, threatened strikes or work stoppages with
respect to the Business, the Purchased Assets or its employees.
4.16.
DEFAULTS
. Seller is not
in default under or with respect to any judgment, order, writ, injunction or
decree of any court or any Governmental Entity which could reasonably be
expected to have a Material Adverse Effect on the Business or any of the
Purchased Assets. Seller has not
received written notice of any default by Seller under any agreement entered
into by Seller as part of the operations of the Business and to Seller’s
Knowledge there is no default, by any other Person, or event that, with notice
or lapse of time, or both, would constitute a default under any such agreement
which could reasonably be expected to have a Material Adverse Effect on the
Business or the Purchased Assets, and no written notices of breach thereof have
been received by Seller.
4.17.
INSURANCE
.
Section 4.17
of the Seller Disclosure Schedule lists all insurance policies and fidelity
bonds covering the Purchased Assets in effect on the date hereof. There is no claim by Seller pending under any
of such policies or bonds as to which to Seller’s Knowledge coverage has been
denied or disputed by the underwriters of such policies and bonds. All premiums due and payable under all such
policies and bonds have been paid and Seller is otherwise in material compliance
with the terms of such policies and bonds (or other policies and bonds
providing substantially similar insurance coverage). To Seller’s Knowledge, there is no threatened
termination of, or material premium increase with respect to, any of such
policies.
4.18.
SCHEDULES
. The schedules
describing the Purchased Assets are true and correct in all material respects
and describe the assets in the possession of, or used by, Seller, in connection
with the Business, as required by this Agreement, other than the Excluded
Assets.
4.19.
BROKERS AND FINDERS
. Neither
Seller nor any of its officers, directors or employees has employed any broker
or finder or incurred any liability for any brokerage fee, commission or finder’s
fee in connection with the transactions contemplated by this Agreement.
4.20.
SUBSIDIARIES
.
Section 4.20
of the Seller Disclosure Schedule sets forth each Subsidiary of Seller. Other than such Subsidiaries, Seller does not
own or control, directly or indirectly, any interest in any other corporation,
association, or other business entity, and is not a participant in any joint
venture, partnership, or similar arrangement.
5.
REPRESENTATIONS AND WARRANTIES OF
BUYER
.
Each representation and warranty set out in this
Section 5
is not qualified in any way whatsoever and, except as provided in this
Agreement or in the exhibits or schedules hereto, will be deemed to be repeated
at and will not merge on Closing or by reason of the execution and delivery of
any agreement, document or instrument at the Closing, is given with the
intention that liability is not confined to breaches discovered before Closing,
is separate and independent and is made and given as of the date hereof with
the intention of inducing Seller to enter into this Agreement. The Buyer represents and warrants to Seller
as follows:
5.1.
ORGANIZATION, STANDING AND POWER
.
Buyer is a private limited company duly organized, validly existing and
in good standing under the laws of Gibraltar.
Parent is a private limited company duly organized, validly existing and
in good standing under the laws of Gibraltar.
Neither the Buyer, nor any of their Affiliates, own, of record or
beneficially, any
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Shares.
5.2.
AUTHORITY
. The execution
and delivery of this Agreement (and all other agreements and instruments
contemplated under this Agreement) by Buyer, the performance by Buyer of its
obligations hereunder and thereunder, and the consummation by Buyer of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action by Buyer’s board of directors and Parent’s board of directors,
and no other act or proceeding on the part of or on behalf of Buyer or Parent
is necessary to approve the execution and delivery of this Agreement and such
other agreements and instruments, the performance by Buyer of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby. Buyer has the requisite
power and authority to execute and deliver this Agreement and all of the other
agreements and instruments to be executed and delivered by Buyer pursuant
hereto, to consummate the transactions hereby and thereby contemplated and to
take all other actions required to be taken by Buyer pursuant to the provisions
hereof and thereof.
5.3.
EXECUTION AND BINDING EFFECT
.
This Agreement has been duly and validly executed and delivered by Buyer
and constitutes, and the other agreements and instruments to be executed and
delivered by Buyer pursuant hereto, upon their execution and delivery by Buyer,
will constitute (assuming, in each case, the due and valid authorization,
execution and delivery thereof by Seller), legal, valid and binding agreements
of Buyer, enforceable against Buyer in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
moratorium, insolvency, reorganization, fraudulent conveyance or other Laws
affecting the enforcement of creditors’ rights generally or by general equitable
principles, including, without limitation, those limiting the availability of
specific performance, injunctive relief and other equitable remedies and those
providing for equitable defenses.
5.4.
CONSENTS AND APPROVALS OF GOVERNMENTAL
ENTITIES
. Other than the Gibraltar regulatory
requirement to approve organizational changes to the Parent, there is no
requirement applicable to Buyer to make any filing, declaration or registration
with, or to obtain any permit, authorization, consent or approval of, any Governmental
Entity as a condition to the consummation by Buyer or Parent of the
transactions contemplated by this Agreement and the other agreements and
instruments to be executed and delivered by Buyer pursuant hereto or the
consummation by Buyer of the transactions contemplated herein or therein.
5.5.
NO VIOLATION
.
Neither the execution, delivery and performance of this Agreement and
all of the other agreements and instruments to be executed and delivered
pursuant hereto, nor the consummation of the transactions contemplated hereby
or thereby, will, with or without the passage of time or the delivery of notice
or both, (a) conflict with, violate or result in any breach of the terms,
conditions or provisions of the Certificate of Incorporation or Articles or
Bylaws (or similar corporate document) of Buyer, (b) conflict with or
result in a violation or breach of, or constitute a default (or give rise to
any right of termination, cancellation or acceleration) under any contract,
notice, bond, mortgage, lease or other instrument or obligation to which Buyer
or by which any of the assets of Buyer is bound, or (c) violate any Law or
order, writ, injunction or decree of any Governmental Entity applicable to
Buyer or by which any properties or assets of Buyer may be bound.
5.6.
CONSENTS
. No consents
of any third party are required as a result of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby by Buyer.
5.7.
BROKERS AND FINDERS
.
Neither Buyer, Parent nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fee, commission or finder’s fee in connection with the transactions
contemplated by this Agreement.
6.
REQUISITE STOCKHOLDERS VOTE; THIRD PARTY CONSENTS;
NO SOLICITATION OF CONFLICTING TRANSACTIONS
.
6.1.
SOLICITATION OF REQUISITE STOCKHOLDER
VOTE
.
6.1.1.
As soon as practicable following the execution and delivery of this
Agreement, Seller shall at its own expense file with the Securities and
Exchange Commission
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(the “
SEC
”) a proxy statement in preliminary form
relating to the Stockholders Meeting (such proxy statement, including any
amendment or supplement and any schedules and exhibits thereto, the “
Proxy Statement
”). Seller will provide Parent a reasonable
opportunity to review and consult with Seller regarding the Proxy Statement, or
any amendments or supplements thereto, prior to filing the same with the SEC,
and Seller shall use its reasonable best efforts to have the Proxy Statement
cleared by the SEC.
6.1.2.
Seller shall cause the Proxy Statement, and the letter to stockholders,
the notice of meeting and the form of proxy provided to stockholders of Seller
therewith at the time that the Proxy Statement is first mailed to the
stockholders of Seller and at the time of the Stockholders Meeting, to not
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 under which they are made, not misleading, and to
comply, in all material respects, as to form with the provisions of the
Exchange Act and the rules and regulations of the SEC promulgated
thereunder;
provided
,
however
, that the obligations of Seller
contained in this
Section 6.1.2
shall not apply to any information
supplied by Parent or Buyer or any of their respective representatives to
Seller for purposes of inclusion in or incorporation by reference in the Proxy
Statement.
6.1.3.
Parent shall cause any information supplied by it or Buyer or any of
their respective representatives in writing for inclusion or incorporation by
reference in the Proxy Statement, at the time that the Proxy Statement is first
mailed to the stockholders of Seller and at the time of the Stockholders
Meeting, to not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading.
6.1.4.
As promptly as practicable after the filing of the Proxy Statement in
definitive form, Seller, acting through its board of directors shall, in
accordance with applicable Law and its certificate of incorporation and bylaws,
duly call, give notice of, convene and hold a meeting of holders of Shares (the
“
Stockholders Meeting
”) to consider and
vote upon the approval of the transaction contemplated herein to the extent
required by the DGCL (the “
Acquisition
”). Except in the event of a Change of Company
Recommendation specifically permitted by
Section 6.2.4
, (a) the
Proxy Statement shall include the Company Recommendation and (b) the board
of directors of Seller shall take all reasonable lawful action to solicit the
approval of the Acquisition by the holders of a majority of the outstanding
Shares entitled to vote on such matter (the “
Requisite
Stockholder Vote
”).
6.1.5.
Seller shall as soon as reasonably practicable notify Parent of the
receipt of all comments (written or oral) of the SEC with respect to the Proxy
Statement and of any request by the SEC for any amendment or supplement thereto
or for additional information and shall as soon as reasonably practicable
provide to Parent copies of all material correspondence between Seller and/or
any of its Representatives on the one hand, and the SEC, on the other hand,
with respect to the Proxy Statement. Seller
and Parent shall each use reasonable efforts to promptly provide responses to
the SEC with respect to all comments received on the Proxy Statement by the SEC
and Seller shall cause the definitive Proxy Statement to be mailed promptly
after the date the SEC staff advises that it has no further comments thereon or
that Seller may commence mailing the Proxy Statement. Subject to applicable Laws, Seller and Buyer
each shall, upon request by the other, furnish the other with all information
concerning itself, its Subsidiaries, directors, officers and stockholders and
such other matters as may be reasonably necessary or advisable in connection
with the Proxy Statement or any other statement, filing, notice or application
made by or on behalf of Buyer, Seller or any of their respective Subsidiaries to
any third party and/or any Governmental Entity in connection with the
Acquisition and the other transactions contemplated by this Agreement.
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6.1.6.
Seller’s board of directors shall recommend that Seller’s stockholders
approve the Acquisition at the Stockholders’ Meeting (the “
Company
Recommendation
”).
6.2.
NO SOLICITATION OF CONFLICTING
TRANSACTION
.
6.2.1.
Subject to
Section 6.2.3
and
Section 6.2.4
,
from the date hereof until the Closing Date or, if earlier, the termination of
this Agreement in accordance with
Section 10
, Seller shall not, and
shall cause its Subsidiaries and its directors (to the extent acting in their
capacity as such), officers, employees, Affiliates, investment bankers, attorneys,
accountants and other advisors or representatives (collectively, “
Representatives
”) not to, directly or indirectly: (i) initiate, or solicit or knowingly
facilitate or encourage (including by way of providing information) the making,
submission or announcement of any inquiries, proposals or offers that
constitute or may reasonably be expected to lead to, any Acquisition Proposal
or engage in any discussions or negotiations with respect thereto or otherwise
knowingly cooperate with or knowingly assist or participate in, or knowingly
facilitate or knowingly encourage any such inquiries, proposals, discussions or
negotiations or (ii) approve, endorse or recommend, or publicly propose to
approve or recommend, an Acquisition Proposal or enter into any merger
agreement, letter of intent, agreement in principle, share purchase agreement,
asset purchase agreement or share exchange agreement, option agreement or other
similar agreement relating to an Acquisition Proposal or enter into any
agreement or agreement in principle requiring Seller to abandon, terminate or
fail to consummate the transactions contemplated hereby or breach its
obligations hereunder or propose or agree to do any of the foregoing. Seller shall immediately cease, and shall
cause its Subsidiaries and Representatives to terminate, any solicitation,
knowing encouragement, discussion or negotiation or knowing cooperation with or
knowing assistance or participation in, or knowing facilitation or knowing
encouragement of any such inquiries, proposals, discussions or negotiations
with any Persons conducted theretofore by Seller, its Subsidiaries or any of
its Representatives with respect to any Acquisition Proposal.
6.2.2.
For purposes of this Agreement, the term: (A) “
Acquisition Proposal
” means any inquiry, offer or proposal,
made by a Person or group at any time relating to any direct or indirect
acquisition of (i) more than 10% of the assets of Seller and its
Subsidiaries, taken as a whole, (ii) beneficial ownership of more than 10%
of the outstanding equity securities of Seller, (iii) a tender offer or
exchange offer that, if consummated, would result in any Person beneficially
owning more than 10% of any class of outstanding equity securities of Seller,
or (iv) any merger, consolidation or other business combination,
recapitalization or similar transaction, including any single or multi-step
transaction or series of related transactions, in each case other than the
Acquisition; (B) “
Superior Proposal
”
means any bona fide Acquisition Proposal made in writing that (a) is on
terms that the board of directors of Seller has determined in good faith (after
consultation with Seller’s outside counsel) are more favorable to Seller’s
stockholders from a financial point of view than this Agreement, after giving
effect to any modifications (if any) proposed to be made to this Agreement or
any other offer by Buyer after Buyer’s receipt of notice under
Section 6.2.4.1
,
and (b) which the board of directors of Seller has determined in good
faith (after consultation with Seller’s outside counsel) is reasonably likely
to be consummated (if accepted) (the foregoing determinations shall be made
after consultation with Seller’s outside counsel after taking into account all
appropriate legal, financial (including the financing terms of such proposal),
regulatory and other aspects of such proposal); and (C) “
Acceptable Confidentiality Agreement
” shall mean a
confidentiality and standstill agreement that contains confidentiality and
standstill provisions that are no less favorable in the aggregate to Seller
than those contained in the Confidentiality Agreement.
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6.2.3.
Notwithstanding anything to the contrary contained in
Section 6.2.1
,
if at any time following the date of this Agreement and prior to the Requisite
Stockholder Vote (i) Seller has received a written Acquisition Proposal
from a third party that the board of directors of Seller believes in good faith
to be bona fide, (ii) such Acquisition Proposal did not occur as a result
of a breach of this
Section 6.2
, (iii) the board of directors
of Seller determines in good faith, after consultation with its outside
counsel, that such Acquisition Proposal constitutes or may reasonably be
expected to result in a Superior Proposal and (iv) after consultation with
its outside counsel, the board of directors of Seller determines in good faith
that the failure to take such actions or any of the actions described in the
following clauses (A) and (B) would be inconsistent with its fiduciary
duties to the stockholders of the Company under applicable Law, then Seller may
(A) furnish information (including non-public information) with respect to
Seller and its Subsidiaries to the Person making such Acquisition Proposal and (B) participate
in discussions or negotiations with the Person making such Acquisition Proposal
regarding such Acquisition Proposal; provided that Seller (x) gives Buyer
written notice of the identity of such Person and of Seller’s intention to
furnish information to, or enter into discussions with, such Person at least
one Business Day prior to furnishing any such information to, or entering into
discussions with, such Person, and (y) will not, and will not allow its
Subsidiaries or Representatives to disclose any non-public information to such
Person without first entering or having entered into an Acceptable
Confidentiality Agreement.
6.2.4.
Notwithstanding anything in
Section 6.2.1
to the contrary, if Seller receives an Acquisition Proposal which the board of
directors of Seller concludes in good faith, after consultation with outside
counsel, constitutes a Superior Proposal after giving effect to all of the
adjustments to the terms of this Agreement which may be offered by Buyer,
including pursuant to clause (ii) below, the board of directors of Seller
may at any time prior to obtaining the Requisite
Stockholder Vote, if it determines in good faith, after consultation
with outside counsel, that the failure to take such action or any of the
actions described in the following clauses (x), (y) and (z) would be
inconsistent with the fiduciary duties of the board of directors to the
stockholders of Seller under applicable Law, (x) withdraw, modify or
qualify, or propose publicly to withdraw, modify or qualify, in a manner
adverse to Parent or Buyer, the Company Recommendation (a “
Change of
Company Recommendation
”), (y) approve or recommend such
Superior Proposal, and/or (z) terminate this Agreement to enter into a
definitive agreement with respect to such Superior Proposal;
provided
,
however
,
that the board of directors of Seller may not withdraw, modify or amend the
Company Recommendation in a manner adverse to Parent or Buyer pursuant to the
foregoing clause (x), approve or recommend such Superior Proposal pursuant to
the foregoing clause (y) or terminate this Agreement pursuant to the
foregoing clause (z) (it being agreed that any such purported termination
shall be null and void and of no effect) unless with respect to clause (z) above,
Seller pays the Company Termination Fee pursuant to
Section 10.2.2
:
6.2.4.1.
