JTS Corp – ‘S-4/A’ on 7/12/96

As of:  Friday, 7/12/96   ·   Accession #:  891618-96-1205   ·   File #:  333-06643

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Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4/A       Form S-4 Dated July 12, 1996                         253   1.33M 
 2: EX-2.2(B)   Form of Articles of Merger                             2     11K 
 3: EX-8.1      Opinion of CGCH&T as to Certain Tax Matters            4     19K 
 4: EX-8.2      Opinion of WSG&R as to Certain Tax Matters             4     18K 
 5: EX-10.19    Loan Agree. Between Modular Electronics               37     85K 
 6: EX-10.20    Loan Agree./Moduler Electronics (India)               44    105K 
 7: EX-10.21    Loan Agr./Modular Elec.(India) 3/18/96                19     39K 
 8: EX-10.25    Development Agreement                                 60    148K 
 9: EX-10.26    Purchase Manufacturing Agreement                      25     59K 
10: EX-10.27    Technology Transfer & License Agreement               39     91K 
11: EX-10.31    Loan Agreement, Dated June 13, 1996                   43    118K 
12: EX-10.32    Loan Agreement, Dated November 11, 1995               18     55K 
13: EX-10.33    Loan Agreement, Dated September 5, 1995               23     68K 

S-4/A   —   Form S-4 Dated July 12, 1996
Document Table of Contents

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1996 

                                                      REGISTRATION NO. 333-06643
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2 

TO
FORM S-4
REGISTRATION STATEMENT
UNDER 
THE SECURITIES ACT OF 1933
------------------------
JTS CORPORATION 
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                                        [Enlarge/Download Table]
                                                                                           
          DELAWARE                        3573                        77-0364572           
(STATE OR OTHER JURISDICTION  (PRIMARY STANDARD INDUSTRIAL  (I.R.S. EMPLOYER IDENTIFICATION
     OF INCORPORATION OR       CLASSIFICATION CODE NUMBER)               NO.)              
         ORGANIZATION)                                                                     

166 Baypointe Parkway, San Jose, CA 95134, Telephone: (408) 468-1800
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL 
EXECUTIVE OFFICES)
------------------------

DAVID T. MITCHELL 
Chief Executive Officer 
JTS Corporation 
166 Baypointe Parkway, San Jose, CA 95134, (408) 468-1800 
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) 
------------------------

With Copies to: 

                                                                [Download Table]
                                                                              
        JEFFREY D. SAPER, ESQ.                 ANDREI M. MANOLIU, ESQ.        
      J. ROBERT SUFFOLETTA, ESQ.              MATTHEW W. SONSINI, ESQ.        
Wilson Sonsini Goodrich & Rosati, P.C. Cooley Godward Castro Huddleson & Tatum
          650 Page Mill Road                    Five Palo Alto Square         
      Palo Alto, California 94304            Palo Alto, California 94306      

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

   The proposed sale will take place upon the merger (the "Merger") of Atari
Corporation, a Nevada Corporation ("Atari"), with and into JTS Corporation (the 
"Registrant").                                                                  
     If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with 
General Instruction G, check the following box. / /                             

CALCULATION OF REGISTRATION FEE 

--------------------------------------------------------------------------------

                                                        [Enlarge/Download Table]
                                                                                                           
-----------------------------------------------------------------------------------------------------------
                                                      PROPOSED MAXIMUM   PROPOSED MAXIMUM                  
      TITLE OF EACH CLASS           AMOUNT TO BE       OFFERING PRICE        AGGREGATE        AMOUNT OF    
 OF SECURITIES TO BE REGISTERED      REGISTERED           PER SHARE       OFFERING PRICE   REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value... 63,854,718 Shares(1)      $5.03125        $312,269,050     $142,376.40(2) 
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------

(1) Represents the estimated maximum number of shares of the Common Stock of the
  Registrant which may be issued to former stockholders of Atari pursuant to
the Merger described herein.                                            

(2) Estimated solely for purposes of calculating the registration fee in        
    accordance with Rule 457(f) under the Securities Act of 1933, as amended, on
 the basis of the market value of Atari Common Stock to be received by the
    Registrant in the proposed merger, calculated in accordance with Rule 457(f)
 on the basis of the average of the high and low sales prices reported for
such securities by the American Stock Exchange on July 11, 1996. Of this
amount, $142,170 was paid in connection with the initial filing of the  
    Registration Statement on June 22, 1996 with respect to 63,735,718 shares of
    Common Stock at a proposed maximum offering price of $6.46875 per share. The
additional amount of the registration fee ($202.40) has been calculated 
pursuant to Rule 457 with respect to the additional 119,000 shares to be
registered hereby at the proposed maximum offering price indicated.     

------------------------

  The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration       
Statement shall thereafter become effective in accordance with Section 8(a) of  
the Securities Act of 1933 or until the Registration Statement shall become     
effective on such date as the Commission, acting pursuant to said Section 8(a), 
may determine.                                                                  

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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JTS CORPORATION 

CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4

                                                        [Enlarge/Download Table]

FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING             LOCATION IN PROSPECTUS           
------------------------------------------------- --------------------------------------------
                                                                                              
              (Information about the Transaction)                                             
  1. Forepart of Registration Statement and                                                   
       Outside Front Cover Page of Prospectus.... Facing Page of Registration Statement;      
                                                  Outside Front Cover Page of Prospectus      
  2. Inside Front and Outside Back Cover Pages of                                             
       Prospectus................................ Available Information; Table of Contents    
  3. Risk Factors, Ratio of Earnings to Fixed                                                 
       Charges and Other Information............. Summary; Risk Factors; Introduction         
  4. Terms of the Transaction.................... Summary; Introduction; The Proposed Merger  
                                                  and Related Transactions; Description of    
                                                    Capital Stock of Atari and JTS; Comparison
                                                    of Rights of Stockholders of Atari and JTS
  5. Pro Forma Financial Information............. Unaudited Pro Forma Condensed Combined      
                                                    Financial Information                     
  6. Material Contacts with the Company being                                                 
       Acquired.................................. The Proposed Merger and Related Transactions
  7. Additional Information Required for                                                      
       Reoffering by Persons and Parties Deemed                                               
       to be Underwriters........................ Not Applicable                              
  8. Interests of Named Experts and Counsel...... Legal Matters; Experts                      
  9. Disclosure of Commission Position on                                                     
       Indemnification for Securities Act                                                     
       Liabilities............................... Not Applicable                              
               (Information about the Registrant)                                             
 10. Information with Respect to S-3                                                          
       Registrants............................... Not Applicable                              
 11. Incorporation of Certain Information by                                                  
       Reference................................. Not Applicable                              
 12. Information with Respect to S-2 or S-3                                                   
       Registrants............................... Not Applicable                              
 13. Incorporation of Certain Information by                                                  
       Reference................................. Not Applicable                              
 14. Information with Respect to Registrants                                                  
       other than S-2 or S-3 Registrants......... Summary; Risk Factors; Introduction; Voting 
                                                  and Proxies; The Proposed Merger and Related
                                                    Transactions; Stock Price and Dividend    
                                                    Information; Unaudited Pro Forma Condensed
                                                    Combined Financial Statements; Information
                                                    Regarding JTS Corporation; Description of 
                                                    Capital Stock of Atari and JTS; Index to  
                                                    Financial Statements                      