Seller shall have provided prior written
notice to Buyer, of its intention to take any action contemplated in
Section 6.2.4
with respect to a Superior Proposal at least four Business Days in advance of
taking such action (the “
Notice Period
”),
which notice shall set forth the material terms and conditions of any such
Superior Proposal (including the identity of the party making such Superior
Proposal), and shall have contemporaneously provided a copy of the relevant
proposed transaction agreements with the party making such Superior Proposal
and other material documents, including the then-current form of each
definitive agreement with respect to such Superior Proposal (each, an “
Alternative Acquisition Agreement
”); and
6.2.4.2.
prior to effecting such Change of Company
Recommendation, approving or recommending such Superior Proposal or terminating
this Agreement to enter into a proposed definitive agreement with
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respect to such Superior
Proposal, Seller shall provide Buyer the opportunity to submit an amended
written proposal or to make a new written proposal to the board of directors of
Seller during the Notice Period and shall itself and shall cause its Representatives
to, during the Notice Period, negotiate in good faith with Buyer (to the extent
Buyer so requests in writing) to make such adjustments to the terms and
conditions of this Agreement so that such Superior Proposal ceases to
constitute a Superior Proposal. In the
event of any subsequent material revisions to such Superior Proposal, Seller
shall deliver a new written notice to Buyer and comply with the requirements of
this
Section 6.2.4
, and the Notice Period shall recommence.
6.2.5.
Nothing contained in this Agreement (including, without limitation,
this
Section 6.2
) shall prohibit the board of directors of Seller
from (i) taking and disclosing to the stockholders of Seller a position
contemplated by Rule 14e-2(a) and Rule 14d-9 promulgated under the
Exchange Act , or (ii) disclosing the fact that the board of directors of
Seller has received an Acquisition Proposal and the terms of such proposal, if
the board of directors of Seller determines, after consultation with its
outside legal counsel, that the failure to take any such actions would be
inconsistent with its fiduciary duties under applicable Law or to comply with
obligations under federal securities laws or NASDAQ or the rules and
regulations of any U.S. securities exchange upon which the capital stock of
Seller is listed;
provided
,
however
, that any such disclosures
(other than “stop, look and listen” letters or similar communications of the
type contemplated by Rule 14d-9(f) under the Exchange Act) shall be
deemed to be a Change of Company Recommendation (including for purposes of
Section 10.1.7)
unless the board of directors of Seller expressly publicly reaffirms its
Company Recommendation not more than five (5) Business Days after a
written request by Buyer to do so (provided that, if such written notice is
delivered to Seller less than five (5) Business Days prior to the
Stockholders Meeting, the board of directors of Seller shall so reaffirm its
Company Recommendation at least one (1) Business Day prior to the
Stockholders Meeting).
6.3.
OBTAINING REGULATORY APPROVALS; THIRD
PARTY CONSENTS
. Each
of Seller and the Buyer shall, following the execution of this Agreement, use
its commercially reasonable efforts to execute and file, or join in the
execution and filing of, any application, notification or other document that
may be necessary in order to obtain the authorization, approval or consent of
any Governmental Entity, whether federal, state, local or foreign, that may be
reasonably required in connection with the consummation of the transactions
contemplated hereby. Each of Seller and
the Buyer shall use its commercially reasonable efforts to obtain all such
authorizations, approvals and consents.
To the extent permitted by applicable Law, each of Seller and the Buyer
shall promptly inform the other of any material communication to Seller or the
Buyer (as applicable) from any Governmental Entity regarding the transactions
contemplated hereby. If Seller or the
Buyer or any affiliate thereof shall receive any formal or informal request for
supplemental information or documentary material from any Governmental Entity
with respect to the transactions contemplated hereby, then Seller or the Buyer
(as applicable) shall use its commercially reasonable efforts to make or cause
to be made, as soon as reasonably practicable, a response in compliance with
such request. Each of Seller and the
Buyer shall direct, in its sole discretion, the making of such response, but
shall consider in good faith the views of the other. Further, Seller shall use
its commercially reasonable efforts to obtain all necessary consents, waivers
and approvals of any parties to any Material Contracts to which Seller is a
party (including all consents, waivers and approvals set forth in the Seller
Disclosure Schedule) as are required thereunder in order to consummate the
transactions contemplated by this Agreement.
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6.4.
CERTAIN NOTIFICATIONS
.
At all times prior to the Closing, Seller and Buyer shall promptly
notify the other party in writing of the occurrence of any failure to satisfy
any of the conditions specified in
Section 8.4
or
Section 8.5
of this Agreement.
7.
ADDITIONAL COVENANTS OF
THE PARTIES
.
Each of the
parties hereto agrees that it shall undertake as follows:
7.1.
ACCESS TO INFORMATION
.
7.1.1.
Prior to the Closing, Seller will permit Buyer to make a full and
complete investigation of the Business and the Purchased Assets and to receive
from Seller all reasonably requested information of Seller relating to the
Purchased Assets or Seller’s conduct of the Business. Without limiting this right, Seller will give
to Buyer and its accountants, legal counsel, and other representatives
reasonable access, during normal business hours, and in a manner so as not to
interfere with the normal business operations of Seller, at a mutually
agreeable location arranged in advance, to all of the books, records, files,
documents, properties, and contracts of Seller relating to the Purchased Assets
or reasonably related to Seller’s conduct of the Business and allow Buyer and
any such representatives to make copies thereof, at Buyer’s expense. This
Section 7.1
shall not affect
or be deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the transactions
contemplated by this Agreement.
7.1.2.
At all times following the Closing, each party shall provide the other
party (at such other party’s expense) with such reasonable assistance,
including the provision of available relevant records or other information, as
may be reasonably requested by either of them in connection with the
preparation of any financial statement or tax return, any audit or examination
by any taxing authority, or any judicial or administrative proceeding relating
to liability for Taxes.
7.2.
SELLER’S CONDUCT OF THE BUSINESS PRIOR TO
CLOSING
. During the period commencing on the date of
this Agreement and expiring on the earlier to occur of the Closing Date or the
termination of this Agreement pursuant to
Section 10
, Seller will
conduct the Business in its ordinary and usual course in all material respects,
consistent with past practice, and will use commercially reasonable efforts to
preserve substantially intact all rights, privileges, franchises and other
authority of the Business, to retain its employees and consultants and to
maintain its relationships with licensors, licensees, suppliers, contractors,
distributors and customers. Seller shall
promptly notify Buyer of any event or occurrence or emergency not in the
ordinary course of business, and any event which could reasonably be expected
to have a Material Adverse Effect on the Business or the Purchased Assets. Without limiting the generality of the
foregoing, and except as approved in writing by Buyer in advance, prior to the
Closing, Seller:
7.2.1.
will not create, incur or assume any obligation which would result in a
Material Adverse Effect on the Business, the Purchased Assets or Buyer’s
ability to conduct the Business in substantially the same manner as conducted
by Seller on the date of this Agreement;
7.2.2.
will not increase the compensation of, or agree to provide additional
benefits to, or enter into any employment agreement with, any employee except
in the ordinary course of business consistent with past practices;
7.2.3.
will maintain insurance coverage consistent with past practices;
7.2.4.
will not sell, dispose of or encumber any material portion of the
Purchased Assets or license any Purchased Assets to any Person, except in the
ordinary course of business consistent with past practices;
7.2.5.
will not enter into any material agreements or commitments relating to
the Business, except in the ordinary course of business consistent with past
practices;
7.2.6.
will comply in all material respects with all Laws applicable to the
Business;
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7.2.7.
will not enter into any agreement with
any third party for the distribution of any of the Purchased Assets;
7.2.8.
will not make any material change or
announce any such change to the products or services sold by the Business;
7.2.9.
will not expand the use of the Purchased
Assets within the organization of Seller, except in the ordinary course of
business consistent with past practice;
7.2.10.
will not violate the terms of any of the
Material Contracts in any material respect or enter into any material amendment
to any of the Material Contracts outside of the ordinary course of business
consistent with past practice;
7.2.11.
will not commence a lawsuit related to or
involving the Purchased Assets other than (i) for injunctive relief on the
grounds that Seller has suffered immediate and irreparable harm not compensable
in money damages, (ii) for the collection of bills and trademark, domain
name or anti-piracy matters in the ordinary course of business (iii) in
such cases where Seller in good faith determines that failure to commence suit
would result in the material impairment of a valuable aspect of its business or
result in a loss of rights of substantial value, provided that it consults with
Buyer prior to the filing of such a suit or (iv) for a breach of this
Agreement or the other Transaction Documents or enforcement of Seller’s right
hereunder or thereunder; or
7.2.12.
will reasonably cooperate with Buyer in
its efforts to employ the Employees at the Closing.
For the avoidance of
doubt, the covenants set forth in this
Section 7.2
are limited to
the Business and the Purchased Assets and are not intended to in any way limit
or proscribe Seller’s conduct with respect to the Excluded Assets.
7.3.
FUTURE AGREEMENTS
.
In the event Seller acquires or creates any asset, or enters into any
agreement, between the date of this Agreement and the Closing that relates
primarily to the Business (other than the Excluded Assets), then Seller agrees
to report to Buyer, at least three (3) calendar days prior to the Closing
(unless such asset was acquired or created or such agreement was entered into
within three (3) calendar days prior to the Closing, in which event the
Seller agrees to report to Buyer as soon as reasonably practicable, but in any
event prior to the Closing), the details of all such assets and agreements and,
upon Buyer’s request, to include any such asset or agreement within the
Purchased Assets.
7.4.
PERMITS
. Seller will
use commercially reasonable efforts to assist Buyer in obtaining any licenses,
permits or authorizations required for carrying on the Business but which are
not transferable.
7.5.
CHANGE OF NAME
.
Promptly following the Closing, Seller shall change its name to another
name that does not include any of the Purchased Assets.
7.6.
CONFIDENTIALITY UNDERTAKING
.
Seller undertakes that, except to the extent required by Law, it will: (i) hold
any information relating, directly or indirectly, in whole or in part, to this
Agreement, the subject matter hereof, the Purchased Assets or the Business,
including, but not limited to, the terms of this Agreement, all Customer
Agreements and all copies thereof and all rights whatsoever therein, other than
information that is or becomes available to the public other by reason of
Seller’s breach of their obligations under this Agreement (collectively, “
Confidential Information
”) in confidence
and protect the Confidential Information to the same extent and by the same
means they use to protect the confidentiality of their own proprietary or
confidential information that they do not wish to disclose and not less than
commercially reasonable means; (ii) not make any use of the Confidential
Information, save as provided for under this Agreement; and (iii) restrict
disclosure of Confidential Information solely to those of their Affiliates,
stockholders, directors, officers, representatives, agents, employees, advisors
or consultants with a need to know such information, will advise those of its
employees and consultants to whom the Confidential Information is disclosed of
their obligations under this Agreement with respect to the Confidential
Information, and shall be responsible and liable for any breach of
confidentiality by such employees or consultants; provided; however, that
Seller may disclose Confidential Information (i) to the extent necessary
or desirable to establish, enforce or assert any claims or defenses in
connection with
A-24
any legal
proceeding by or against it, or (ii) to the extent otherwise required by
Law or requested by any governmental or regulatory authority,
provided
;
however
that prior to any such disclosure, Seller will, to the extent practicable and
not otherwise prohibited by applicable Laws, provide prompt written notice thereof
to Buyer and use commercially reasonable efforts, at Buyer’s expense, to
cooperate with Buyer so as to enable it to seek an appropriate protective order
or other remedy.
7.7.
POST-CLOSING RETENTION OF COPIES
.
From and after the Closing Date Seller shall be permitted to retain
copies of books and records of any kind relating to the Business or the
Purchased Assets in accordance with its ordinary record keeping practices,
subject always to its commitments under this Agreement, including
Section 7.6
.
7.8.
PUBLIC ANNOUNCEMENTS
.
7.8.1.
Any external communications concerning
the fact of this Agreement, its substance, or its consequences to any party or
to the sector, shall require the approval and sign off of the Buyer prior to it
being disseminated in any way, other than to the extent that may be required by
reason of applicable Law, the rules or regulations of any applicable
governing or regulatory body or a mandatory requirement of any stock exchange
having jurisdiction over Seller, in which case the recipient shall disclose
only such information to the extent legally required and where practicable,
provide the Buyer with notice of any potential or actual communication in
advance so as to allow the Buyer an opportunity to contest the contents of the
communication.
7.9.
EMPLOYEE MATTERS
.
7.9.1.
Buyer may extend offers of employment to
certain employees of Seller (such employees who accept Buyer’s offers of
employment are referred to herein as the “
Transferring Employees
”).
Seller shall provide Buyer with reasonable access to meet with and
interview its employees during normal business hours, provided that such access
shall not unduly interfere with the operation of the business of Seller prior
to the Closing;
provided
,
however
, that, any of Buyer’s meetings
with or other access to the employees of Seller shall require either (i) the
presence at such meeting, whether in person or by telephone or other remote
electronic means, of a representative of Seller or (ii) the prior written
consent of Seller. Immediately prior to
the Closing, each Transferred Employee shall resign or be terminated effective
immediately after the Closing. Upon such
resignation, Seller shall pay to such Transferring Employees all compensation,
bonus and other amounts due and payable to such Transferring Employees in
connection with such terminations of employment with Seller in accordance with
Seller’s regular employment policies and practices. To the extent permitted by Buyer’s (or others
on its behalf’s) benefit plans, the employee benefit plans of Buyer in which
the Transferring Employees, if any, are eligible to participate shall take into
account, for purposes of eligibility, waiting periods, and pre-existing
periods, the service of such Transferring Employees with Seller as if such
service were with Buyer. For the
avoidance of doubt, Seller alone shall pay to employees of Seller who were not
offered a position with Buyer, or who do not accept Buyer’s offers of
employment, all compensation, bonus and other amounts due and payable to such
employees in connection with their continued employment by Seller or the
termination of their employment by Seller.
7.9.2.
No provision in this Agreement shall
create any third party beneficiary or other right in any Person (including any
beneficiary or dependent thereof) for any reason, including, without
limitation, in respect of continued, resumed or new employment with Seller or
Buyer (or any Affiliate of Seller or Buyer) or in respect of any benefits that
may be provided, directly or indirectly, under any plan or arrangement
maintained by Seller, Buyer or any Affiliate of Seller or Buyer. Except as otherwise expressly provided in
this Agreement, Buyer is under no obligation to hire any employee of Seller,
provide any employee with any particular benefits, or make any payments or
provide any benefits to those employees of Seller whom Buyer chooses not to
employ.
7.10.
INVITATIONAL SEATS
. Commencing on
the Closing Date, on a going-forward basis
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thereafter without expiration, Seller shall be
entitled to receive, and Buyer shall provide to Seller, six (6) invitational
seats per year for the WPT Celebrity Invitational, or, if such event is not
held in a given year, a substantially similar event during such year to the
extent such an event is being operated by the Buyer or their Affiliates. Any person taking one of these invitational
seats will wear the branding associated with the revenue payment herein (and no
other brand(s) unless agreed in advance in writing by the Buyer).
7.11.
ALLOCATION OF PURCHASE PRICE
.
Seller and Buyer agree that the Purchase Price shall be allocated in
accordance with the allocation schedule delivered by Seller, a copy of which is
attached hereto as
Schedule 7.11
(the “
Allocation Schedule
”). After the Closing Date, Seller and Buyer will
each file all federal, state, local and foreign tax returns, as applicable, in
accordance with the Allocation Schedule.
With respect to any tax returns filed by the parties hereto, (i) no
party will take a position on any tax return, before any tax authority or in
any judicial proceeding, that is in any way inconsistent with the Allocation
Schedule without the written consent of both Seller and Buyer or unless
specifically required pursuant to a determination by the applicable tax
authority; (ii) the parties will commercially reasonable efforts cooperate
with each other in connection with the preparation, execution and filing of all
tax returns related to the Allocation Schedule; and (iii) the parties will
promptly advise each other regarding the existence of any tax audit,
controversy or litigation relating to such allocation.
7.12.
ACQUISITION OF BUYER
.
7.12.1.
Definitions
.
For purposes of this Agreement “
Buyer Acquisition Transaction
”
shall mean a transaction or series of transactions relating to, or involving
the acquisition, license (other than a license for value in the ordinary course
of business consistent with past practice), pledge or other disposal, of any
type or nature whatsoever, of any portion of the Business or any of the
Purchased Assets or a twenty-five percent (25%) or higher interest in Buyer’s
capital stock (whether or not outstanding), whether by merger, reorganization,
purchase of assets, tender offer, license or otherwise (other than issuances of
Buyer capital stock pursuant to the exercise of currently outstanding Buyer
options or warrants), or any consolidation, business combination, merger or
similar transaction involving Buyer, or any recapitalization, restructuring,
liquidation or dissolution of Buyer
. For the
purposes of clarity, nothing in this paragraph shall impair or restrict the
ability of Parent or its Affiliates to sell itself or themselves or engage in material corporate transactions
regarding itself or themselves.
7.12.2.
Buyer Acquisition Transaction
.
The Buyer shall not, at any time during which Seller is entitled to
receive Revenue Payments hereunder, enter into, consummate or agree to enter
into any Buyer Acquisition Transaction without the prior written consent of
Seller, such consent not to be unreasonably withheld, unless such Buyer
Acquisition Transaction is part of the sale of substantially all of the assets
of the Buyer. In the event that at any
time following the Closing, the Buyer or its Affiliates propose to enter into
any Buyer Acquisition Transaction:
7.12.2.1.
At least thirty (30) calendar days prior to the
consummation of any Buyer Acquisition Transaction, the Buyer shall deliver a
written notice (the “
Acquisition Notice
”)
to Seller of their intent to enter into a Buyer Acquisition Transaction. The Acquisition Notice shall set forth in
reasonable detail all material terms and conditions of such Buyer Acquisition
Transaction and shall contain a representation and warranty that such Buyer
Acquisition Transaction is part of the sale of substantially all of the assets
of the Buyer. The Acquisition Notice
shall be certified by an executive officer of the Buyer Party.
7.12.2.2.
The Buyer shall use its best efforts to ensure that the
obligation to make Revenue Payments under this Agreement shall be transferred
to the prospective purchaser, transferee, pledgee, licensee or other applicable
acquiring party in such Buyer Acquisition Transaction in a manner that is
otherwise identical to the Revenue Payments
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under this
Agreement and does not circumvent or evade the obligations under this Agreement
with respect to the Revenue Payments.
7.12.3.
EXPLOITATION OF PURCHASED ASSETS
.
The Buyer shall use material and reasonable efforts to exploit and
commercialize the Purchased Assets and to generate Gross Gaming Revenue and
Other Revenue. In furtherance of the
foregoing, the Buyer shall create a “white label” online gaming site or sites
using the “World Poker Tour” brand and perhaps (though not a requirement) the “Professional
Poker Tour” brand (together, the “
White Label Sites
”)
to drive traffic to such site or sites.
Buyer will operate the White Label Sites such that they offer services and
promotions comparable to other global white label sites owned, operated or
promoted by the Buyer or its Affiliates.
Buyer will make material and reasonable efforts to promote the White
Label Sites to its Network of Affiliates and to provide comparable offers and
affiliate promotions for the White Label Sites that are comparable to those
provided to the Buyer and their Affiliates.
7.13.
NON-COMPETITION AND NON-SOLICITATION
.
7.13.1.
Non Competition
.
In consideration of the consummation of the transactions contemplated by
this Agreement, Seller undertakes that for three (3) years after the
Closing Date, Seller will not, without the prior written consent of Buyer,
participate in or create any land based poker tours, any televised poker
programs and/or any online poker sites.
7.13.2.
Non-Solicitation
.
For a period of eighteen (18) months after the Closing, Seller will not
solicit or employ, directly or indirectly, by any means including via
consulting arrangement any Transferring Employee for employment.
7.14.
DEAL STRUCTURE
. Immediately
following the execution and delivery of this Agreement, the parties shall
cooperate with each other in good faith to determine the optimal structure for
the transactions contemplated by this Agreement.
8.
CLOSING; TRANSFER OF
PURCHASED ASSETS
.
8.1.
CLOSING
. Subject to
the terms and conditions of this Agreement, the Closing shall take place not
later than three (3) Business Days after the date on which all conditions
precedent in
Sections 8.4
and
8.5
(other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
fulfillment or waiver of those conditions) have been satisfied or waived, as
the parties may agree, or such other date as Buyer and Seller may mutually
determine. The date the Closing occurs
is referred to as the “
Closing Date
”.
8.2.
ACTIONS AT THE CLOSING - SELLER
DELIVERIES
. Subject to the fulfillment or waiver of the
conditions set forth in
Section 8.5
, at the Closing, Seller shall
execute and/or deliver to Buyer all of the following:
8.2.1.
a Bill of Sale substantially in the form
attached as
Exhibit C
(the “
Bill
of Sale
”);
8.2.2.
an Assignment and Assumption Agreement
substantially in the form attached as
Exhibit D
(the “
Assumption Agreement
”);
8.2.3.
the RP Escrow Agreement, duly executed by
Seller and the Escrow Agent;
8.2.4.
the License Agreement; and
8.2.5.
a legal opinion of legal counsel to
Seller, dated the Closing Date, in the form attached as
Exhibit E
hereto.
8.3.
ACTIONS AT THE CLOSING - BUYER DELIVERIES
.
Subject to the fulfillment or waiver of the conditions set forth in
Section 8.4
,
at the Closing, Buyer shall deliver the Closing Payment to Seller and the Buyer
shall execute and/or deliver to Seller all of the following:
8.3.1.
the Bill of Sale;
8.3.2.
the
Assumption Agreement;
8.3.3.
the RP Escrow Agreement, duly executed by
Buyer and the Escrow Agent; and
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8.3.4.
the License Agreement.
8.4.
CONDITIONS TO BUYER’S OBLIGATIONS
.
The obligations of the Buyer under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived by the Buyer in writing:
8.4.1.
REPRESENTATIONS AND WARRANTIES TRUE;
PERFORMANCE; CERTIFICATE
. The representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects as of the Closing Date with the same force and effect as
though such representations and warranties had been made or given again at and
as of the Closing Date; Seller shall have performed and complied in all
material respects with all covenants and obligations required by this Agreement
to be performed or complied with by Seller prior to or on the Closing Date; and
Buyer shall have received a certificate, dated as of the Closing Date, signed
and verified by an officer of Seller on behalf of Seller certifying to the
matters set forth in this
Section 8.4.1
above.
8.4.2.
REQUISITE STOCKHOLDER VOTE
.
Seller shall have obtained the Requisite Stockholder Vote.
8.4.3.
NO PROCEEDINGS OR LITIGATION
.
8.4.3.1.
No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
8.4.3.2.
No suit, action, claim, proceeding or
formal investigation shall have been commenced by any Governmental Entity and
be pending against any of the parties hereto, or any of their respective
Affiliates, seeking to prevent the transactions contemplated by this Agreement,
including, without limitation, the sale of the Purchased Assets or asserting
that the sale of the Purchased Assets would be illegal or create liability for
damages.
8.4.4.
DOCUMENTS
. This
Agreement and the other Transaction Documents required to be executed and
delivered by Seller hereunder at or prior to the Closing shall be in full force
and effect.
8.4.5.
GOVERNMENTAL FILINGS
.
The parties shall have made any required filing with Governmental
Entities in connection with this Agreement and the other Transaction Documents,
and any approvals related thereto shall have been obtained or any applicable
waiting periods shall have expired or terminated early, in each case, as
required in connection with the consummation of the transactions contemplated
by this Agreement.
8.4.6.
NO MATERIAL ADVERSE CHANGE
.
There shall have been no change in the Purchased Assets or in the
financial condition or results of operations of the Business which results in a
Material Adverse Effect on the Business or the Purchased Assets on the Closing
Date as compared with the date of this Agreement.
8.5.
CONDITIONS TO SELLER’S OBLIGATIONS
.
The obligations of Seller under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived by Seller in writing:
8.5.1.
REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE
.
The representations and warranties of the Buyer contained in this
Agreement shall be true and correct in all material respects as of the Closing Date
with the same force and effect as though such representations and warranties
had been made or given again at and as of the Closing Date; the Buyer shall
have performed and complied in all material respects with all covenants and
obligations required by this Agreement to be performed or complied with by the
Buyer prior to or on the Closing Date; Seller shall have received certificates,
dated as of the Closing
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Date, signed and verified by an officer of each Buyer
Party on behalf of such Buyer Party certifying to the matters set forth in this
Section 8.5.1
.
8.5.2.
REQUISITE STOCKHOLDER VOTE
.
Seller shall have obtained the Requisite Stockholder Vote.
8.5.3.
NO PROCEEDING OR LITIGATION
.
8.5.3.1.
No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
8.5.3.2.
No suit, action, claim, proceeding or investigation
before any Governmental Entity shall have been commenced and be pending against
any of the parties hereto, or any of their respective Affiliates, seeking to
prevent the transactions contemplated by this Agreement, including, without
limitation, the sale of the Purchased Assets or asserting that the sale of the
Purchased Assets would be illegal or create liability for damages.
8.5.4.
DOCUMENTS
. This
Agreement and the other Transaction Documents required to be executed and
delivered by the Buyer hereunder at or prior to the Closing, shall be in full
force and effect.
8.5.5.
GOVERNMENTAL FILINGS
.
The Governmental Authorizations shall have been obtained, or any
applicable waiting periods shall have expired or terminated early, in each
case, as necessary for the consummation of the transactions contemplated by
this Agreement.
9.
INDEMNIFICATION
.
9.1.
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES
.
9.1.1.
Except as set forth in
Section 9.1.2
,
the representations and warranties of the parties contained in this Agreement
shall survive the consummation of the transactions contemplated hereby until
the thirty-six (36) month anniversary of the Closing Date.
9.1.2.
Notwithstanding anything to the contrary,
(i) the representations and warranties contained in
Section 4.12
(Taxes) shall survive for the period of the applicable statute of limitations
(including any extensions thereof), and (ii) the representations and
warranties contained in
Section 4.1
(Organization, Standing and
Power),
Section 4.2
(Authority),
Section 4.3
(Execution
and Binding Effect),
Section 5.1
(Organizational Standing; Power),
Section 5.2
(Authority) and
Section 5.3
(Execution and Binding Effect) shall
survive the Closing Date without time limitation (the representations and
warranties referenced in clause (ii) above are referred to herein as the “
Fundamental Representations
”).
9.1.3.
All covenants contained in this Agreement
and all claims related to fraud shall survive the Closing Date without time
limitation;
provided
,
however
, that covenants that have a
specific time period specified herein shall survive for such specified period.
9.1.4.
The survival periods specified above, as
applicable, are referred to herein as the “
Survival Period
.”
9.1.5.
Notwithstanding the fact that claims
may be asserted after the release of the RP
Escrow Cash
and prior to the expiration of the
applicable Survival Period, any balance of the RP
Escrow Cash
, plus any interest or income earned
thereon, shall be disbursed in accordance with
Section 9.4
and the
RP Escrow Agreement.
9.2.
SELLER INDEMNIFICATION
.
Subject to the limitations set forth in this
Section 9
, from
and after the Closing Date, Seller shall protect, defend, indemnify and hold
harmless Buyer and Buyer’s Affiliates, officers, directors, employees, representatives
and agents (each of the foregoing Persons is hereinafter referred to
individually as an “
Buyer Indemnified Person
”
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and collectively
as “
Buyer Indemnified Persons
”)
from and against any and all losses, costs, damages, liabilities, fees
(including, without limitation, reasonable out-of-pocket attorneys’ fees) and
expenses (but expressly excluding special, incidental, indirect or
consequential damages or lost profits or revenue) (collectively, “
Damages
”), that any of the Buyer
Indemnified Persons incurs (i) by reason of or in connection with any
misrepresentation or breach of any of the representations and warranties of
Seller contained in this Agreement, (ii) resulting from any failure to
fulfill or observe any covenant or agreement made herein by Seller, or (iii) any
assertion against Buyer Indemnified Person of any claim or liability
constituting an Excluded Liability.
Notwithstanding the foregoing, Seller shall have no indemnification,
defense or hold harmless obligation to any Buyer Indemnified Person for Taxes
that arise from and are created by the transactions contemplated by this
Agreement. Damages in each case shall be
net of the amount of any insurance proceeds and indemnity and contribution
actually recovered by Buyer.
9.3.
BUYER INDEMNIFICATION
.
Subject to the limitations set forth in this
Section 9
, from
and after the Closing Date, the Buyer shall protect, defend, indemnify and hold
harmless Seller and Seller’s Affiliates, officers, directors, employees,
representatives and agents (each of the foregoing Persons is hereinafter
referred to individually as a “
Seller
Indemnified Person
” and collectively as “
Seller Indemnified Persons
”) from and against any and all
Damages that any of the Seller Indemnified Persons incurs (i) by reason of
or in connection with any misrepresentation or breach of any of the
representations and warranties of the Buyer contained in this Agreement, (ii) resulting
from any failure to fulfill or observe any covenant or agreement made herein by
the Buyer, (iii) that is attributable, in whole or in part, and to the
extent that it is attributable, to the operation of the Business or the
ownership of the Purchased Assets after the Closing Date, (iv) any
assertion against Seller Indemnified Person of any claim or liability
constituting an Assumed Liability, or (v) by reason of or in connection
with Seller’s observation of the agreements with respect to confidential
treatment of the Revenue Payments set forth in
Section 7.2.9
. Notwithstanding the foregoing, the Buyer
shall have no indemnification, defense or hold harmless obligation to any
Seller Indemnified Person for Taxes that arise from and are created by the
transactions contemplated by this Agreement.
Damages in each case shall be net of the amount of any insurance
proceeds and indemnity and contribution actually recovered by Seller.
9.4.
RP ESCROW
. All funds
deposited with the RP Escrow Agent hereunder shall be retained by it until the
twenty-four (24) month anniversary of the Closing Date, and
at
the end of such period, with such additional time as may reasonably be
necessary to determine the appropriate distribution amounts as provided in the
RP Escrow Agreement, any portion of the RP Escrow Cash not previously disbursed
shall be released to Seller;
provided
,
however
, that such portion
of the RP Escrow Cash, in the amount of and to the extent of any timely
asserted and pending but unresolved claims for indemnification made by Buyer in
good faith pursuant to
Section 9.2
, shall be held by the Escrow
Agent pending resolution of such claims; and,
provided
further
,
that if, and to the extent that, any portion of the RP Escrow Cash so withheld
exceeds Seller’s indemnification obligation
as finally
determined pursuant to this
Section 9
, (1) Buyer
shall have no rights with respect to such excess amount, (2) Buyer agrees
that Seller shall be entitled to the investment earnings on such excess amounts
from the date such amounts would have otherwise been payable to Seller pursuant
to this
Section
9
until the date of payment
to Seller, and (3) the “investment earnings” on such excess amounts shall
be as provided in the
RP
Escrow Agreement.
9.5.
INDEMNIFICATION PROCEDURE
.
The
procedures for indemnification shall be as follows:
9.5.1.
The
party claiming the indemnification (the “
Indemnified Party
”) shall promptly upon becoming aware of
the possibility of an indemnity claim give written notice to the party from
whom the indemnification is claimed (the “
Indemnifying Party
”)
of any claim whether between the parties or brought by a third party against
the Indemnified Party, specifying in reasonable detail (i) the factual
basis for such claim, and (ii) the amount of the claim. If a claim relates to an action, suit, or
proceeding filed by a third party against the Indemnified Party, such notice
shall be given by the Indemnified Party to the Indemnifying Party promptly upon
becoming aware of the possibility of an indemnity claim but in any event within
fifteen (15) calendar days after written notice of such action, suit, or
proceeding shall have been given to the Indemnified Party. Failure to
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give prompt written
notice shall not affect the indemnification obligations hereunder in the
absence of actual prejudice.
9.5.2.
Following receipt of written notice
from the Indemnified Party of a claim, the Indemnifying Party shall have thirty
(30) calendar days in which to make such investigation of the claim as the
Indemnifying Party shall deem necessary or desirable. For the purposes of such investigation, the
Indemnified Party agrees to make available to the Indemnifying Party and/or its
authorized representative(s) the information relied upon by the
Indemnified Party to substantiate the claim.
If the Indemnified Party and the Indemnifying Party agree at or prior to
the expiration of said thirty (30) day period (or any agreed upon extension
thereof) to the validity and amount of such claim, or if the Indemnifying Party
does not respond to such notice, the Indemnifying Party shall immediately pay
to the Indemnified Party the full amount of the claim;
provided
, that
the amount held in the RP Escrow Account to secure Seller’s indemnification
obligations to Buyer shall be paid in satisfaction of any claim determined to
be payable by Seller until that amount is exhausted (if it is), and thereafter
Seller shall make good sums due, if any, by virtue of the indemnity.
9.5.3.
With respect to any claim by a third
party as to which the Indemnifying Party has agreed that the Indemnified Party
is entitled to indemnification hereunder, the Indemnifying Party shall have the
right at its own expense to participate in or, if it so elects, to assume
control of the defense of such claim, and the Indemnified Party shall cooperate
fully with the Indemnifying Party. If
the Indemnifying Party elects to assume control of the defense of any
third-party claim, then the Indemnified Party shall have the right to
participate in the defense of such claim at its own expense. The Indemnifying Party shall not, without the
prior written consent of the Indemnified Party (such consent not to be
unreasonably delayed, withheld or conditioned), settle, compromise or offer to
settle or compromise any such claim or demand on a basis which would result in
the imposition of a consent order, injunction or decree which would restrict
the future activity or conduct of the Indemnified Party or any subsidiary or
affiliate thereof, or if such settlement or compromise does not include an unconditional
release of the Indemnified Party for any liability arising out of such claim or
demand or any related claim or demand.