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FORM S-4 REGISTRATION STATEMENT ITEM AND HEADING             LOCATION IN PROSPECTUS           
------------------------------------------------- --------------------------------------------
                                                                                              
   (Information about the Company being Acquired)                                             
 15. Information with Respect to S-3 Companies... Summary; Risk Factors; Introduction; Voting 
                                                  and Proxies; The Proposed Merger and Related
                                                    Transactions; Stock Price and Dividend    
                                                    Information; Unaudited Pro Forma Condensed
                                                    Combined Financial Statements; Information
                                                    Regarding Atari; Description of Capital   
                                                    Stock of Atari and JTS; Index to Financial
                                                    Statements                                
 16. Information with Respect to S-2 or S-3                                                   
       Companies................................. Not Applicable                              
 17. Information with Respect to Companies other                                              
       than S-2 or S-3 Companies................. Not Applicable                              
              (Voting and Management Information)                                             
 18. Information, if Proxies, Consents or                                                     
       Authorizations are to be Solicited........ Summary; Introduction; Voting and Proxies,  
                                                  The Proposed Merger and Related             
                                                    Transactions; Information Regarding Atari 
                                                    Corporation; Information Regarding JTS    
                                                    Corporation; Description of Capital Stock 
                                                    of Atari and JTS.                         
 19. Information, if Proxies, Consents or                                                     
       Authorizations are not to be Solicited or                                              
       in an Exchange Offer...................... Not Applicable                              

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ATARI CORPORATION 
455 SOUTH MATHILDA AVENUE 
SUNNYVALE, CALIFORNIA 94086 
(408) 328-0900

Dear Stockholder:                                                               

A Special Meeting of Stockholders (the "Special Meeting") of Atari    
Corporation ("Atari") will be held at the offices of Wilson Sonsini Goodrich &  
Rosati, P.C., 650 Page Mill Road, Palo Alto, California, legal counsel to Atari,
on Tuesday, July 30, 1996, at 9:00 a.m.                                         

 At the Special Meeting, you will be asked to consider and vote upon the
approval of an Amended and Restated Agreement and Plan of Reorganization dated  
as of April 8, 1996 (the "Merger Agreement"), between Atari and JTS Corporation 
("JTS") and the merger of Atari with and into JTS (the "Merger").               

 Pursuant to the Merger Agreement, upon consummation of the Merger, each
outstanding share of Atari Common Stock will be converted into one share of JTS 
Common Stock and each outstanding option to acquire Atari Common Stock will     
become an option to acquire an equal number of shares of JTS Common Stock.      
Following consummation of the Merger (assuming no exercise of outstanding       
options to purchase Atari Common Stock or JTS Common Stock after June 28, 1996),
Atari stockholders immediately prior to the Merger will hold an aggregate of    
63,854,718 shares of JTS Common Stock representing approximately 62% of the     
outstanding capital stock of JTS.                                               

Atari's Board of Directors has unanimously approved the Merger and the
Merger Agreement and has determined that they are fair to, and in the best      
interests of, Atari and its stockholders. The Board of Directors recommends a   
vote FOR the Merger and the Merger Agreement.                                   

     In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to the     
actions to be taken at the Special Meeting and a proxy card. The Joint Proxy    
Statement/Prospectus provides more detailed information regarding the proposed  
Merger and related matters, includes information about Atari and JTS and        
discusses the Board's reasons for recommending the Merger.                      

ALL STOCKHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. 
HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE    
SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE       
PREVIOUSLY RETURNED YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED 
AND VOTED AT THE SPECIAL MEETING.                                               

July 15, 1996                                                                   

              Sincerely,

               Sam Tramiel
             President

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ATARI CORPORATION 
455 SOUTH MATHILDA AVENUE 
SUNNYVALE, CALIFORNIA 94086 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD ON JULY 30, 1996 

To the Stockholders of Atari Corporation:                                       

     NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of Atari Corporation, a Nevada corporation ("Atari"), will be held on 
Tuesday, July 30, 1996, at 9:00 a.m. at the offices of Wilson Sonsini Goodrich &
Rosati, P.C., 650 Page Mill Road, Palo Alto, California, legal counsel to Atari.

   A Proxy Card and Joint Proxy Statement/Prospectus for the Special Meeting
are enclosed.                                                                   

The Special Meeting is for the purpose of considering and acting upon:

   1.  A proposal to approve (a) the Amended and Restated Agreement and Plan
of Reorganization dated as of April 8, 1996 (the "Merger Agreement") between    
Atari and JTS Corporation, a Delaware corporation ("JTS"), and (b) the merger of
Atari with and into JTS (the "Merger"). Pursuant to the terms of the Merger     
Agreement, each outstanding share of Atari Common Stock will be converted into  
one share of JTS Common Stock, and each outstanding option to acquire Atari     
Common Stock will become an option to acquire JTS Common Stock.                 

     2.  To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.                                             

     The Merger is more fully described in, and the Merger Agreement is attached
in its entirety to, the Joint Proxy Statement/Prospectus accompanying this      
Notice.                                                                         

    Only stockholders of record at the close of business on June 28, 1996 (the
"Record Date") are entitled to notice of, and to vote at, the Special Meeting or
at any postponement(s) or adjournment(s) thereof.                               

Approval of the Merger and the Merger Agreement will require the      
affirmative vote of the holders of a majority of the shares of Atari Common     
Stock outstanding on the Record Date.                                           

IMPORTANT 

   WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE   
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED 
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND 
VOTE IN PERSON.                                                                 

July 15, 1996                                                                   

                                      By Order of the Board of Directors

               Sam Tramiel
             President

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JTS CORPORATION 
166 BAYPOINTE PARKWAY 
SAN JOSE, CALIFORNIA 95134
(408) 468-1800

Dear Stockholder:                                                               

A Special Meeting of Stockholders (the "Special Meeting") of JTS      
Corporation ("JTS") will be held at JTS' offices located at 166 Baypointe       
Parkway, San Jose, California on Tuesday, July 30, 1996 at 9:00 a.m.            

 At the Special Meeting, you will be asked to consider and vote upon the
approval of an Amended and Restated Agreement and Plan of Reorganization dated  
as of April 8, 1996 (the "Merger Agreement"), between JTS and Atari Corporation 
("Atari"), and the merger of Atari with and into JTS (the "Merger").            

 Pursuant to the Merger Agreement, upon consummation of the Merger, each
outstanding share of Atari Common Stock will be converted into one share of JTS 
Common Stock. Following consummation of the Merger (assuming no exercise of     
outstanding options to purchase JTS Common Stock or Atari Common Stock after    
June 28, 1996), the former stockholders of Atari will hold an aggregate of      
63,854,718 shares of JTS Common Stock representing approximately 62% of the     
outstanding capital stock of JTS.                                               

    JTS' Board of Directors has unanimously approved the Merger and the Merger
Agreement and has determined that they are fair to, and in the best interests   
of, JTS and its stockholders. The Board of Directors recommends a vote FOR the  
Merger and the Merger Agreement.                                                

In the materials accompanying this letter, you will find a Notice of  
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to 
the actions to be taken at the Special Meeting and a proxy card. The Joint Proxy
Statement/Prospectus provides more detailed information regarding the proposed  
Merger and related matters, includes information about JTS and Atari and        
discusses the Board's reasons for recommending the Merger.                      

     YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. IN
ORDER TO ENSURE THAT YOUR VOTE WILL BE COUNTED, PLEASE COMPLETE, DATE AND SIGN  
THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE, WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON. IF YOU ATTEND THE    
SPECIAL MEETING IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.      

July 15, 1996                                                                   

              Sincerely,

                     David T. Mitchell
                                         Chief Executive Officer and President

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JTS CORPORATION 
166 BAYPOINTE PARKWAY 
SAN JOSE, CALIFORNIA 95134

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD ON JULY 30, 1996 

To the Stockholders of JTS Corporation:                                         

     NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of JTS Corporation, a Delaware corporation ("JTS"), will be held on   
Tuesday, July 30, 1996, at 9:00 a.m., at JTS' offices located at 166 Baypointe  
Parkway, San Jose, California.                                                  

The Special Meeting is for the purpose of considering and acting upon:

   1.  A proposal to approve (a) the Amended and Restated Agreement and Plan
of Reorganization dated as of April 8, 1996 (the "Merger Agreement") between JTS
and Atari Corporation, a Nevada Corporation ("Atari"), and (b) the merger of    
Atari with and into JTS (the "Merger"). Pursuant to the terms of the Merger     
Agreement, each outstanding share of Atari Common Stock will be converted into  
one share of JTS Common Stock, and each outstanding option to acquire Atari     
Common Stock will become an option to acquire JTS Common Stock.                 

     2.  To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.                                             

     The Merger is more fully described in, and the Merger Agreement is attached
in its entirety to, the Joint Proxy Statement/Prospectus accompanying this      
Notice.                                                                         

    Only stockholders of record of JTS Common Stock and JTS Series A Preferred
Stock at the close of business on June 18, 1996 (the "Record Date") are entitled
to notice of, and to vote at, the Special Meeting, or at any postponement(s) or 
adjournment(s) thereof.                                                         

Approval of the Merger and the Merger Agreement will require the      
affirmative vote of the holders of (a) a majority of the shares of JTS Common   
Stock and JTS Series A Preferred Stock outstanding on the Record Date, voting   
together, (b) a majority of the shares of JTS Common Stock outstanding on the   
JTS Record Date, voting separately as a class, and (c) at least two-thirds of   
the shares of JTS Series A Preferred Stock outstanding on the Record Date,      
voting separately as a class. If the Merger is consummated, stockholders of JTS 
who do not vote in favor of the Merger and the Merger Agreement and who         
otherwise comply with Section 262 of the Delaware General Corporation Law or    
Chapter 13 of the California General Corporation Law will be entitled to        
statutory appraisal or dissenters' rights. See "The Proposed Merger and Related 
Transactions -- Appraisal and Dissenters' Rights" and Appendices D-1 and D-2 to 
the accompanying Joint Proxy Statement/Prospectus.                              

IMPORTANT 

   WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE   
ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED 
STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN WITHDRAW YOUR PROXY AND 
VOTE IN PERSON.                                                                 

July 15, 1996                                                                   

                                      By Order of the Board of Directors

                     David T. Mitchell
                   Chief Executive
                         Officer and President

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JTS CORPORATION 
PROSPECTUS

------------------------------------

JOINT PROXY STATEMENT 

ATARI CORPORATION 
SPECIAL MEETING OF STOCKHOLDERS 
TO BE HELD ON JULY 30, 1996 

JTS CORPORATION 
SPECIAL MEETING OF STOCKHOLDERS 
TO BE HELD ON JULY 30, 1996 
------------------------------------

This Joint Proxy Statement/Prospectus (the "Joint Proxy               
Statement/Prospectus") of Atari Corporation ("Atari") and JTS Corporation       
("JTS") is being used (a) to solicit proxies on behalf of Atari from holders of 
the outstanding Common Stock of Atari (the "Atari Common Stock") in connection  
with the Special Meeting of Stockholders of Atari to be held on July 30, 1996   
(the "Atari Special Meeting"), and (b) to solicit proxies on behalf of JTS from 
holders of the outstanding JTS Common Stock (the "JTS Common Stock") and JTS    
Series A Preferred Stock (the "JTS Series A Preferred Stock") in connection with
the Special Meeting of Stockholders of JTS to be held on July 30, 1996 (the "JTS
Special Meeting").                                                              

   At the meetings referred to above, the stockholders of Atari and JTS will
be asked to consider and vote upon the approval of (a) the Amended and Restated 
Agreement and Plan of Reorganization between Atari and JTS dated as of April 8, 
1996 (the "Merger Agreement"), a copy of which is attached hereto as Appendix A 
and incorporated herein by reference, and (b) the merger of Atari with and into 
JTS (the "Merger").                                                             