9.5.4.
If a claim, whether between the
parties or by a third party, requires immediate action, the parties will make
all reasonable efforts to reach a decision with respect thereto as
expeditiously as possible.
9.5.5.
If the Indemnifying Party does not
elect to assume control or otherwise participate in the defense of any
third-party claim, the Indemnifying Party shall be bound by the results
obtained in good faith by the Indemnified Party with respect to such claim.
9.5.6.
The indemnification rights provided
in
Sections 9.2
and
9.3
hereof shall extend to the
directors, officers and Affiliates of the Indemnified Party, although for the
purpose of the procedures set forth in this
Section 9
, any
indemnification claims by such parties shall be made by and through the
Indemnified Party.
9.6.
LIMITATIONS ON SELLER INDEMNIFICATION
.
9.6.1.
Except as specifically otherwise provided,
Seller, shall have no indemnification payment obligations with respect to any
breaches of a representation or warranty unless and until the aggregate amount
of Damages with respect to any breach of one or more representation or warranty
exceeds One Hundred Fifty Thousand Dollars (US$150,000) (the “
Basket Amount
”);
provided
, that once the aggregate
amount of such Damages exceeds the Basket Amount, Seller shall be liable for
all such Damages back to Dollar one ($1).
9.6.2.
No Buyer Indemnified Party shall have the
right to seek indemnification with respect to any breach of a representation or
warranty, unless such claim is asserted during the applicable Survival Period
for such representation or warranty.
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9.6.3.
Notwithstanding anything contained herein
to the contrary, the aggregate liability of Seller hereunder shall in no event
exceed Nine Million Dollars (US$9,000,000).
Buyer shall be required to first look to the RP Escrow Cash and PG
Escrow Cash (to the extent not already disbursed) to satisfy any claims
hereunder, and accordingly Buyer shall have no right to seek a recovery
hereunder from Seller until the RP Escrow Cash and PG Escrow Cash has been
fully disbursed or to the extent there are asserted claims in excess of the
then RP Escrow Cash and PG Escrow Cash.
9.6.4.
In relation to claims above Two Hundred
Fifty Thousand Dollars (US$250,000), no Buyer Indemnified Person shall be
entitled to indemnification from Seller with respect to Damages incurred to
defend against a third party claim unless it is ultimately determined pursuant
to a judicial adjudication taken through trial and at least the first appeal
that Seller is liable to such third party claimant. For all claims at or below Two Hundred Fifty
Thousand Dollars (US$250,000), the Buyer Indemnified Person shall defend such
claim in a reasonable and professional manner.
To the extent that Seller elects to assume control of the defense of any
third-party claim pursuant to
Section 9.5
, the Buyer Indemnified
Person shall pay the costs of such defense, subject to reimbursement by Seller
if it is ultimately determined pursuant to a judicial adjudication taken
through trial and at least the first appeal that Seller is liable to such third
party claimant. I
n the event that any
Damages
incurred to defend against a third party claim
are covered by insurance of
Seller, Seller agrees to use material and reasonable efforts to seek recovery
under such insurance and the party responsible for such Damages under this
Section 9.6.4
shall be entitled to the proceeds of insurance recovered by Seller in respect
of such Damages.
9.7.
LIMITATIONS ON BUYER INDEMNIFICATION
.
No Seller Indemnified Party shall have the right to seek indemnification
with respect to any breach of a representation or warranty, unless such claim
is asserted during the applicable Survival Period for such representation or
warranty.
9.8.
SUBROGATION
.
Upon making an indemnity payment pursuant to this Agreement, the
Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnified Party against any third party in respect of the
damages to which the payment related.
Without limiting the generality of any other provision hereof, each such
Indemnified Party and Indemnifying Party will duly execute upon request all
instruments necessary to evidence and perfect the above described subrogation
rights.
9.9.
EXCLUSIVE REMEDIES
.
The remedies provided for in this
Section 9
shall be the
sole and exclusive remedies of the parties and their respective officers,
directors, employees, Affiliates, agents, representatives, successors and
assigns for the recovery of any Damages resulting from, relating to or arising
out of this Agreement (except for fraud or injunctive relief as contemplated by
Section 11.10
) and such parties hereby waive, and release one
another from, all other remedies, whether common law or statutory or at
equity. For the avoidance of doubt, the
foregoing does not limit the Indemnified Parties from pursuing their remedies
under the other agreements entered into in connection with this Agreement.
9.10.
NO DOUBLE RECOVERY; USE OF INSURANCE
.
Notwithstanding anything herein to the contrary, no party shall be
entitled to indemnification or reimbursement under any provision of this
Agreement for any amount to the extent such party or its Affiliate has been
indemnified or reimbursed for such amount under any other provision of this
Agreement or the Schedules attached hereto, or any document executed in connection
with this Agreement or otherwise.
Furthermore, in the event any losses, liabilities or damages related to
a claim by a Buyer Indemnified Person are covered by insurance, Buyer agrees to
use commercially reasonable efforts to seek recovery under such insurance and
Buyer shall not be entitled to recover from Seller (and shall refund amounts
received up to the amount of indemnification actually received) with respect to
such damages to the extent Buyer recovers any applicable insurance payment.
9.11.
TREATMENT OF INDEMNITY PAYMENTS BETWEEN
THE PARTIES
. Unless otherwise required by applicable Law,
all indemnification payments shall constitute adjustments to the Purchase Price
for all Tax purposes, and no party shall take any position
A-32
inconsistent with such
characterization on any tax return, in any Tax audit or judicial or
administrative proceeding or otherwise.
9.12.
MITIGATION
.
Each party agrees to use reasonable efforts to mitigate any Damages which
form the basis of a claim hereunder.
9.13.
NO RIGHT OF SET OFF
.
Except in compliance with this Agreement with respect to the RP Escrow
Cash
and PG
Escrow Cash
,
the Buyer Indemnified Person will not and shall not have the right of set off
any amounts payable by the Buyer to Seller, including, without limitation, the
Revenue Payments, against amounts for which such Buyer Indemnified Person is
entitled to indemnification from the Seller under
Section 9.2
. Notwithstanding the foregoing, if a good
faith arbitration action is filed by the Buyer with a monetary demand that is
not covered by the funds in the existing RP Escrow, then all sums due to Seller
under the Revenue Payments in
Section 3.2.2
may at the Buyer’s
election be paid into the RP Escrow Account for a period of up to and including
the earlier of the conclusion of the arbitration and six months.
10.
TERMINATION
.
10.1.
TERMINATION OF AGREEMENT
.
This Agreement may be terminated at any time (notwithstanding approval
thereof by the Requisite Stockholder Vote) prior to the Closing:
10.1.1.
By mutual written consent of Buyer and
Seller; or
10.1.2.
By Buyer or Seller if the Closing does
not occur by the date that is six months after the date of this Agreement (the “
Outside Date
”), whether such date is before or after the
date of approval by the Requisite Stockholder Vote;
provided
,
however
,
that the right to terminate this Agreement pursuant to this
Section 10.1.2
shall not be available to any party whose failure to take any action required
to fulfill any obligation under this Agreement shall have been the cause or, or
shall have resulted in, the failure of the Closing to occur by such date; or
10.1.3.
By Buyer or Seller if the Stockholders
Meeting (including any adjournments or postponements thereof) shall have been
convened and a vote to approve this Agreement shall have been taken thereat and
the adoption of this Agreement by the Requisite Stockholder Vote shall not have
been obtained (and shall not have been obtained at any adjournments or postponements
thereof); or
10.1.4.
Seller, if there shall have been a breach of any of
the covenants or agreements or any of the representations or warranties set
forth in this Agreement on the part of the Buyer which breach, either
individually or in the aggregate, would reasonably be expected to result in the
failure of the conditions set forth in
Section 8.5
to be satisfied
and which is not cured within the earlier of (i) the Outside Date and (ii) thirty
(30) days following written notice to the Buyer from Seller, or which by its
nature or timing cannot be cured within such time period; provided that Seller
shall not have the right to terminate this Agreement pursuant to this
Section 10.1.4
if it is then in material breach of any of its covenants or agreements or
representations and warranties contained in this Agreement; or
10.1.5.
Buyer, if there shall have been a breach of any of the
covenants or agreements or any of the representations or warranties set forth
in this Agreement on the part of Seller, which breach, either individually or
in the aggregate, would reasonably be expected to result in the failure of the
conditions set forth in
Section 8.4
to be satisfied and which is
not cured within the earlier of (i) the Outside Date and (ii) thirty
(30) days following written notice to Seller from Buyer, or which by its nature
or timing cannot be cured within such time period; provided that Buyer shall
not have the right to terminate this Agreement pursuant to this
Section 10.1.5
if the Buyer is then in material breach of any of its covenants or agreements
or representations and warranties contained in this Agreement; or
10.1.6.
By Buyer or Seller if any Governmental
Entity shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement (a “
Restraint
”),
which Restraint has become final and non-appealable;
provided
,
however
,
that no party hereto shall have such right to terminate pursuant to this
Section 10.1.6
unless, prior to such termination, such party shall have used its reasonable
best efforts to
A-33
oppose any such Restraint or to have such Restraint
vacated or made inapplicable to the transactions contemplated by this
Agreement; or
10.1.7.
By Buyer if (i) a Change of Company
Recommendation shall have occurred; (ii) the board of directors of Seller
withholds, withdraws, qualifies, modifies or amends the Company Recommendation
in a manner adverse to the Buyer in accordance with, and subject to the terms
and conditions of,
Section 6.2
; (iii) the board of directors
of Seller or any committee thereof shall approve, adopt or recommend any
Superior Proposal or Acquisition Proposal; (iv) Seller shall have executed
any letter of intent, memorandum of understanding or similar contract relating
to any Superior Proposal or Acquisition Proposal; (v) Seller publicly
announces its intention to take any of the actions in the foregoing clauses
(i), (ii), (iii), or (iv); (v) with the prior consent of the board of
directors of Seller, any Person or “group” (within the meaning of Section 13(d) of
the Exchange Act) acquires beneficial ownership of more than twenty-five (25%)
percent of the outstanding shares of capital stock of Seller; or (vi) Seller
breaches its obligation (if any) to hold the Stockholder Meeting other than
solely as a result of actions taken or omitted by the SEC; or
10.1.8.
By Seller, at any time prior to the
Closing, in accordance with, and subject to the terms and conditions of,
Section 6.2.4
;
or
10.1.9.
By Seller, at any time prior to the
Closing, if federal legislation is passed in the United States which the board
of directors of Seller has determined in good faith (after consultation with
Seller’s outside counsel), would result in the legalization of online gambling
in the United States.
10.2.
PROCEDURE AND EFFECT OF TERMINATION
.
In the event of termination of this Agreement by a party pursuant to
Section 10.1
written notice shall be given to the other parties specifying the provision of
Section 10.1
pursuant to which such termination is made, and this Agreement (other than this
Section 10.2
,
Section 7.6
(Confidentiality) and
Section 11
(Miscellaneous), other than
Section 11.6
(Further Assurances))
shall terminate and become void and of no force or effect without liability of
any party (or any stockholder, director, officer, employee, agent, consultant
or representative of such party) to the other party hereto;
provided
,
however
,
that if such termination shall result from (i) the willful failure of any
party hereto to fulfill a condition to the performance of the material
obligations of the other parties hereto or (ii) the willful failure of any
party hereto to perform a material covenant applicable to it, such party shall
be fully liable for any and all liabilities and damages incurred or suffered by
the other party as a result of such failure;
provided
,
further
,
that:
10.2.1.
if Buyer terminates this Agreement
pursuant to
Section 10.1.5
or
Section 10.1.7
, within
ten (10) Business Days after the date of such termination, Seller shall
pay the amount of One Million Dollars (US$1,000,000) (the “
Termination Fee
”) to, or as directed by, Buyer by wire
transfer of immediately available funds to one or more accounts specified by
Buyer in writing, which Termination Fee shall be separate from any Initial
Payment Reimbursement which may be owed pursuant to
Section 10.3
;
and
10.2.2.
if Seller terminates this Agreement
pursuant to
Section 10.1.4
, within ten (10) Business Days
after the date of such termination, Buyer shall pay the Termination Fee to, or
as directed by, Seller by wire transfer of immediately available funds to one
or more accounts specified by Seller in writing. For purposes of clarity, any Termination Fee
which may be owed by Buyer to Seller pursuant to this
Section 10.2.2
,
shall be separate from and in addition to any rights which Seller may have to
retain the Initial Payment, as described in
Section 10.3
below.
10.2.3.
Each party acknowledges that the agreements
contained in this
Section 10.2
are an integral part of the
transactions contemplated by this Agreement.
In the event that either party shall fail to pay the Termination Fee
when due, such party shall reimburse the other party for all reasonable and
documented costs and expenses actually incurred or accrued by or on behalf of
such party (including reasonable fees and expenses of counsel) in connection
with the collection under and enforcement of this
Section 10.2.3
.
A-34
10.3.
REIMBURSEMENT
OF THE INITIAL PAYMENT
. In the event that the Initial
Payment is paid to, or as directed by, Seller (as described in
Section 3.1
)
and, thereafter, this Agreement is terminated pursuant to
Section 10.1
,
the following provisions shall apply:
10.3.1.
If
this Agreement is terminated by Buyer pursuant to
Section 10.1.3
,
Section 10.1.5
or
Section 10.1.7
or by Seller pursuant to
Section 10.1.3
,
Section 10.1.8
or
Section 10.1.9
then, within ten (10) Business
Days after the date of such termination, Seller shall pay the amount of One
Million Dollars (US$1,000,000) to, or as directed by, Buyer by wire transfer of
immediately available funds to one or more accounts specified by Buyer in
writing as a reimbursement of the Initial Payment (the “
Full Initial
Payment Reimbursement
”).
10.3.2.
If
this Agreement is terminated pursuant to
Section 10.1.1
, Seller shall pay the amount of Five Hundred
Thousand (US$500,000) to, or as directed
by, Buyer by wire transfer of immediately available funds to one or more
accounts specified by Buyer in writing as a partial reimbursement of the
Initial Payment (the “
Partial Initial Payment
Reimbursement
”). The Partial
Initial Payment Reimbursement and the Full Initial Payment Reimbursement are
each referred to herein as a “
Initial Payment
Reimbursement
”).
10.3.3.
If
this Agreement is terminated by Buyer pursuant to
Section 10.1.2
,
and Seller’s failure to take any action required to fulfill any obligation
under this Agreement shall be the cause, or shall have resulted in, the failure
of the Closing to occur by the Outside Date, then Seller shall pay the Full
Initial Payment Reimbursement to, or as directed by, Buyer. If this Agreement is terminated by Seller
pursuant to Section 10.1.2 and Buyer’s failure to take any action required
to fulfill any obligation under this Agreement was not the cause, or did not
result in, the failure of the Closing to occur by the Outside Date, then Seller
shall pay the Full Initial Payment Reimbursement to, or as directed by, Buyer.
10.3.4.
If
this Agreement is terminated pursuant to
Section 10.1.6
, and Seller’s
failure (or the failure of any Affiliate of Seller) to comply with any Law
applicable to Seller or the Business or failure to take any action required to
fulfill any obligation under this Agreement shall be the cause, or shall have
resulted in, the Restraint, then Seller shall pay the Full Initial Payment
Reimbursement to, or as directed by, Buyer.
If this Agreement is terminated pursuant to
Section 10.1.6
,
and the Restraint (i) was not caused by or the result of the failure of
either Buyer or Seller (or any of their Affiliates) to comply with any
applicable Laws or to take any action required to fulfill any obligation under
this Agreement, or (ii) was caused by or the result of the failure of both
Seller (or any of its Affiliates) and Buyer (or any of its Affiliates), in each
case in material respects, to comply with any applicable Laws or to take any
action required to fulfill any obligation under this Agreement, then, in either
case, Seller shall pay the Partial Initial Payment Reimbursement to, or as
directed by, Buyer.
10.3.5.
If
this Agreement is terminated pursuant to
Section 10.1
for any
reason, other than as expressly described in
Section 10.3.1
through
Section
10.3.4
above, Buyer shall not be entitled to receive any
Initial Payment Reimbursement and Seller shall retain the full amount of the
Initial Payment.