  Upon consummation of the Merger, Atari will be merged with and into JTS,
the separate existence of Atari will cease, JTS will remain as the surviving    
corporation and all of the rights, privileges, powers, franchises, properties,  
assets, liabilities and obligations of Atari will be vested in JTS. At the      
effective time of the Merger, each outstanding share of Atari Common Stock will 
be converted into one share of JTS Common Stock. See "The Proposed Merger and   
Related Transactions--Summary of the Merger Agreement--Manner and Basis of      
Converting Atari Common Stock."                                                 

  This Joint Proxy Statement/Prospectus also constitutes the prospectus of
JTS under the Securities Act of 1933, as amended (the "Securities Act"), for the
offering of up to 63,854,718 shares of JTS Common Stock in connection with the  
Merger. This prospectus does not cover resales of the JTS Common Stock to be    
issued in connection with the Merger and no person is authorized to use this    
prospectus in connection with any resale.                                       

The information set forth in this Joint Proxy Statement/Prospectus    
regarding Atari has been furnished by Atari and the information set forth in    
this Joint Proxy Statement/Prospectus regarding JTS has been furnished by JTS.  

  This Joint Proxy Statement/Prospectus is being mailed to stockholders of
Atari and JTS on or about July 15, 1996.                                        

THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS JOINT PROXY         
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY              
STATEMENT/PROSPECTUS IN ITS ENTIRETY.                                           

SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED IN CONNECTION WITH APPROVAL OF THE MERGER AND THE MERGER AGREEMENT.  
------------------------------------

   NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED PURSUANT TO THIS
JOINT PROXY STATEMENT/PROSPECTUS HAVE BEEN APPROVED OR DISAPPROVED BY THE       
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS   
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR   
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE    
CONTRARY IS A CRIMINAL OFFENSE.                                                 
------------------------------------

THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS JULY 15, 1996. 

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TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                      PAGE 
                                                                                     ------
                                                                                           
SUMMARY.............................................................................      6
  The Parties to the Proposed Merger................................................      6
  Atari Special Meeting of Stockholders.............................................      6
  JTS Special Meeting of Stockholders...............................................      7
  The Merger........................................................................      7
  Market Price of Common Stock......................................................     11
  Risk Factors......................................................................     11
  Atari Historical Selected Consolidated Financial Data.............................     12
  JTS and Moduler Electronics Unaudited Selected Financial Data.....................     13
  Atari and JTS Unaudited Selected Pro Forma Combined Financial Data................     14
  Comparative Per Share Data........................................................     15
RISK FACTORS........................................................................     16
  Risk Factors Related to the Business of Atari.....................................     16
  Risk Factors Related to the Business of JTS.......................................     18
  Other Risk Factors Related to the Merger..........................................     25
INTRODUCTION........................................................................     27
VOTING AND PROXIES..................................................................     28
  Date, Time and Place of Special Stockholder Meetings..............................     28
  Record Date and Outstanding Shares................................................     28
  Voting and Revocability of Proxies................................................     28
  Stockholder Votes Required........................................................     29
  Solicitation of Proxies; Expenses.................................................     30
  Appraisal and Dissenters' Rights..................................................     30
THE PROPOSED MERGER AND RELATED TRANSACTIONS........................................     31
  Background and Board Recommendations..............................................     31
  Summary of the Merger Agreement...................................................     40
  Certain Other Items Related to the Merger.........................................     47
  Related Transactions..............................................................     50
  Appraisal and Dissenters' Rights..................................................     51
  Certain Federal Income Tax Considerations.........................................     55
STOCK PRICE AND DIVIDEND INFORMATION................................................     57
JTS' ACQUISITION OF THE DISK DRIVE DIVISION OF MODULER ELECTRONICS..................     58
JTS CORPORATION AND MODULER ELECTRONICS (INDIA) PRIVATE LIMITED                            
  UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.......................     59
ATARI CORPORATION AND JTS CORPORATION UNAUDITED PRO FORMA CONDENSED COMBINED               
  FINANCIAL STATEMENTS..............................................................     63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL CONDITION AND         
  PRO FORMA COMBINED RESULTS OF OPERATIONS OF THE COMBINED COMPANY FOR THE QUARTER         
  ENDED MARCH 31, 1996..............................................................     69
INFORMATION REGARDING ATARI CORPORATION.............................................     70
  Business of Atari.................................................................     70
  Selected Consolidated Financial Data of Atari.....................................     75
  Management's Discussion and Analysis of Financial Condition and Results of               
     Operations of Atari............................................................     76
  Management of Atari...............................................................     81
  Principal Stockholders of Atari...................................................     82
INFORMATION REGARDING JTS CORPORATION...............................................     84
  Business of JTS...................................................................     84
  JTS and Moduler Electronics Unaudited Selected Financial Data.....................     93
  Management's Discussion and Analysis of Financial Condition and Results of               
     Operations of JTS..............................................................     94
  Management of JTS.................................................................     98

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                                                        [Enlarge/Download Table]

                                                                                      PAGE 
                                                                                     ------
                                                                                           
Certain Transactions................................................................    105
Principal Stockholders of JTS.......................................................    108
DESCRIPTION OF CAPITAL STOCK OF ATARI AND JTS.......................................    110
  Atari Capital Stock...............................................................    110
  JTS Capital Stock.................................................................    110
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ATARI AND JTS AND THE COMBINED COMPANY......    113
LEGAL MATTERS.......................................................................    118
EXPERTS.............................................................................    118
STOCKHOLDER PROPOSALS...............................................................    119
INDEX TO FINANCIAL STATEMENTS.......................................................    F-1
APPENDICES                                                                                 
  A  Amended and Restated Agreement and Plan of Reorganization......................    A-1
  B-1 Form of Atari Voting Agreement................................................  B-1-1
  B-2 Form of JTS Voting Agreement..................................................  B-2-1
  C  Montgomery Securities Fairness Opinion.........................................    C-1
  D-1 Section 262 of the Delaware General Corporation Law...........................  D-1-1
  D-2 Chapter 13 of the California General Corporation Law..........................  D-2-1

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AVAILABLE INFORMATION 

Atari is subject to the informational requirements of the Securities  
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance        
therewith files reports, proxy statements and other information with the        
Securities and Exchange Commission (the "Commission"). Such reports, proxy      
statements and other information may be inspected and copied at the Public      
Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C.      
20549, and at the Commission's regional offices at Northwestern Atrium Center,  
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade  
Center, New York, New York 10048. Copies of such material may also be obtained  
from the Commission at prescribed rates by writing to the Public Reference      
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. In   
addition, material filed by Atari can be inspected at the offices of the        
American Stock Exchange, 86 Trinity Place, New York, New York 10006.            

Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of Atari and JTS to approve the Merger and the Merger 
Agreement constitutes an offering of the JTS Common Stock to be issued in       
connection with the Merger. Accordingly, JTS has filed with the Commission a    
Registration Statement on Form S-4 (the "Registration Statement") under the     
Securities Act with respect to such offering. This Joint Proxy                  
Statement/Prospectus constitutes the prospectus of JTS that is filed as part of 
the Registration Statement. Other parts of the Registration Statement are       
omitted from this Joint Proxy Statement/Prospectus in accordance with the rules 
and regulations of the Commission. Copies of the Registration Statement,        
including exhibits thereto, may be inspected, without charge, at the offices of 
the Commission referred to above, or obtained at prescribed rates from the      
Public Reference Section of the Commission at the address set forth above.      

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY  
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. IF GIVEN 
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING   
BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN   
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SHARES OF JTS COMMON STOCK TO BE ISSUED IN THE MERGER, OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO 
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER   
ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.                           

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TRADEMARKS

This Joint Proxy Statement/Prospectus contains registered and other   
trademarks and tradenames of Atari, JTS and other companies.                    
------------------

FORWARD-LOOKING STATEMENTS

   This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Exchange Act. Actual results could    
differ materially from those projected in the forward-looking statements as a   
result of the risk factors set forth below. Reference is made to the particular 
discussions set forth under "The Proposed Merger and Related                    
Transactions -- Forward-Looking Financial Information Provided by JTS,"         
"Information Regarding Atari Corporation -- Management's Discussion and Analysis
of Financial Condition and Results of Operations of Atari" and "Information     
Regarding JTS Corporation -- Management's Discussion and Analysis of Financial  
Condition and Results of Operations of JTS." In connection with forward-looking 
statements that appear in these disclosures, stockholders of Atari and JTS      
should carefully review the factors set forth in the Joint Proxy                
Statement/Prospectus including, but not limited to, those discussed under "Risk 
Factors -- Risk Factors Related to the Business of Atari -- Significant         
Operating Losses; Disappointing Sales of Jaguar Products," "-- Risk of          
Substantial Inventory Write-Downs," "-- Risk of Potential Liabilities,"         
"-- Intellectual Property," "-- Competition," "-- Risks of Bridge Loan to JTS," 
"-- Reduction in Voting Control; Loss of Management Control," "-- Risk Factors  
Related to the Business of JTS -- Limited Operating History; Working Capital    
Deficit; Independent Accountants' Report and Explanatory Paragraph," "-- Need   
for Additional Financing," "-- Highly Competitive Market," "-- Uncertainty of   
Market Acceptance; Lengthy Sales Cycle," "-- Rapid Technological Change,"       
"Recent Significant Appreciation in Price of Atari Common Stock,"               
"-- Availability of Components and Materials; Dependence on Suppliers,"         
"-- Cyclical Nature of Disk Drive and Computer Industries," "-- Dependence on   
Compaq Relationship; Customer Concentration," "-- Reliance on Licensed          
Technology," "-- Intellectual Property and Proprietary Rights," "-- Expansion of
Manufacturing Capacity," "-- Production Yields; Product Quality," "-- Management
of Growth," "-- Variability of Operating Results," "-- Dependence on Single     
Manufacturing Facility," "Risks of International Sales and Manufacturing,"      
"-- Dependence on Key Management Personnel," "-- Other Risk Factors Related to  
the Merger," "-- Risks Associated with Fixed Exchange Ratio," "-- Utilization of
Net Operating Losses," "-- Control by Affiliates; Anti-takeover Effects" and    
"-- Diversion of Management Attention." Certain statements contained within this
Joint Proxy Statement/Prospectus have been specifically identified as           
forward-looking statements within the meaning of Section 27A of the Securities  
Act and Section 21E of the Exchange Act. However, the failure to specifically   
identify other statements as forward-looking statements shall not be construed  
to imply that such statements do not necessarily qualify as such within the     
meaning of the applicable Securities Act and Exchange Act provisions.           

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SUMMARY 

   This Joint Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Atari Corporation, a Nevada corporation ("Atari"), with and into   
JTS Corporation, a Delaware corporation ("JTS"), and certain related matters.   
Upon consummation of the Merger, the separate existence of Atari will cease and 
JTS will remain as the surviving corporation. Such corporation is sometimes     
referred to herein as the "Combined Company." Unless otherwise indicated, all   
references herein to Atari include Atari and its subsidiaries, and all          
references herein to JTS include JTS and its subsidiaries, including Moduler    
Electronics (India) Pvt. Ltd. ("Moduler Electronics").                          

     The following is intended as a summary of the information contained in this
Joint Proxy Statement/Prospectus, is not intended to be a complete statement of 
all material features of the proposals to be voted on, and is qualified in its  
entirety by the more detailed information appearing elsewhere in this Joint     
Proxy Statement/Prospectus and attached Appendices, including the Amended and   
Restated Agreement and Plan of Reorganization attached hereto as Appendix A (the
"Merger Agreement") and the forms of Voting Agreement attached hereto as        
Appendices B-1 and B-2 (the "Voting Agreements"), all of which are important and
should be carefully reviewed.                                                   

   In May 1996, the JTS stockholders approved, subject to the closing of the
Merger, (i) an amendment and restatement of the JTS Certificate of Incorporation
to, among other things, increase the authorized shares of JTS Common Stock, and 
(ii) an amendment and restatement of the JTS Bylaws. In addition, the holders of
the JTS Series A Preferred Stock elected to convert all outstanding shares of   
JTS Series A Preferred Stock into shares of JTS Common Stock immediately prior  
to the closing of the Merger. Unless otherwise indicated, all information       
contained herein reflects the foregoing changes to the Certificate of           
Incorporation and Bylaws of JTS and the conversion of all outstanding shares of 
JTS Series A Preferred Stock into shares of JTS Common Stock.                   

   This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E 
of the Securities Exchange Act of 1934. Actual results could differ materially  
from those projected in the forward-looking statements as a result of the risk  
factors set forth in this Joint Proxy Statement/Prospectus.                     

THE PARTIES TO THE PROPOSED MERGER

     Atari Corporation.  Atari markets video game consoles, related software and
peripheral products and multimedia entertainment software for various platforms.
Atari's principal products are its Jaguar 64-bit interactive multimedia         
entertainment system, Jaguar software and Jaguar peripherals. Due to            
disappointing sales of Jaguar and related products, in late 1995 Atari          
significantly downsized its Jaguar operations, and decided to focus its efforts 
on selling its inventory of Jaguar and related products and to emphasize its    
licensing and development activities related to multimedia entertainment        
software for various platforms.                                                 

     Atari was incorporated in Nevada in May 1984. Atari maintains its executive
offices at 455 South Mathilda Avenue, Sunnyvale, California 94086, and its      
telephone number is (408) 328-0900.                                             

     JTS Corporation  JTS designs, manufactures and markets hard disk drives for
the personal computer industry. JTS has developed two product families of hard  
disk drives: the 3-inch form factor Nordic product family for notebook computers
and the 3.5-inch form factor Palladium product family for desktop personal      
computers. In addition, JTS is developing a 5.25-inch form factor disk drive for
desktop personal computers.                                                     

JTS was incorporated in Delaware in February 1994. JTS maintains its  
executive offices at 166 Baypointe Parkway, San Jose, California 95134, and its 
telephone number is (408) 468-1800.                                             

ATARI SPECIAL MEETING OF STOCKHOLDERS 

  Time, Date, and Purpose.  The Atari Special Meeting of Stockholders (the
"Atari Special Meeting") will be held at the offices of Wilson Sonsini Goodrich 
& Rosati, P.C., 650 Page Mill Road, Palo Alto, California, legal counsel to     
Atari, on Tuesday, July 30, 1996 at 9:00 a.m. The purpose of the Atari Special  
Meeting is for Atari stockholders to consider and vote upon a proposal to       
approve the Merger and the Merger Agreement.                                    

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 Record Date; Stockholder Approval.  The record date for stockholders of
Atari entitled to vote at the Atari Special Meeting is June 28, 1996 (the "Atari
Record Date"). Approval of the Merger and the Merger Agreement requires the     
affirmative vote of holders of a majority of the shares of Atari Common Stock   
outstanding on the Atari Record Date.                                           

JTS SPECIAL MEETING OF STOCKHOLDERS 

    Time, Date and Purpose.  The JTS Special Meeting of Stockholders (the "JTS
Special Meeting") will be held at the offices of JTS located at 166 Baypointe   
Parkway, San Jose, California, on Tuesday, July 30, 1996 at 9:00 a.m. The       
purpose of the JTS Special Meeting is for JTS Stockholders to consider and vote 
upon a proposal to approve the Merger and the Merger Agreement.                 

     Record Date; Stockholder Approval.  The record date for stockholders of JTS
entitled to vote at the JTS Special Meeting is June 18, 1996 (the "JTS Record   
Date"). Approval of the Merger and the Merger Agreement requires the affirmative
vote of holders of (a) a majority of the shares of JTS Common Stock and JTS     
Series A Preferred Stock outstanding on the JTS Record Date, voting together,   
(b) a majority of the shares of JTS Common Stock outstanding on the JTS Record  
Date, voting separately as a class, and (c) at least two-thirds of the shares of
JTS Series A Preferred Stock outstanding on the JTS Record Date, voting         
separately as a class.                                                          

THE MERGER

Effect of the Merger.  Upon consummation of the Merger, Atari will be 
merged with and into JTS, the separate existence of Atari will cease, JTS will  
remain as the surviving corporation and all of the rights, privileges, powers,  
franchises, properties, assets, liabilities and obligations of Atari will be    
vested in JTS. At the Effective Time (as such term is defined below), each      
outstanding share of Atari Common Stock will be converted into one share of JTS 
Common Stock. See "The Proposed Merger and Related Transactions -- Summary of   
the Merger Agreement -- Manner and Basis of Converting Atari Common Stock."     

Immediately after giving effect to the Merger, assuming that no       
stockholders of JTS perfect appraisal or dissenters' rights and assuming no     
exercise of outstanding options to purchase Atari Common Stock or JTS Common    
Stock after June 28, 1996, the shares of JTS Common Stock issued in the Merger  
upon conversion of the Atari Common Stock will represent approximately 62% of   
the outstanding shares of the Combined Company.                                 

   If the Merger does not receive all necessary stockholder approvals or the
Merger is not consummated for any other reason, Atari currently intends to      
continue operating its business as presently conducted and will focus on its    
existing licensing and software development activities. Atari also expects to   
evaluate other strategic business opportunities. If the Merger does not receive 
all necessary stockholder approvals or the Merger is not consummated for any    
other reason, JTS expects to continue to operate its business as currently      
planned and to pursue alternative sources of funding to provide necessary       
working capital and to permit the expansion of its operations.                  

    Atari Board of Directors.  The Board of Directors of Atari has unanimously
approved the Merger Agreement and the Merger and has determined that the Merger 
is fair to, and in the best interests of Atari and its stockholders. The Atari  
Board of Directors unanimously recommends approval of the Merger Agreement and  
the Merger by the Atari stockholders. The primary factors considered and relied 
upon by the Atari Board of Directors in reaching its recommendation are referred
to in "The Proposed Merger and Related Transactions -- Recommendation of the    
Board of Directors of Atari."                                                   

JTS Board of Directors.  The Board of Directors of JTS has unanimously
approved the Merger Agreement and the Merger and has determined that the Merger 
is fair to, and in the best interests of JTS and its stockholders. The JTS Board
of Directors unanimously recommends approval of the Merger Agreement and the    
Merger by the JTS stockholders. The primary factors considered and relied upon  
by the JTS Board of                                                             

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Directors in reaching its recommendation are referred to in "The Proposed Merger
and Related Transactions -- Recommendation of the Board of Directors of JTS."   