Any Initial Payment
Reimbursement which may be owed pursuant to this
Section 10.3
shall
be paid within ten (10) Business Days after the date of the applicable
termination, by wire transfer of immediately available funds to one or more
accounts specified by the receiving party in writing. For purposes of clarity, the treatment of
the Initial Payment Reimbursement pursuant to this
Section 10.3
, if
any, shall be separate from any Termination Fee which may be owed to Buyer or
Seller pursuant to
Section 10.2.1
or
Section 10.2.2
.
11.
MISCELLANEOUS
.
11.1.
ENTIRE AGREEMENT
.
This Agreement, together with the schedules and exhibits attached
hereto, and other Transaction Documents, are the product of both of the parties
hereto, constitute the entire agreement between such parties pertaining to the
subject matter hereof and thereof, and merges all prior negotiations and drafts
of the parties with regard to the transactions contemplated herein and
therein. Other than as contained in this
Agreement,
A-35
together with the schedules and exhibits attached
hereto, and other Transaction Documents, there are no other written or oral
representations, agreements, arrangements, or understandings existing between
the parties hereto regarding this Agreement or the other Transaction Documents.
11.2.
AMENDMENTS AND WAIVERS
.
Any term of this Agreement may be amended or waived with the written
consent of the parties or their respective successors and assigns. Any amendment or waiver affected in
accordance with this
Section 11.2
shall be binding upon the parties
and their respective successors and assigns.
11.3.
ASSIGNMENT; SUCCESSORS AND ASSIGNS
.
Neither party shall assign or transfer its rights or obligations under
this Agreement, whether directly or indirectly or by operation of Law, or
purport to do so, without the other party’s prior written consent, such consent
not to be unreasonably withheld;
provided
,
however
, that, subject
to
Section 7.12
, as applicable, such consent shall not be required
for (i) an assignment of this Agreement to an Affiliate of the assignor,
or (ii) assignment of this Agreement in the context of a merger of a party
with another company, or the sale of all or substantially all of the shares or
assets of a party to another company.
Subject to the aforesaid limitation, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
11.4.
GOVERNING LAW; JURISDICTION
.
This
Agreement concerns a business with significant operations in California and all
questions with respect to this Agreement and the other Transaction Documents
and the rights and liabilities of the parties will be governed by the laws of
that state, regardless of the choice of laws provisions of California or any
other jurisdiction.
11.5.
ARBITRATION
.
Any
controversy, dispute or claim among the parties to this Agreement, including
any claim arising out of, in connection with, or in relation to the formation,
interpretation, performance or breach of this Agreement or the other
Transaction Documents, shall be settled exclusively by arbitration in
accordance with
Appendix A
hereto.
11.6.
FURTHER ASSURANCES
.
From and after the date hereof, including after the Closing, each party
shall each execute and deliver such further instruments of conveyance, sale,
assignment or transfer, and shall take or cause to be taken such other or
further action, as any party shall reasonably request of any other party at any
time or from time to time in order to perfect, confirm or evidence in Buyer
title to all or any part of the Purchased Assets or to consummate, in any other
manner, the terms and provisions of this Agreement, at the sole cost and
expense of the requesting party.
11.7.
COUNTERPARTS
.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute
one instrument.
11.8.
NOTICES
. Any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient (a) when delivered personally, (b) on the next Business
Day following deposit with an overnight delivery service of national reputation
or (c) when transmitted by facsimile (transmission confirmed), if such
notice is addressed to the party to be notified at such party’s address or
facsimile number as follows, or as subsequently modified by written notice.
SELLER
:
|
|
BUYER
:
|
|
|
|
WPT Enterprises Inc.
|
|
Peerless
Media Ltd.
|
5700
Wilshire Boulevard, Suite 350
|
|
c/o
ElectraWorks Ltd.
|
Los
Angeles, CA 90036
|
|
Suite 711
|
Attn:
Chief Executive Officer
|
|
Europort
|
Telephone:
(323) 330-9844
|
|
Gibraltar
|
Facsimile:(323)
330-9901
|
|
Attn:
General Counsel
|
|
|
Telephone:
00350 200 40126
|
|
|
Facsimile:
00350 200 42671
|
|
|
|
With
a copy to:
|
|
With
a copy to:
|
|
|
|
Liner Grode Stein Yankelevitz Sunshine
|
|
ElectraWorks
Ltd.
|
Regenstreif & Taylor LLP
|
|
Suite 711
|
A-36
1100
Glendon Avenue, 14th Floor
|
|
Europort
|
Los
Angeles, CA 90024
|
|
Gibraltar
|
Attn:
Joshua B. Grode, Esq.
|
|
Attn:
Company Secretary
|
Telephone:
(310) 500-3500
|
|
Telephone:
00350 200 40126
|
Facsimile:(310)
500-3501
|
|
Facsimile:
00350 200 42671
|
|
|
|
PARENT
:
|
|
|
|
|
|
ElectraWorks Ltd.
|
|
|
Suite 711
|
|
|
Europort
|
|
|
Gibraltar
|
|
|
Attn:
General Counsel
|
|
|
Telephone:
00350 200 40126
|
|
|
Facsimile:
00350 200 42671
|
|
|
|
|
|
With
a copy to:
|
|
|
|
|
|
ElectraWorks Ltd.
|
|
|
Suite 711
|
|
|
Europort
|
|
|
Gibraltar
|
|
|
Attn:
Company Secretary
|
|
|
Telephone:
00350 200 40126
|
|
|
Facsimile:
00350 200 42671
|
|
|
11.9.
SEVERABILITY
.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability of the other provisions hereof. If any provision of this Agreement, or the
application thereof to any Person or any circumstance, is held by a court of
competent jurisdiction to be invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted therefor in order to carry out, so far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision and (b) the remainder of this Agreement and the
application of such provision to other Persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or
the application thereof, in any other jurisdiction.
11.10.
SPECIFIC PERFORMANCE
.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to seek an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof and
the parties hereby agree to waive any requirements for posting a bond in
connection with any such action.
11.11.
NO WAIVER
. A failure or
delay by either party to exercise any right or remedy under this Agreement
shall not be construed or operate as a waiver of that right or remedy, nor
shall any single or partial exercise of any right or remedy preclude the
further exercise of that right or remedy.
A waiver by either party of any breach of or default under this
agreement shall not be considered a waiver of a preceding or subsequent breach
or default. A purported waiver or
release under this Agreement is not effective unless it is a specific
authorized written waiver or release.
11.12.
ADVICE OF LEGAL COUNSEL
.
Each party acknowledges and represents that, in executing this
Agreement, it has had the opportunity to seek advice as to its legal rights
from legal counsel and that the person signing on its behalf has read and
understood all of the terms and provisions of this Agreement. This Agreement shall not be construed against
any party by reason of the drafting or preparation thereof.
11.13.
NO THIRD PARTY BENEFICIARY
.
Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
A-37
11.14.
FEES AND EXPENSES
.
Each party shall bear its own fees and expenses (including the fees and
expenses of its financial, legal, accounting and other advisors) incurred in
the negotiation, documentation and delivery of the Agreement and the
transactions contemplated hereby, whether or not the Closing occurs.
[Remainder of page intentionally
left blank.]
A-38
IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by the duly authorized officers
of Seller and Buyer as of the date first above written.
BUYER
:
Peerless
Media Ltd.
,
a Gibraltar private limited company
By:
|
/s/ Neil Cottar
|
|
Name:
|
Neil Cottar
|
|
Title:
|
Director
|
|
SELLER
:
WPT
Enterprises, Inc.
,
a Delaware corporation
By:
|
/s/ Steven Lipscomb
|
|
Name:
|
Steven Lipscomb
|
|
Title:
|
Founder, President & CEO
|
|
A-39
APPENDIX A
Dispute Resolution
(a)
Arbitration as Exclusive Remedy
.
Except for actions seeking injunctive relief, which may be brought
before any court having jurisdiction, any claim arising out of or relating to (i) this
Agreement or the other Transaction Documents, including their respective
validity, interpretation, enforceability or breach, or (ii) the
relationship between the parties (including its commencement and termination)
whether based on breach of covenant, breach of an implied covenant or
intentional infliction of emotional distress or other tort of contract
theories, which are not settled by agreement between the parties, shall be
settled by arbitration in Los Angeles, California before a single arbitrator in
accordance with the Commercial Arbitration Rules of JAMS/Endispute (“
JAMS
”)
then in effect. The parties hereby (i) consent to the in personam
jurisdiction of the Superior Court of the State of California for purposes of
confirming any such award and entering judgment thereon; and (ii) agree to
use their best efforts to keep all matters relating to any arbitration
hereunder confidential. In any
arbitration proceedings hereunder, (a) all testimony of witnesses shall be
taken under oath; (b) discovery will be allowed under the provisions of Section 1283.05
of the California Code of Civil Procedure, as presently in force, which are
incorporated herein; and (c) upon conclusion of any arbitration, the
arbitrators shall render findings of fact and conclusions of law in a written
opinion setting forth the basis and reasons for any decision reached and
deliver such documents to each party to this Agreement along with a signed copy
of the award in accordance with Section 1283.6 of the California Code of
Civil Procedure. Each party agrees that,
except as otherwise set forth herein, the arbitration provisions of this
Agreement are its exclusive remedy and expressly waives any right to seek
redress in another forum. The fees of
the neutral arbitrator shall be borne equally by each party during the
arbitration, but the fees of the neutral arbitrator shall be borne by the
losing party.
(b)
Exclusive Jurisdiction of California Courts
.
With respect to matters not covered by arbitration, or for the purpose
of confirming any arbitration award, each of the parties irrevocably submits to
the exclusive jurisdiction of the state courts of the State of California
located in Los Angeles, California, or the United States Federal District Court
for California for the purposes of any suit, action or other proceeding arising
out of this Agreement or the other Transaction Documents. Each of the parties agrees to commence any
action, suit or proceeding relating hereto in such courts. Each of the parties further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party’s respective address set forth herein will be effective service of
process for any action, suit or proceeding in the State of California with
respect to any matters to which it has submitted to jurisdiction as set forth
above in the immediately preceding sentence.
Each of the parties irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement in any such court and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in such court has been brought in an inconvenient
forum.
(c)
Attorneys’ Fees
. In any
dispute between the parties hereto or their representatives concerning any
provision of this Agreement or the rights and duties of any Person hereunder,
the party or parties substantially prevailing in such dispute will be entitled,
in addition to such other relief as may be granted, to the reasonable attorneys’
fees and court costs incurred by reason of such dispute.
A-40
Annex B
GUARANTY
This GUARANTY (this “
Guaranty
”), dated as of August 24, 2009, is made by
ElectraWorks Ltd., a Gibraltar private limited company (“
Guarantor
”),
in favor of WPT Enterprises, Inc., a Delaware corporation (“
Beneficiary
” or “
Seller
”).
RECITALS
WHEREAS,
simultaneously herewith, Seller and Peerless Media Ltd., a Gibraltar private
limited company (“
Buyer
”), are
entering into that certain Asset Purchase Agreement of even date herewith (the “
Asset Purchase Agreement
”), pursuant to which Buyer is
agreeing to purchase substantially all of the assets of Seller, other than the
Excluded Assets (as defined therein);
WHEREAS, it is
a condition precedent to the execution and delivery of the Asset Purchase
Agreement by Seller that Guarantor execute and deliver this Guaranty;
WHEREAS,
Buyer is a wholly-owned subsidiary of Guarantor and Guarantor will receive
substantial economic benefit from the consummation of the transactions
contemplated by the Asset Purchase Agreement; and
WHEREAS, Guarantor is
executing and delivering this Guaranty to guarantee the Guaranteed Obligations
(as defined below) on the terms and conditions set forth herein.
NOW, THEREFORE, in
consideration of the premises set forth above and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1.
Definitions
.
Capitalized terms used herein but not otherwise defined shall have the
meaning ascribed to them in the Asset Purchase Agreement.
2.
Guarantee of Guaranteed Obligations
.
Guarantor hereby unconditionally and irrevocably guarantees as obligor
and as surety to Beneficiary the performance when due of any and all covenants,
agreements and other obligations of Buyer under the Asset Purchase Agreement
(including all exhibits and ancillary agreements contemplated thereunder) and
each of the other Transaction Documents, now or hereafter existing, made,
incurred or created, whether absolute or contingent, liquidated or
unliquidated, and however arising under or in connection with the Asset
Purchase Agreement and each of the other Transaction Documents (collectively,
the “
WPT Transaction Documents
”), as
applicable, including, without limitation, the payment when due of any and all
amounts owing to Seller under the terms of the Asset Purchase Agreement (all
such obligations including all amendments, modifications, supplements, renewals
or extensions of any of them, whether such amendments, modifications,
supplements, renewals or extensions are evidenced by new or additional
instruments, documents or agreements or the security therefor, or otherwise,
collectively the “
Guaranteed Obligations
”). In addition to acting as Guarantor, Guarantor
adopts the obligations of Buyer as set forth in Section 3.4 (non-circumvention),
Section 7.12.2 (buyer acquisition transactions) and Section 7.12.3
(exploitation of purchased assets).
3.
Guaranty Absolute
.
This Guaranty is irrevocable, absolute and unconditional in nature,
relates to any Guaranteed Obligations now existing or hereafter arising and
shall not be affected by any circumstance which constitutes a legal or
equitable discharge of a guarantor or surety other than performance (including
payment, if applicable) of all Guaranteed Obligations. This Guaranty is a guarantee of performance
of the Guaranteed Obligations and of payment (and not merely of collection) of
the Guaranteed Obligations to the extent that the Guaranteed Obligations have
not been performed by Buyer pursuant to the terms of the WPT Transaction Documents
to which Buyer is party. Guarantor
guarantees that the Guaranteed Obligations will be performed and paid strictly
in accordance with the terms
B-1
of each WPT
Transaction Document. Guarantor may be
joined in any action to enforce Buyer’s obligations.
4.
Representations, Warranties and Covenants
.
Each representation and warranty set out in this
Section 4
is not qualified in any way whatsoever and, except as provided in this
Guaranty, will be deemed to be repeated at and will not merge on the Closing or
by reason of the execution and delivery of any agreement, document or
instrument at the Closing, is given with the intention that liability is not
confined to breaches discovered before the Closing, is separate and independent
and is made and given as of the date hereof with the intention of inducing
Seller to enter into the Asset Purchase Agreement. Guarantor represents and warrants to Seller
as follows:
(a)
Organization, Standing and Power.
Guarantor is a private limited company duly organized, validly existing
and in good standing under the laws of Gibraltar.
(b)
Authority
. The execution
and delivery of this Guaranty (and all other agreements and instruments
contemplated under this Guaranty) by Guarantor, the performance by Guarantor of
its obligations hereunder, and the consummation by Guarantor of the
transactions contemplated hereby have been duly authorized by all necessary
action by Guarantor’s board of directors, and no other act or proceeding on the
part of or on behalf of Guarantor is necessary to approve the execution and
delivery of this Guaranty and such other agreements and instruments, the
performance by Guarantor of its obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby. Guarantor has the requisite power and
authority to execute and deliver this Guaranty and all of the other agreements
and instruments to be executed and delivered by Guarantor pursuant hereto, to
consummate the transactions hereby and thereby contemplated and to take all
other actions required to be taken by Guarantor pursuant to the provisions
hereof and thereof.
(c)
Execution and Binding Effect
.
This Guaranty has been duly and validly executed and delivered by
Guarantor and constitutes, and the other agreements and instruments to be
executed and delivered by Guarantor pursuant hereto, upon their execution and
delivery by Guarantor will constitute (assuming, in each case, the due and
valid authorization, execution and delivery thereof by Seller), legal, valid
and binding agreements of Guarantor, enforceable against Guarantor in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, moratorium, insolvency, reorganization,
fraudulent conveyance or other Laws affecting the enforcement of creditors’
rights generally or by general equitable principles, including, without
limitation, those limiting the availability of specific performance, injunctive
relief and other equitable remedies and those providing for equitable defenses.
(d)
Consents and Approvals of Governmental
Entities
. Other than the Gibraltar regulatory
requirement to approve organizational changes to Guarantor, as applicable,
there is no requirement applicable to Guarantor to make any filing, declaration
or registration with, or to obtain any permit, authorization, consent or
approval of, any Governmental Entity as a condition to the consummation by
Guarantor of the transactions contemplated by this Guaranty or the Asset
Purchase Agreement and the other agreements and instruments to be executed and
delivered by Guarantor pursuant hereto or thereto or the consummation by
Guarantor of the transactions contemplated herein or therein.
(e)
No Violation
.