Stockholder Votes Required.  To approve the Merger, a majority of the 
shares of Atari Common Stock must approve the Merger. It is expected that all of
the shares of Atari Common Stock owned by directors and executive officers of   
Atari and their affiliates will be voted for approval of the Merger. These      
shares constitute approximately 43% of the total number of outstanding shares of
Atari Common Stock. Approval of the Merger also requires the vote of holders of 
a majority of the JTS Common Stock and Series A Preferred Stock (voting         
together), a majority of the JTS Common Stock (voting separately as a class) and
at least two-thirds of the JTS Series A Preferred Stock (voting separately as a 
class). It is expected that all of the shares of JTS Common Stock and Series A  
Preferred Stock owned by directors and executive officers of JTS and their      
affiliates will be voted for approval of the Merger. These shares constitute    
approximately 96% of the total number of JTS Common Stock and 48% of the total  
number of JTS Series A Preferred Stock.                                         

  Opinion of Montgomery Securities.  Montgomery Securities ("Montgomery"),
financial advisor to Atari, has delivered to the Atari Board of Directors its   
written opinion, dated February 5, 1996, to the effect that the conversion ratio
of Atari Common Stock into JTS Common Stock is fair to Atari from a financial   
point of view, as of that date. Reference is made to the full text of the       
opinion, a copy of which is attached hereto as Appendix C. See "The Proposed    
Merger and Related Transactions -- Background and Board Recommendations -- Atari
Financial Advisor."                                                             

Effective Time.  The Merger will be consummated on the date that the  
Certificate of Merger is filed with the Nevada Secretary of State and the       
Delaware Secretary of State (the "Effective Time"). The Effective Time is       
expected to occur as soon as practicable after approval of the Merger and the   
Merger Agreement at the Atari and JTS Special Meetings and satisfaction or      
waiver of the conditions precedent to the Merger, as set forth in the Merger    
Agreement.                                                                      

    Listing of Common Stock.  The Atari Common Stock is listed on the American
Stock Exchange under the symbol "ATC." There is no public market for the JTS    
Common Stock or the JTS Series A Preferred Stock. Upon consummation of the      
Merger, it is expected that the JTS Common Stock will be listed on the American 
Stock Exchange under the symbol "JTS", and that the Atari Common Stock will be  
delisted from the American Stock Exchange.                                      

  Exchange of Shares.  Exchange of Atari Common Stock certificates for JTS
Common Stock certificates will be made upon surrender of Atari Common Stock     
certificates to Registrar and Transfer Company, Cranford, NJ, as exchange agent.
Atari stockholders will be provided with a letter of transmittal and related    
materials for the exchange of their certificates after the Effective Time.      

  ATARI STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE INSTRUCTIONS AND TRANSMITTAL FORMS AFTER COMPLETION OF THE MERGER.      

    Assumption of Atari Options.  Upon consummation of the Merger, each option
to purchase Atari Common Stock then outstanding will be assumed by JTS and will 
be converted automatically into an option to purchase the same number of shares 
of JTS Common Stock at an exercise price per share equal to the exercise price  
per share of the Atari option. The other terms of the Atari options, including  
vesting schedules, will remain unchanged.                                       

     Registration Statement on Form S-8.  Within five days following the closing
of the Merger, JTS will file a Registration Statement on Form S-8 with the      
Commission with respect to the shares of JTS Common Stock issuable upon exercise
of the assumed Atari options and JTS options granted or available for grant     
under the JTS amended and restated 1995 Stock Option Plan (the "Restated Plan").

  Assumption of Atari Debentures.  Upon consummation of the Merger, all of
Atari's obligations under its outstanding 5 1/4% convertible subordinated       
debentures due April 29, 2002 (the "Atari Debentures") will be assumed by JTS.  
The Atari Debentures are presently convertible into Atari Common Stock at a     
conversion                                                                      

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price of $16.3125 per share, and following the Merger will be convertible into  
JTS Common Stock at the same conversion price. The other terms of the Atari     
Debentures will remain unchanged.                                               

  Conditions to Consummation of the Merger.  Consummation of the Merger is
subject to various conditions precedent, including Atari and JTS stockholder    
approvals of the Merger and the Merger Agreement, the receipt of certain        
consents and approvals from various third parties and governmental agencies,    
receipt of opinions of counsel regarding certain legal matters, including       
opinions of tax counsel to the effect that the Merger will qualify as a         
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as    
amended (the "Code"), and that stockholders of JTS holding not more than 5% of  
the JTS capital stock entitled to vote at the JTS Special Meeting shall be      
entitled to exercise appraisal or dissenters' rights. Each of the parties to the
Merger Agreement may, at its option, waive compliance with any condition        
precedent to its obligation to consummate the Merger. In the event that a       
condition to consummation of the Merger is not satisfied, each party whose      
obligation to consummate the Merger is subject to satisfaction of such condition
intends to evaluate whether it would be in the best interests of that party and 
its stockholders to waive the condition and consummate the Merger. In the event 
that a condition to consummation of the Merger is waived by one of the parties  
and applicable law requires that party to resolicit stockholder approval,       
stockholder approval will be resolicited prior to consummation. For example,    
stockholder approval would be resolicited in the event that such waiver would   
result in an alteration or change in (a) the amount or kind of consideration to 
be received by the Atari stockholders in exchange for their shares of Atari     
Common Stock as a result of the Merger, (b) any term of the Certificate of      
Incorporation of JTS to be effected by the Merger or (c) any of the terms and   
conditions of the Merger Agreement if such alteration or change would adversely 
affect the holders of JTS Common Stock or Atari Common Stock. Neither Atari nor 
JTS presently has any intention of waiving any terms or conditions of the Merger
Agreement.                                                                      

     Termination and Amendment of Merger Agreement.  The Merger Agreement may be
terminated, notwithstanding its approval by the stockholders of Atari or JTS,   
(a) by mutual written agreement of the parties, (b) by Atari if there has been a
breach of any representation, warranty, covenant or agreement in the Merger     
Agreement on the part of JTS which has or can reasonably be expected to have a  
material adverse effect on JTS and its subsidiaries, taken as a whole, or upon  
the occurrence of certain other events, (c) by JTS if there has been a breach of
any representation, warranty, covenant or agreement in the Merger Agreement on  
the part of Atari which has or can reasonably be expected to have a material    
adverse effect on Atari and its subsidiaries, taken as a whole, or upon the     
occurrence of certain other events, or (d) by Atari or JTS if (i) the closing of
the Merger does not occur by July 31, 1996, (ii) there should be a final        
nonappealable order of federal or state court preventing consummation of the    
Merger, (iii) the JTS or Atari stockholders do not approve the Merger at their  
respective stockholders' meetings, or (iv) the Atari Board of Directors shall   
have accepted, approved or recommended to the Atari stockholders a superior     
acquisition proposal. In addition, the Merger Agreement may be amended by the   
mutual consent of the parties at any time prior to the Effective Time, whether  
or not the Merger has been approved by the stockholders of Atari or JTS but,    
after any such approval, no amendment will be made which by law requires further
approval by such stockholders without such further approval. See "The Proposed  
Merger and Related Transactions -- Summary of the Merger Agreement --           
Termination, Amendment and Waiver."                                             