Neither the execution, delivery and performance of this Guaranty and all
of the other agreements and instruments to be executed and delivered pursuant
hereto, nor the consummation of the transactions contemplated hereby or
thereby, will, with or without the passage of time or the delivery of notice or
both, (a) conflict with, violate or result in any breach of the terms,
conditions or provisions of the Certificate of Incorporation or Articles or
Bylaws (or similar corporate document) of Guarantor, (b) conflict with or
result in a violation or breach of, or constitute a default (or give rise to
any right of termination, cancellation or acceleration) under any contract,
notice, bond, mortgage, lease or other instrument or obligation to which
Guarantor or by which any of the assets of Guarantor are bound, or (c) violate
any Law or order, writ, injunction or decree of any Governmental Entity
applicable to Guarantor or by which any properties or assets of Guarantor may
be bound.
B-2
(f)
Consents
. No consents
of any third party are required as a result of the execution, delivery and
performance of this Guaranty or the consummation of the transactions
contemplated hereby by Guarantor.
5.
Trust of Receivables.
Guarantor agrees that, during such time as the Guaranteed Obligations
remain outstanding, upon the occurrence
and during the continuance of any breach by Buyer under any WPT Transaction
Document, if Guarantor shall collect or receive any payments with respect to
such indebtedness, obligation or liability of Buyer now or hereafter owed to
Guarantor, such amounts shall be received by Guarantor as trustee for
Beneficiary and shall be paid over to Beneficiary on account of the Guaranteed
Obligations, but without reducing or affecting in any manner the obligations of
Guarantor under the other provisions of this Guaranty.
6.
Waivers and Consents
.
For purposes of this Guaranty, Guarantor shall be entitled to avail
itself of any defense in relation to obligations under the Asset Purchase
Agreement that could be relied upon by Buyer.
Guarantor acknowledges and agrees not to use this provision in a manner
to circumvent Buyer’s or its obligations under the Asset Purchase
Agreement. Guarantor shall be deemed to
have received notice at the same time as Buyer whether or not actual notice is
separately sent to Guarantor.
(a)
The obligations of Guarantor under this
Guaranty shall remain in full force and effect without regard to, and shall not
be limited, impaired, discharged or affected by, whether or not Guarantor shall
have had notice or knowledge of any of them, any of the following.
(i)
any waiver, amendment or modification of,
or any consent to departure from, any of the terms or provisions of any WPT
Transaction Document;
(ii)
any failure to assert or enforce or
agreement not to assert or enforce, or the stay or enjoining, by order of
court, by operation of law or otherwise, of the exercise or enforcement of, any
claim or demand or any right, power or remedy with respect to the Guaranteed
Obligations or any agreement relating thereto, or with respect to any other
guaranty of or security for the payment of the Guaranteed Obligations;
(iii)
any dissolution, cessation of business,
bankruptcy, reorganization, or the like of Buyer.
(iv)
any requirement that Beneficiary protect,
secure, perfect or insure any lien or any property or exhaust any right or
first take any action against Buyer or any collateral of Buyer which secures
any of the Guaranteed Obligations;
(v)
any defense arising by reason of lack of
power or authority of Buyer with respect to the WPT Transaction Documents to
which it is party;
(vi)
any change in the time, manner or place
of payment of, or in any other term of, all or any of the Guaranteed Obligations
or any other obligations of Buyer under any WPT Transaction Document or any
other amendment or waiver of or any consent to departure from any such
agreements, including, without limitation, any increase in or amendment to the
Guaranteed Obligations;
(vii)
any change, restructuring or termination
of the corporate structure or existence of Buyer, including, without
limitation, any transfer of, or Encumbrance on, any interest in Buyer;
(viii)
the application of payments received from
any source to the payment of obligations or indebtedness other than the
Guaranteed Obligations, even though Beneficiary might have elected to apply
such payment to any part or all of the Guaranteed Obligations;
B-3
(ix)
any failure to perfect or continue
perfection of a security interest in any collateral which secures any of the
Guaranteed Obligations;
(x)
any defenses based on the statute of
frauds or usury; and
(xi)
any other act or thing or omission, or
delay to do any other act or thing, which may or might in any manner or to any
extent vary the risk of Guarantor as an obligor in respect of the Guaranteed
Obligations.
(b)
Until all Guaranteed Obligations have
been fully performed, Guarantor hereby agrees as follows:
(i)
Guarantor hereby waives promptness,
diligence, presentment, demand of payment, filing of claims with a court in the
event of receivership or bankruptcy of any other party, protest or notice with
respect to any of the obligations of any other party, and all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor and notices of acceptance, notices of any action
or inaction, including acceptance of this Guaranty, notices of default under
any WPT Transaction Document or any agreement or instrument related thereto,
notices of any renewal, extension or modification of the Guaranteed Obligations
or any agreement related thereto and notices of any of the matters referred to
in this
Section 6
and any right to consent to any thereof, and the
benefit of all other demands whatsoever (and shall not require that the same be
made on any other party as a condition precedent to the obligations of
Guarantor), and covenants that the obligations of Guarantor under this Guaranty
will not be discharged, except by complete payment and performance of the
obligations evidenced hereunder, except only as limited by the express
contractual provisions of this Guaranty;
(ii)
Guarantor waives all rights and defenses
arising out of an election of remedies by Beneficiary so long as such election
of remedies shall not destroy Guarantor’s rights of subrogation and
reimbursement against any other party;
(iii)
Beneficiary is hereby authorized, without
notice or demand (and any such notice being expressly waived), from time to
time, (A) to accept partial payments on all or any part of the obligations
of any other party; (B) to take and hold security or collateral for the
payment of all or any part of the obligations of any other party; (C) to
exchange, enforce, waive and release any such security or collateral for such
obligations; (D) to apply such security or collateral and direct the order
or manner of sale thereof as in its discretion it may determine; (E) to
settle, release, exchange, enforce, waive, compromise or collect or otherwise
liquidate all or any part of such obligations and any security or collateral
for such obligations. Any of the
foregoing may be done in any manner, and Guarantor agrees that the same shall
not affect or impair the obligations of Guarantor under this Guaranty;
(iv)
Guarantor hereby assumes responsibility
for keeping itself informed of the financial condition of Buyer and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations,
and Guarantor hereby agrees that Beneficiary shall have no duty to advise
Guarantor of information known to it regarding such condition or any such
circumstances;
(v)
Guarantor agrees that neither Beneficiary
nor any person or entity acting for or on behalf of Beneficiary shall be under
any obligation to marshal any assets in favor of Guarantor or against or in
payment of any or all of the obligations secured pursuant hereto. Guarantor further agrees that, to the extent
that any other party or any other guarantor of all or any part of the
obligations of any other party makes a payment or payments to Beneficiary, or
Beneficiary receives any proceeds of collateral for any of the obligations of
any other party, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid or refunded, then, to the extent of such payment
B-4
or repayment, the
part of such obligations which has been paid, reduced or satisfied by such
amount shall be reinstated and continued in full force and effect as of the
time immediately preceding such initial payment, reduction or
satisfaction. Guarantor further waives
any requirement that Beneficiary protect, secure, perfect or insure any lien or
any property subject to this Guaranty;
(vi)
Until all Guaranteed Obligations have
been fully paid and/or performed, Guarantor waives all rights of subrogation
with respect to the WPT Transaction Documents that are or may become available
to Guarantor under applicable law and agrees that Guarantor will not assert
such subrogation rights in any action or proceeding which Beneficiary may
commence to enforce its rights under this Guaranty. Guarantor acknowledges and agrees that it
intends the foregoing to be an express waiver of its subrogation rights under
applicable law;
(vii)
Guarantor waives any benefit of, and any right to
participate in, any security or collateral given to Beneficiary to secure the
payment or performance of all or any part of such obligations or any other
liability of any other parties to Beneficiary;
(viii)
This Guaranty applies to all Guaranteed Obligations,
whether existing now or in the future, and shall continue until the full
payment and/or performance of the Guaranteed Obligations.
(ix)
Guarantor acknowledges it will receive substantial
indirect benefits from the arrangements contemplated by the WPT Transaction
Documents and that the waivers set forth in this Guaranty are knowingly made in
contemplation of such benefits;
(x)
Guarantor waives the right to have the property of
Buyer first applied to the Guaranteed Obligations;
(xi)
Guarantor waives any right to require Beneficiary, as
a condition of payment or performance by Guarantor, to (a) proceed against
Buyer or any other guarantor of the Guaranteed Obligations or any other Person,
(b) proceed against or exhaust any security held from Buyer any other
guarantor of the Guaranteed Obligations or any other Person, (c) proceed
against or have resort to any balance of any deposit account or credit on the
books of Beneficiary in favor Buyer or any applicable Affiliates of Guarantor
or any other Person, or (d) pursue any other remedy in the power of
Beneficiary; and
(xii)
Guarantor waives any defense based upon Beneficiary’s
errors or omissions in the administration of the Guaranteed Obligations, except
behavior that amounts to bad faith, and to the fullest extent permitted by law,
any defenses or benefits that may be derived from or afforded by law which
limit the liability of or exonerate guarantors or sureties, or which may
conflict with the terms of this Guaranty, and expressly acknowledges the
reliance hereon of Beneficiary.
As used in this
paragraph, any reference to “the principal” includes Buyer and any reference to
“the creditor” includes Beneficiary. No
other provision of this Guaranty shall be construed as limiting the generality
of any of the covenants and waivers set forth in this paragraph.
7.
Condition of Buyer and Applicable
Affiliates
. Guarantor represents and warrants to
Beneficiary that Guarantor has established adequate means of obtaining from
Buyer, on a continuing basis, financial and other information pertaining to
their respective businesses, operations and condition (financial and
otherwise), properties and ability to perform their respective obligations
under the WPT Transaction Documents to which they are party. Guarantor now is and hereafter will be
completely familiar with Buyer’s businesses, operations and condition
(financial and otherwise), properties and ability to perform its obligations
under the WPT Transaction Documents to which it is a party. Guarantor hereby expressly waives and
relinquishes any duty on the part of Beneficiary to disclose to Guarantor any
matter, fact or
B-5
thing related to
Buyer’s businesses, operations or condition (financial or otherwise), and
properties, whether now known or hereafter known by Beneficiary during the
effectiveness of this Guaranty.
8.
Subordination of Subrogation Claims
.
Unless and until all of the Guaranteed Obligations shall have been
indefeasibly satisfied, Guarantor will not exercise any rights that it may now
or hereafter acquire against Buyer that arise from the existence, payment,
performance or enforcement of the Guaranteed Obligations under this Guaranty or
the WPT Transaction Documents. If any
amount shall be paid to Guarantor in violation of the preceding sentence at any
time prior to the indefeasible satisfaction of the Guaranteed Obligations, such
amount shall be held in trust for the benefit of Beneficiary and shall
forthwith be paid to Beneficiary to be credited and applied to the Guaranteed
Obligations (including payment to Beneficiary of any amounts due Beneficiary in
respect of the Guaranteed Obligations) and all other amounts payable under this
Guaranty, whether matured or unmatured, in accordance with the terms of the WPT
Transaction Documents, or to be held as collateral for any Guaranteed
Obligations.
9.
Understandings With Respect to Waivers
and Consents
. Guarantor acknowledges that it has either
consulted with legal counsel regarding the effect of this Guaranty and the
waivers and consents set forth herein, or has made an informed decision not to
do so. If this Guaranty or any of the
waivers or consents herein are determined to be unenforceable under or in
violation of applicable law, this Guaranty and such waivers and consents shall
be effective to the maximum extent permitted by Law.
10.
Indemnification
.
Guarantor shall indemnify, defend and hold harmless Beneficiary and its
stockholders, officers, directors, Affiliates and employees (collectively, the “
Indemnitees
”) from and against any claim, loss, liability,
judgment, cost or expense, including reasonable attorneys’ fees and
disbursements (collectively, the “
Claims
”),
asserted against, imposed upon, incurred by or caused to any of the
Indemnitees, that arise out of or relate to, any breach by Guarantor of any of
Guarantor’s representations, warranties, covenants or other obligations set
forth in this Guaranty.
11.
Notices
. Any notice
required or permitted by this Guaranty shall be in writing and shall be deemed
sufficient (a) when delivered personally, (b) on the next Business
Day following deposit with an overnight delivery service of national reputation
or (c) when transmitted by facsimile (transmission confirmed), if such
notice is addressed to the party to be notified at such party’s address or
facsimile number as follows, or as subsequently modified by written notice.
GUARANTOR
:
|
|
SELLER
:
|
|
|
|
ElectraWorks Ltd.
|
|
WPT Enterprises Inc.
|
Suite 711
|
|
5700 Wilshire
Boulevard, Suite 350
|
Europort
|
|
Los Angeles,
CA 90036
|
Gibraltar
|
|
Attn: Chief Executive
Officer
|
Attn: General Counsel
|
|
Telephone: (323)
330-9844
|
Telephone: 00350 200
40126
|
|
Facsimile: (323)
330-9901
|
Facsimile: 00350 200
42671
|
|
|
|
|
|
With a copy to:
|
|
With a copy to:
|
|
|
|
ElectraWorks Ltd.
|
|
Liner Grode Stein Yankelevitz Sunshine
|
Suite 711
|
|
Regenstreif & Taylor LLP
|
Europort
|
|
1100 Glendon Avenue,
14th Floor
|
Gibraltar
|
|
Los Angeles, CA 90024
|
Attn: Company Secretary
|
|
Attn: Joshua B.
Grode, Esq.
|
Telephone: 00350 200
40126
|
|
Telephone: (310)
500-3500
|
Facsimile: 00350 200
42671
|
|
Facsimile: (310)
500-3501
|
12.
Governing Law
.
This
Guaranty concerns a business with significant operations in California and all
questions with respect to this Guaranty and the rights and liabilities of the
parties will be
B-6
governed by the Laws of that state,
regardless of the choice of laws provisions of California or any other
jurisdiction.
13.
Arbitration
. Any
controversy, dispute or claim among the parties to this Guaranty, including any
claim arising out of, in connection with, or in relation to the formation,
interpretation, performance or breach of this Guaranty, shall be settled
exclusively by arbitration in accordance with
Appendix A
hereto.
14.
Specific Performance
. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Guaranty were not performed in accordance with their
specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to seek an
injunction or injunctions to prevent breaches of this Guaranty and to enforce
specifically the terms and provisions hereof and the parties hereby agree to
waive any requirements for posting a bond in connection with any such action.
15.
Amendments
. Any term of
this Guaranty may be amended or waived with the written consent of the parties
or their respective successors and assigns.
Any amendment or waiver affected in accordance with this
Section 13
shall be binding upon the parties and their respective successors and assigns.
16.
No Waiver
. A failure or
delay by either party to exercise any right or remedy under this Guaranty shall
not be construed or operate as a waiver of that right or remedy, nor shall any
single or partial exercise of any right or remedy preclude the further exercise
of that right or remedy. A waiver by
either party of any breach of or default under this Guaranty shall not be
considered a waiver of a preceding or subsequent breach or default. A purported waiver or release under this
Guaranty is not effective unless it is a specific authorized written waiver or
release.
17.
Continuing Guaranty; Assignment
.
This Guaranty is a continuing guaranty and shall remain in full force
and effect until all of the Guaranteed Obligations (including payment to
Beneficiary of any amounts due Beneficiary in respect of the Guaranteed
Obligations) and any other amounts payable under this Guaranty have been fully
and finally satisfied. Notwithstanding
anything herein to the contrary, neither party shall assign or transfer its
rights or obligations under this Guaranty, whether directly or indirectly or by
operation of Law, or purport to do so, without the other party’s prior written
consent;
provided
,
however
, that, subject to
Section 3.14
(Non-circumvention) and
Section 7.13
(Acquisition of Buyer) of the
Asset Purchase Agreement, as applicable, such consent shall not be required for
(i) an assignment of this Guaranty to an Affiliate of the assignor, or (ii) assignment
of this Guaranty in the context of a merger of a party with another company, or
the sale of all or substantially all of the shares or assets of a party to
another company. Subject to the
aforesaid limitation, the terms and conditions of this Guaranty shall inure to
the benefit of and be binding upon the respective successors and assigns of the
parties. For the purposes of clarity,
nothing in this document shall be construed to allow Guarantor to circumvent
(through assignment or otherwise) its affirmative obligations contained Section 3.4
(non-circumvention), Section 7.12.2 (buyer acquisition transactions) and Section 7.12.3
(exploitation of purchased assets).
18.
Survival of Warranties and Other
Agreements
. All representations, warranties, covenants
and agreements of Guarantor contained herein shall survive the execution and
delivery of this Guaranty and shall be deemed made continuously, and shall
continue in full force and effect, until the termination of this Guaranty
19.
Counterparts
.
This Guaranty may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.
20.
Termination
.
Upon performance in full of the Guaranteed Obligations (including
payment to Beneficiary of any amounts due Beneficiary in respect of the
Guaranteed Obligations) and all other amounts, if any, payable under this
Guaranty, this Guaranty shall immediately and automatically terminate and be of
no further force and effect;
provided
that this Guaranty shall be
reinstated if at any time
B-7
payment,
performance or any part thereof, of any Guaranteed Obligation is rescinded or
must otherwise be restored by Beneficiary (or any permitted assignee of
Beneficiary) upon the bankruptcy or reorganization of Buyer.
21.
Miscellaneous
.
(a)
It is not necessary for Beneficiary to inquire into the capacity or powers of
Guarantor, Buyer or the officers, directors or any agents acting or purporting
to act on behalf of any of them.
(b) The rights,
powers and remedies given to Beneficiary by this Guaranty are cumulative and
shall be in addition to and independent of all rights, powers and remedies
given to Beneficiary by virtue of any statute or rule of law or in any of
the WPT Transaction Documents or any agreement between Guarantor and Beneficiary
or between Beneficiary and either of Buyer.
Any forbearance or failure to exercise, and any delay by Beneficiary in
exercising, any right, power or remedy hereunder shall not impair any such
right, power or remedy or be construed to be a waiver thereof, nor shall it
preclude the further exercise of any such right, power or remedy
(c)
Notwithstanding anything to the contrary contained
herein, the obligations of Guarantor under this Guaranty shall not be larger in
amount nor in any other respects more burdensome than the Guaranteed
Obligations and if the obligations of Guarantor under this Guaranty exceed the
Guaranteed Obligations such obligations shall be reduced in proportion to the
Guaranteed Obligations. Except as
expressly waived by Guarantor herein, Guarantor shall be entitled to assert any
defenses available to Buyer under the WPT Transaction Documents.
(d)
The provisions of this Guaranty shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any provision of this Guaranty, or the
application thereof to any Person or any circumstance, is held by a court of
competent jurisdiction to be invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Guaranty and the application of
such provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
(e)
This Guaranty, together with the other Transaction
Documents, are the product of both of the parties hereto, constitute the entire
agreement between such parties pertaining to the subject matter hereof and
thereof, and merges all prior negotiations and drafts of the parties with
regard to the transactions contemplated herein and therein. Other than as contained in this Guaranty and
the other Transaction Documents, there are no other written or oral
representations, agreements, arrangements, or understandings existing between
the parties hereto regarding this Guaranty.
[Remainder of page intentionally
left blank]
B-8
IN
WITNESS WHEREOF, this Guaranty has been duly executed and delivered by the duly
authorized officers of Guarantor and Seller as of the date first above written.
GUARANTOR
:
ElectraWorks
Ltd.
,
a Gibraltar private limited company
By:
|
/s/ Neil Cottar
|
|
Name:
|
Neil Cottar
|
|
Title:
|
Director
|
|
Seller
:
WPT
Enterprises, Inc.
,
a Delaware corporation
By:
|
/s/ Steven Lipscomb
|
|
Name:
|
Steven Lipscomb
|
|
Title:
|
Founder,
President & CEO
|
|
B-9
APPENDIX
A
Dispute
Resolution
(a)
Arbitration as Exclusive Remedy
.
Except for actions seeking injunctive relief, which may be brought
before any court having jurisdiction, any claim arising out of or relating to (i) this
Guaranty, including its validity, interpretation, enforceability or breach, or (ii) the
relationship between the parties (including its commencement and termination)
whether based on breach of covenant, breach of an implied covenant or
intentional infliction of emotional distress or other tort of contract
theories, which are not settled by agreement between the parties, shall be
settled by arbitration in Los Angeles, California before a single arbitrator in
accordance with the Commercial Arbitration Rules of JAMS/Endispute (“
JAMS
”) then in effect. The parties hereby (i) consent
to the in personam jurisdiction of the Superior Court of the State of
California for purposes of confirming any such award and entering judgment
thereon; and (ii) agree to use their best efforts to keep all matters
relating to any arbitration hereunder confidential. In any arbitration proceedings hereunder, (a) all
testimony of witnesses shall be taken under oath; (b) discovery will be
allowed under the provisions of Section 1283.05 of the California Code of
Civil Procedure, as presently in force, which are incorporated herein; and (c) upon
conclusion of any arbitration, the arbitrators shall render findings of fact
and conclusions of law in a written opinion setting forth the basis and reasons
for any decision reached and deliver such documents to each party to this
Guaranty along with a signed copy of the award in accordance with Section 1283.6
of the California Code of Civil Procedure.
Each party agrees that, except as otherwise set forth herein, the
arbitration provisions of this Guaranty are its exclusive remedy and expressly
waives any right to seek redress in another forum. The fees of the neutral arbitrator shall be
borne equally by each party during the arbitration, but the fees of the neutral
arbitrator shall be borne by the losing party.
(b)
Exclusive Jurisdiction of California Courts
.
With respect to matters not covered by arbitration, or for the purpose
of confirming any arbitration award, each of the parties irrevocably submits to
the exclusive jurisdiction of the state courts of the State of California
located in Los Angeles, California, or the United States Federal District Court
for California for the purposes of any suit, action or other proceeding arising
out of this Guaranty. Each of the
parties agrees to commence any action, suit or proceeding relating hereto in
such courts. Each of the parties further
agrees that service of any process, summons, notice or document by U.S.
registered mail to such party’s respective address set forth herein will be
effective service of process for any action, suit or proceeding in the State of
California with respect to any matters to which it has submitted to
jurisdiction as set forth above in the immediately preceding sentence. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Guaranty in any such court and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in such court has
been brought in an inconvenient forum.
(c)
Attorneys’ Fees
. In any
dispute between the parties hereto or their representatives concerning any
provision of this Guaranty or the rights and duties of any Person hereunder,
the party or parties substantially prevailing in such dispute will be entitled,
in addition to such other relief as may be granted, to the reasonable attorneys’
fees and court costs incurred by reason of such dispute.
B-10
Annex C
VOTING
AGREEMENT
THIS
VOTING AGREEMENT (this “
Agreement
”) is
entered into as of [
],
2009 by and among Peerless Media Ltd., a Gibraltar private limited company (“
Buyer
”), and each Person listed on the signature page hereof
as a stockholder (each, a “
Stockholder
”
and, collectively, the “
Stockholders
”).
RECITALS
A.
Each Stockholder “beneficially owns” (as such term is
defined in Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended) and is entitled to dispose of (or to direct the disposition
of) and to vote (or to direct the voting of) the number of shares of common
stock, par value $.001 per share (the “
Common Stock
”),
of WPT Enterprises Inc., a
Delaware corporation (the “
Company
”), set
forth opposite such Stockholder’s name on
Schedule A
attached hereto
(such shares of Common Stock, together with all other shares of capital stock
of the Company acquired by such Stockholder after the date hereof and during
the term of this Agreement, being collectively referred to herein as the “
Subject Shares
”).
B.
Subsequent to the execution and delivery of this
Agreement, Seller, Buyer and ElectraWorks Ltd., a Gibraltar private limited
company (“
Parent
”), intend to
enter into an Asset Purchase Agreement (the “
Asset Purchase Agreement
”).
C.
Pursuant to the Asset Purchase Agreement, Buyer shall
agree to purchase substantially all of the assets of Seller, other than the
Excluded Assets, and to assume certain liabilities and obligations of Seller as
set out in the Asset Purchase Agreement, other than the Excluded Liabilities,
on the terms and conditions set forth therein (the “
Asset
Purchase Transaction
”), as will be more fully described in the Proxy
Statement (the “
Proxy Statement
”)
to be filed by Buyer with the Securities and Exchange Commission in connection
therewith.
D.
The Stockholders believe that they, and the other
stockholders of the Company, will derive substantial direct and indirect
benefit from the Asset Purchase Transaction.
E.
The Stockholders desire to enter into this Agreement
to induce Buyer to enter into the Asset Purchase Agreement and the Stockholders
desire to vote the Subject Shares so as to facilitate the consummation of the
Asset Purchase Transaction.
NOW,
THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1.
Agreement to Vote Shares
.
Until the Expiration Date (as defined below), at every annual or special
meeting of stockholders of the Company called with respect to any of the
following, and at every adjournment or postponement thereof, and on every
action or approval by written consent of stockholders of the Company with respect
to any of the following (each such annual, special, adjourned or postponed
meeting and written consent, each, a “
Stockholder Vote
”),
each Stockholder shall vote (or cause to be voted), to the extent not voted by
the person(s) appointed under the Proxy (as defined in
Section 2
),
the Subject Shares (and each class thereof) held by such Stockholder:
(i)
in favor of the approval of the Asset Purchase
Transaction and in favor of any other actions contemplated by the Proxy
Statement and any action required in furtherance thereof;
C-1
(ii)
against approval of any proposal made in opposition
to, or in competition with, consummation of the Asset Purchase Transaction and
the transactions contemplated by the Proxy Statement;
(iii)
against any of the following actions (other than those
actions that relate to the Asset Purchase Transaction and the transactions
contemplated by the Proxy Statement): (A) any Acquisition Proposal or any
merger agreement, merger, consolidation, business combination, sale of
substantial assets, reorganization or recapitalization of the Company with any
party, (B) any sale, lease or transfer of any substantial part of the
assets of the Company (other than in connection with the Asset Purchase
Transaction), (C) any reorganization, recapitalization, dissolution,
liquidation or winding up of the Company, (D) any material change in the
capitalization of the Company or corporate structure of the Company; or (E) any
other action that would reasonably be expected to impede, interfere with,
delay, postpone, discourage or adversely affect the Asset Purchase Transaction
or any other transactions contemplated by the Proxy Statement;
(iv)
in favor of waiving any notice that may have been or
may be required relating to any sale of assets, any reorganization of the
Company, change of control or acquisition of the Company by any other Person,
or any consolidation or merger of the Company with or into any other Person;
and
(v)
in favor of any adjournment or postponement
recommended by the Company with respect to any stockholder meeting with respect
to the Asset Purchase Transaction.
Any such vote shall be
cast in accordance with such procedures relating thereto so as to ensure that
it is duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of such vote.
Each Stockholder agrees not to enter into any agreement or commitment
with any Person the effect of which would be inconsistent with or violative of
the provisions and agreements contained in this
Section 1
.
2.
Irrevocable Proxy
. Concurrently
with the execution of this Agreement, each Stockholder agrees to deliver to
Buyer an irrevocable proxy in the form attached hereto as
Exhibit A
(the “
Proxy
”), which shall be irrevocable to
the fullest extent permitted by applicable Law, covering the total number of
Subject Shares as to which such Stockholder holds beneficial ownership at the
time of the applicable Stockholder Vote.
3.
Representations and Warranties of Each Stockholder
.
Each Stockholder severally (and not jointly) represents and warrants to
Buyer as follows:
(a)
Due Authorization and Organization
.
Such Stockholder, if an entity, is organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization (as applicable). The
execution and delivery of this Agreement (and all other agreements and
instruments contemplated under this Agreement) by such Stockholder, the
performance by such Stockholder of its respective obligations hereunder, and
the consummation by such Stockholder of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of such
Stockholder, and no other act or proceeding on the part of or on behalf of such
Stockholder is necessary to approve the execution and delivery of this
Agreement and such other agreements and instruments, the performance by such
Stockholder of its obligations hereunder and the consummation of the
transactions contemplated hereby. Such
Stockholder has the requisite power and authority to execute and deliver this
Agreement, to consummate the transactions hereby contemplated and to take all
other actions required to be taken by such Stockholder pursuant to the
provisions hereof.
(b)
No Conflicts
. There is no
requirement applicable to such Stockholder to make any filing, declaration or
registration with, or to obtain any permit, authorization, consent or approval
of, any Governmental Entity as a condition to the consummation by such
Stockholder of the transactions contemplated by this Agreement. Neither the execution, delivery and
performance of this Agreement, nor the consummation of the transactions
contemplated hereby, will, with or without the passage of time or the delivery of
notice or both, (a) conflict with, violate or result in any breach of the
terms, conditions or
C-2
provisions of the
constitutive documents of such Stockholder, as applicable, (b) conflict
with or result in a violation or breach of, or constitute a default (or give
rise to any right of termination, cancellation or acceleration) under any
contract, notice, bond, mortgage, lease or other instrument or obligation to
which such Stockholder or by which any of the assets of such Stockholder are
bound, or (c) violate any Law or order, writ, injunction or decree of any
Governmental Entity applicable to such Stockholder or by which any properties
or assets of such Stockholder may be bound.
(c)
The Subject Shares
.
Schedule A
attached hereto sets forth, opposite such Stockholder’s name, the number of
Subject Shares over which such Stockholder has record or beneficial ownership
as of the date hereof. As of the date
hereof, such Stockholder is the record or beneficial owner of the Subject
Shares denoted as being owned by such Stockholder on
Schedule A
and has
the sole power to vote (or cause to be voted) such Subject Shares. Except as set forth on
Schedule A
,
neither such Stockholder nor any controlled affiliate of such Stockholder owns
or holds any right to acquire any additional shares of any class of capital
stock of the Company or other securities of the Company or any interest therein
or any voting rights with respect to any securities of the Company. Such Stockholder has good and valid title to
the Subject Shares denoted as being owned by such Stockholder on
Schedule A
,
free and clear of any and all pledges, mortgages, liens, charges, proxies,
voting agreements, encumbrances, adverse claims, options, security interests
and demands of any nature or kind whatsoever, other than those created by this
Agreement, as disclosed on
Schedule A
, or as would not prevent such
Stockholder from performing its obligations under this Agreement.
(d)
Reliance By Buyer
. Such Stockholder
understands and acknowledges that Buyer is carrying out the Asset Purchase
Transaction in reliance upon such Stockholder’s execution and delivery of this
Agreement.
(e)
Litigation
. As of the
date hereof, there is no action, proceeding or investigation pending or
threatened against such Stockholder that questions the validity of this
Agreement or any action taken or to be taken by such Stockholder in connection
with this Agreement.
4.
Representations and Warranties of Buyer
.
Buyer hereby represents and warrants to the Stockholders as follows:
(a)
Due Authorization and Organization
.
Buyer is a private limited company duly organized, validly existing and
in good standing under the laws of Gibraltar.
The execution and delivery of this Agreement (and all other agreements
and instruments contemplated under this Agreement) by Buyer, the performance by
Buyer of its obligations hereunder, and the consummation by Buyer of the
transactions contemplated hereby have been duly authorized by all necessary action
by Buyer’s board of directors, and no other act or proceeding on the part of or
on behalf of Buyer is necessary to approve the execution and delivery of this
Agreement and such other agreements and instruments, the performance by Buyer
of its obligations hereunder and the consummation of the transactions
contemplated hereby. Buyer has the
requisite power and authority to execute and deliver this Agreement, to
consummate the transactions hereby contemplated and to take all other actions
required to be taken by Buyer pursuant to the provisions hereof.
(b)
Conflicts
. There is no
requirement applicable to Buyer to make any filing, declaration or registration
with, or to obtain any permit, authorization, consent or approval of, any
Governmental Entity as a condition to the consummation by Buyer of the
transactions contemplated by this Agreement.
Neither the execution, delivery and performance of this Agreement, nor
the consummation of the transactions contemplated hereby, will, with or without
the passage of time or the delivery of notice or both, (a) conflict with,
violate or result in any breach of the terms, conditions or provisions of the
Certificate of Incorporation or Articles or Bylaws (or similar corporate
document) of Buyer, (b) conflict with or result in a violation or breach
of, or constitute a default (or give rise to any right of termination,
cancellation or acceleration) under any contract, notice, bond, mortgage, lease
or other instrument or obligation to which Buyer or by which any of the assets
of Buyer are bound, or (c) violate any Law or order, writ, injunction or
decree of any Governmental Entity applicable to Buyer or by which any
properties or assets of Buyer may be bound.
C-3
5.
Covenants of Each Stockholder
.
Until the termination of this Agreement in accordance with
Section 7
,
each Stockholder, in its capacity as such, agrees as follows:
(a)
Each Stockholder agrees not to, directly or
indirectly, (i) sell, transfer, tender, pledge, hypothecate, encumber,
assign or otherwise dispose of (collectively, a “
Transfer
”)
or enter into any agreement, option or other arrangement with respect to, or
consent to a Transfer of, or convert or agree to convert, any or all of the
Subject Shares to any Person, except in each case for Transfers to such
Stockholder’s affiliates as agree to be bound hereby, or (ii) grant any
proxies, deposit any Subject Shares into any voting trust or enter into any
voting arrangement, whether by proxy, voting agreement or otherwise, with
respect to any of the Subject Shares, other than pursuant to this
Agreement. Such Stockholder further
agrees not to commit or agree to take any of the foregoing actions or take any
action that would have the effect of preventing, impeding, interfering with or
adversely affecting its ability to perform its obligations under this
Agreement.
(b)
Such Stockholder shall not, nor shall such Stockholder
permit any controlled Affiliate of such Stockholder to, nor shall such
Stockholder act in concert with or permit any controlled Affiliate to act in
concert with any Person to make, or in any manner participate in, directly or
indirectly, a “solicitation” (as such term is used in the rules of the
Securities and Exchange Commission) of proxies or powers of attorney or similar
rights to vote, or seek to advise or influence any Person with respect to the
voting of, any shares of Common Stock intended to facilitate any Acquisition
Proposal or to cause stockholders of the Company not to vote to approve and
adopt the Asset Purchase Transaction, and the related transactions. Such Stockholder shall not, and shall direct
any investment banker, attorney, agent or other adviser or representative of
such Stockholder not to, directly or indirectly, through any officer, director,
agent or otherwise, enter into, solicit, initiate, conduct or continue any
discussions or negotiations with, or knowingly encourage or respond to any
inquiries or proposals by, or provide any information to, any Person, other
than Buyer, relating to any Acquisition Proposal. Each Stockholder hereby represents that, as
of the date hereof, it is not engaged in discussions or negotiations with any
party other than Buyer with respect to any Acquisition Proposal.
(c)
Such Stockholder hereby covenants and agrees to
execute and deliver any additional documents reasonably necessary or desirable
to carry out the terms of this Agreement.
6.
Stockholder Capacity
. No Person
executing this Agreement, or any officer, director, partner, employee, agent or
representative of such Person, who is or becomes during the term of this
Agreement a director or officer of the Company shall be deemed to make any
agreement or understanding in this Agreement in such Person’s capacity as a
director or officer. Each Stockholder is
entering into this Agreement solely in such Stockholder’s capacity as the
record holder or beneficial owner of, or the trustee of a trust whose
beneficiaries are the beneficial owners of, such Stockholder’s Subject Shares
and nothing herein shall limit or affect any actions taken by a Stockholder in
such Stockholder’s capacity as a director or officer of the Company.
7.
Termination
. The term of
this Agreement and the Proxy delivered in connection herewith shall commence on
the date hereof and shall terminate and shall have no further force or effect
as of the Expiration Date. As used
herein, the term “
Expiration Date
”
shall mean (i) the earlier of (A) the successful closing of the Asset
Purchase Transaction, and (B) the termination of the Asset Purchase
Transaction in accordance with the terms thereof, or (ii) at any time upon
notice by Buyer to the Stockholders.
Notwithstanding the foregoing, nothing set forth in this
Section 7
or elsewhere in this Agreement shall relieve either party hereto from any
liability, or otherwise limit the liability of either party hereto, for any
willful or intentional breach of this Agreement by reason of any such
termination.
8.
Consents and Waivers
. Each
Stockholder hereby gives any consents or waivers that are reasonably required
for the consummation of the Asset Purchase Transaction under the terms of any
agreement to which such Stockholder is a party or pursuant to any rights such
Stockholder may have.
9.
Publication
. Each
Stockholder hereby authorizes Buyer and the Company to publish and disclose in
the Proxy Statement (including any and all documents and schedules filed with
the Securities and
C-4
Exchange Commission
relating thereto) its identity and ownership of shares of Common Stock and the
nature of its commitments, arrangements and understandings pursuant to this
Agreement.
10.
Governing Law
.
This
Agreement concerns a business with significant operations in California and all
questions with respect to this Agreement and the other Transaction Documents
and the rights and liabilities of the parties will be governed by the Laws of
that state, regardless of the choice of laws provisions of California or any
other jurisdiction.
11.
Arbitration
. Any controversy,
dispute or claim among the parties to this Agreement, including any claim
arising out of, in connection with, or in relation to the formation,
interpretation, performance or breach of this Agreement, shall be settled
exclusively by arbitration in accordance with
Appendix A
to the Asset
Purchase Agreement.
12.
Specific Performance; Injunctive Relief
.
The parties acknowledge that Buyer will be irreparably harmed and that
there will be no adequate remedy at law for a violation of any of the covenants
or agreements of the Stockholders set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to Buyer upon any such violation,
Buyer shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Buyer at law
or in equity.
13.
Amendment, Waivers, Etc
. This
Agreement may be amended by Buyer and the Stockholders at any time. This Agreement may not be amended except by
an instrument in writing signed by Buyer and the Stockholders. At any time, Buyer and the Stockholders may,
to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or acts of the other party; (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant to this Agreement; and (iii) waive
compliance with any of the agreements or conditions of the other party
contained herein;
provided
,
however
, that no failure or delay by
Buyer or the Stockholders in exercising any right hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right hereunder.
Any agreement on the part of Buyer or
the Stockholders to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
14.
Binding Effect and Assignment
.
Neither party shall assign or transfer its rights or obligations under
this Agreement, whether directly or indirectly or by operation of Law, or
purport to do so, without the other parties’ prior written consent;
provided
,
however
, that, subject to
Section 3.4
and
Section 7.12
of the Asset Purchase Agreement, as applicable, such consent shall not be
required for (i) an assignment of this Agreement to an Affiliate of the
assignor, or (ii) assignment of this Agreement in the context of a merger
of a party with another company, or the sale of all or substantially all of the
shares or assets of a party to another company.
Subject to the aforesaid limitation, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
15.
Notices
. All notices
and other communications hereunder shall be in writing and shall be deemed duly
given (i) on the date of delivery if delivered personally, (ii) on
the date of confirmation of receipt (or, the first business day following such
receipt if the date is not a business day) of transmission by facsimile, or (iii) on
the date of confirmation of receipt (or, the first business day following such
receipt if the date is not a business day) if delivered by a nationally
recognized courier service. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
If to Buyer, to:
|
BUYER
:
|
|
|
|
Peerless Media Ltd.
|
|
c/o ElectraWorks Ltd.
|
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Suite 711
|
C-5
|
Europort
|
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Gibraltar
|
|
Attn: General Counsel
|
|
Telephone: 00350 200
40126
|
|
Facsimile: 00350 200
42671
|
|
|
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With a copy to:
|
|
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ElectraWorks Ltd.
|
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Suite 711
|
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Europort
|
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Gibraltar
|
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Attn: Company Secretary
|
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Telephone: 00350 200
40126
|
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Facsimile: 00350 200
42671
|
If to
any Stockholder, at the address set forth under such Stockholder’s name on the
signature page hereof or to such other address as the party to whom notice
is to be given may have furnished to the other parties in writing in accordance
herewith.
16.
Severability
. The
provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
If any provision of this Agreement, or the application thereof to any
Person or any circumstance, is held by a court of competent jurisdiction to be
invalid or unenforceable, (a) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
17.
Entire Agreement
. This Agreement
and the Proxy contain the entire understanding of the parties in respect of the
subject matter hereof, and supersede all prior negotiations and understandings
between the parties with respect to such subject matter.
18.
Mutual Drafting
. Each party
hereto has participated in the drafting of this Agreement, which each party
acknowledges is the result of extensive negotiations between the parties.
19.
Counterparts
. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one instrument.
20.
No Ownership Interest
. Nothing
contained in this Agreement shall be deemed, upon execution, to vest in Buyer
any direct or indirect ownership or incidence of ownership of or with respect
to the Subject Shares, except as otherwise provided herein. All rights, ownership and economic benefits
of and relating to the Subject Shares shall remain vested in and belong to each
Stockholder.
[Remainder of page intentionally
left blank]
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day
and date first above written.
|
BUYER
:
|
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Peerless Media Ltd.,
|
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a Gibraltar private
limited company
|
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|
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By:
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Name:
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Title:
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C-7
IN WITNESS
WHEREOF, the parties hereto have executed this Agreement as of the day and date
first above written.
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STOCKHOLDER
:
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(Name
of entity, if an entity)
|
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By:
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(Signature)
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Name:
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Title:
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(Street
Address)
|
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(City
and State)
|
(Zip Code)
|
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Telephone
Number
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Facsimile
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C-8
SCHEDULE
A
SUBJECT
SHARES
Subject
Share that are beneficially owned:
shares of
Company Common Stock
shares of
Company Common Stock issuable upon exercise of outstanding options or warrants
or other rights to purchase Company Common Stock
With
respect to the shares set forth above and assuming the acceleration and
exercise of all such Subject Shares, please indicate the number of shares as to
which you possess the sole power to vote (or to direct the vote), sole power to
dispose (or to direct the disposition) or shared power to so vote or dispose:
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(i)
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Sole power to vote:
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(ii)
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Shared power to vote:
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(iii)
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Sole power to dispose:
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(iv)
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Shared power to
dispose:
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C-9
EXHIBIT A
IRREVOCABLE
PROXY
The undersigned
stockholder (“
Stockholder
”) of WPT Enterprises Inc., a Delaware
corporation (the “
Company
”),
hereby irrevocably (to the fullest extent permitted by law) appoints Andrew
Fritchie and Martin Weigold of Peerless Media Ltd., a Gibraltar private limited
company (“
Buyer
”), and each of them, as the sole
and exclusive attorneys-in-fact and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that are
beneficially owned by the undersigned at the time of each Stockholder Vote
(defined below) (the “
Shares
”) in
accordance with the terms of this Proxy until the Expiration Date (as defined
in the Voting Agreement (as defined below)).
The Shares beneficially owned by the undersigned stockholder of the
Company as of the date of this Proxy are listed on the final page of this
Proxy. Upon the undersigned’s execution
of this Proxy, any and all prior proxies given by the undersigned with respect
to any Shares are hereby revoked and the undersigned hereby agrees not to grant
any subsequent proxies with respect to the shares held by such Stockholder
until after the Expiration Date.
This Proxy is irrevocable
(to the fullest extent permitted by law), is coupled with an interest and is
granted pursuant to that certain Voting Agreement, dated as of [
],
2009, by and among Buyer and Stockholder (the “
Voting Agreement
”).
The attorneys-in-fact and
proxies named above are hereby authorized and empowered by the undersigned, at
any time prior to the Expiration Date (as defined in the Voting Agreement), at
every annual, special, adjourned or postponed meeting of stockholders of the
Company and in every written consent in lieu of such meeting (each such annual,
special, adjourned or postponed meeting and/or written consent, each, a “
Stockholder Vote
”), to act as the undersigned’s
attorney-in-fact and proxy to vote the Shares that are beneficially owned by
the undersigned at the time of a Stockholder Vote, and to exercise all voting,
consent and similar rights of the undersigned with respect to such Shares (including,
without limitation, the power to execute and deliver written consents) as
follows:
(i)
in favor of the approval of the Asset Purchase
Transaction and in favor of any other actions contemplated by the Proxy
Statement and any action required in furtherance thereof;
(ii)
against approval of any proposal made in opposition
to, or in competition with, consummation of the Asset Purchase Transaction and
the transactions contemplated by the Proxy Statement;
(iii)
against any of the following actions (other than those
actions that relate to the Asset Purchase Transaction and the transactions
contemplated by the Proxy Statement): (A) any Acquisition Proposal or any
merger agreement, merger, consolidation, business combination, sale of
substantial assets, reorganization or recapitalization of the Company with any
party, (B) any sale, lease or transfer of any substantial part of the
assets of the Company (other than in connection with the Asset Purchase
Transaction), (C) any reorganization, recapitalization, dissolution,
liquidation or winding up of the Company, (D) any material change in the
capitalization of the Company or corporate structure of the Company; or (E) any
other action that would reasonably be expected to impede, interfere with,
delay, postpone, discourage or adversely affect the Asset Purchase Transaction
or any other transactions contemplated by the Proxy Statement;
(iv)
in favor of waiving any notice that may have been or
may be required relating to any sale of assets, any reorganization of the
Company, change of control or acquisition of the Company by any other Person,
or any consolidation or merger of the Company with or into any other Person;
and
C-10
(v)
in favor of any adjournment or postponement
recommended by the Company with respect to any stockholder meeting with respect
to the Asset Purchase Transaction.
The attorneys-in-fact and
proxies named above may not exercise this Proxy on any other matter except as
provided in clauses (i), (ii), (iii), (iv) or (v) above. Stockholder may vote the Shares on all other
matters.
Any obligation of the
undersigned hereunder shall be binding upon the successors by operation of law
of the undersigned.
C-11
This
Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date (as defined in the Voting Agreement).
Dated:
,
2009
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Signature:
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Print Name:
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Address:
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Shares
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Beneficially Owned:
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C-12
WPT
ENTERPRISES, INC.
SPECIAL
MEETING OF STOCKHOLDERS
[ ], [ ], 2009
10:00 a.m.
Renaissance
Hollywood Hotel
1755
North Highland Avenue
Hollywood,
California 90028
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WPT Enterprises, Inc.
5700 Wilshire Boulevard, Suite 350
Los Angeles, California 90036
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Proxy
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This proxy is solicited by the
Board of Directors for use at the Special Meeting on [ ], 2009.
The shares of stock you
hold in your account or in a dividend reinvestment account will be voted as you
specify on the reverse side.
If no choice is specified, the
proxy will be voted “FOR” Items 1, 2 and 3.
The undersigned, a
stockholder of WPT Enterprises, Inc., hereby appoints Steven Lipscomb and
Adam Pliska, and each of them, as proxies, with full power of substitution, to
vote on behalf of the undersigned the number of shares which the undersigned is
then entitled to vote, at the Special Meeting of Stockholders of WPT
Enterprises, Inc. to be held at the Renaissance Hollywood Hotel, 1755
North Highland Avenue, Hollywood, California 90028 on [ ], 2009 at 10:00 a.m., and
at any and all adjournments thereof, as specified below on the matters referred
to and in their discretion upon any other matters brought before the meeting,
with all the powers which the undersigned would possess if personally present.
When properly executed,
this proxy will be voted on the proposals set forth herein as directed by the
stockholder, but if no direction is made in the space provided, this proxy will
be voted FOR the approval of the sale of substantially all of the Company’s
assets, other than cash, investments and certain other assets pursuant to the
asset purchase agreement, dated as of August 24, 2009, by and between
Peerless Media Ltd. and the Company, the approval of an amendment to the
Company’s Certificate of Incorporation to change the Company’s name to [ ] upon the close of the asset
sale and the approval of the adjournment of the Special Meeting, if necessary
for a period of not more than 30 days, to solicit additional proxies if there
are not sufficient votes at the time of the Special Meeting to approve the
asset sale.
See
reverse for voting instructions.
XXXXXXXX
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COMPANY
#
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ADDRESS BLOCK
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Vote by
Internet, Telephone or Mail
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24
Hours a Day, 7 Days a Week
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Your phone or
Internet vote authorizes the named
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proxies to vote
your shares in the same manner as if
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you
marked, signed and returned your proxy
card.
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INTERNET
— www.eproxy.com/WPTE
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Use the Internet to vote
your proxy until 12:00
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p.m. (CT) on [ ], 2009.
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PHONE — 1-800-560-1965
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Use a touch-tone
telephone to vote your proxy
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until 12:00 p.m.
(CT) on [
],
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2009.
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MAIL
— Mark, sign and date your proxy card
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and return it in the
postage-paid envelope
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provided
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If you vote your proxy by
Internet or by Telephone,
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you do NOT need to mail back
your Proxy Card.
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TO
VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW,SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD.
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Please detach here
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The Board
of Directors Recommends a Vote FOR Items 1, 2 and 3.
1.
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To approve the sale of
substantially all of the Company’s assets other than cash, investments and
certain other assets, pursuant to the asset purchase agreement, dated as of
August 24, 2009, by and between Peerless Media Ltd. and the Company.
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o
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For
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o
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Against
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Abstain
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2.
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To approve an amendment to
the Company’s Certificate of Incorporation to change the Company’s name to
[ ] upon the close
of the asset sale.
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o
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For
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o
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Against
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o
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Abstain
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3.
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To consider and vote upon
an adjournment of the Special Meeting, if necessary for a period of not more
than 30 days, to solicit additional proxies if there are not sufficient
votes at the time of the Special Meeting to approve the asset sale.
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o
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For
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o
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Against
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o
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Abstain
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THIS PROXY
WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN,
WILL BE VOTED
FOR
EACH PROPOSAL.
Address Change? Mark Box
o
Indicate changes below:
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Date
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Signature(s) in Box
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Please sign exactly as
your name(s) appears on Proxy. If held in joint tenancy, all persons
should sign. Trustees, administrators, etc., should include title and
authority. Corporations should provide full name of corporation and title of
authorized officer signing the Proxy.
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