     Availability of Appraisal and Dissenters' Rights.  Under Section 262 of the
Delaware General Corporation Law ("DGCL"), a copy of which is attached hereto as
Appendix D-1, and Chapter 13 of the California General Corporation Law ("CGCL"),
a copy of which is attached hereto as Appendix D-2, stockholders of JTS may,    
under certain circumstances and by following prescribed statutory procedures,   
have the right to seek appraisal of the "fair value" of such stockholders'      
shares. The failure of a stockholder choosing to execute such right to follow   
such procedures may result in termination or waiver of appraisal and dissenters'
rights. See "The Proposed Merger and Related Transactions -- Appraisal and      
Dissenters' Rights." The obligation of Atari to consummate the Merger is subject
to the condition that the holders of not more than 5% of the JTS capital stock  
entitled to vote at the JTS Special Meeting shall have asserted and not         
effectively withdrawn or lost the right to obtain the fair value of such        
holders' shares pursuant to the applicable provisions of the DGCL and CGCL.     

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The stockholders of Atari are not entitled to statutory appraisal or  
dissenters' rights pursuant to the applicable provisions of the Nevada General  
Corporation Law ("NGCL").                                                       

     Resale of JTS Common Stock.  The shares of JTS Common Stock to be issued to
former holders of Atari Common Stock in the Merger have been registered under   
the Securities Act of 1933, as amended (the "Securities Act"), by a Registration
Statement on Form S-4, of which this Joint Proxy Statement/Prospectus is a part,
thereby allowing such shares of JTS Common Stock to be traded without           
restriction under the Securities Act by all such holders not deemed to be       
"affiliates" (as such term is defined for purposes of Rule 145 promulgated under
the Securities Act) of Atari prior to the consummation of the Merger. See "The  
Proposed Merger and Related Transactions -- Certain Other Items Related to the  
Merger -- Resale of JTS Common Stock."                                          

Certain Federal Income Tax Considerations.  The obligations of each of
Atari and JTS to consummate the Merger are conditioned upon receipt of opinions 
from their respective legal counsel that the Merger will qualify as a           
reorganization for federal income tax purposes under Section 368(a) of the Code 
and that, accordingly, no gain or loss ordinarily will be recognized by JTS or  
Atari nor by Atari stockholders upon their receipt of shares of JTS Common Stock
in exchange for their shares of Atari Common Stock, except to the extent of cash
received for fractional shares, if any. Such legal opinions will be subject to  
certain limitations and qualifications and will be based upon certain factual   
assumptions and representations. Furthermore, such opinions will not be binding 
on the Internal Revenue Service. In view of the complexities of federal income  
and other tax laws, each Atari and JTS stockholder should consult with their own
tax advisors as to the specific tax consequences of the Merger, including the   
applicable federal, state, local and foreign tax consequences to them of the    
Merger in their specific circumstances.                                         

     Accounting Treatment.  For accounting purposes, the Merger is treated as if
Atari acquired JTS. A new basis of accounting will be established for the assets
and liabilities of JTS. The new basis reflects the allocation of the purchase   
price to the JTS assets and liabilities on the basis of their fair values at the
time the proposed transaction was announced. The aggregate purchase price to be 
allocated includes the outstanding common stock of JTS, valued using $2.50 per  
share which is the representative value of the Atari Common Stock at the time   
the proposed transaction was announced, as well as the value of JTS options and 
warrants and direct costs of the acquisition. Subsequent to the Merger, the     
financial statements of the Combined Company will reflect the combined financial
position, results of operations and cash flows of Atari and JTS based on the new
basis of accounting for JTS and the historic cost basis of Atari. Pro forma     
combined condensed financial statements are presented herein giving effect to   
the Merger as if the transaction occurred, for purposes of the pro forma        
combined financial position of the Combined Company, on March 31, 1996, and for 
purposes of the pro forma combined results of operations of the Combined        
Company, on the first day of each of the periods presented. The allocation of   
the purchase price in the pro forma statements will be revised as updated       
information becomes available at the Effective Time. Under the purchase         
accounting method, giving effect to the Merger, existing technology and goodwill
in the amount of approximately $22.0 million and $11.7 million, respectively,   
are expected to be recognized by the Combined Company. It is anticipated that   
the Combined Company will amortize the resulting existing technology and        
goodwill over periods of three and seven years, respectively, which will have an
adverse effect on its results of operations. In addition, upon the consummation 
of the Merger, in the third quarter of calendar year 1996, the Combined Company 
expects to expense approximately $100.0 million of purchased in-process         
technology. See "Unaudited Pro Forma Combined Condensed Financial Statements."  

  Atari Loan to JTS.  In connection with the merger, on February 13, 1996,
Atari loaned $25.0 million to JTS pursuant to a Subordinated Secured Convertible
Promissory Note (the "Note") which is secured by substantially all of the assets
of JTS. Interest accrues on the unpaid principal amount of the Note at the rate 
of 8.5% per annum. The Note was amended in June 1996 to increase the amount lent
pursuant thereto to $30.0 million. The Note provides that JTS shall repay the   
outstanding principal and interest under the Note on September 30, 1996 if the  
Merger has not occurred prior to such time. In the event that the Merger        
Agreement is terminated, either party may, under certain conditions, elect to   
convert the outstanding indebtedness under the Note into shares of JTS Series A 
Preferred Stock. The Note is expressly subordinated                             

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to outstanding indebtedness in connection with JTS' primary bank loan agreement,
up to an amount of $5.0 million at any given time.                              

Related Transactions.  In connection with the Merger, the parties have
effected or will effect a number of related party transactions, including the   
grant of certain stock options by JTS. In addition, pursuant to the Voting      
Agreements, certain stockholders of Atari and JTS have agreed to vote the shares
of Atari Common Stock, JTS Common Stock and JTS Series A Preferred Stock held by
them for the approval of the Merger and the Merger Agreement. See "The Proposed 
Merger and Related Transactions -- Related Transactions."                       

 Interests of Certain Persons.  Certain members of the management of JTS
have certain interests in connection with the Merger that are in addition to the
interests of stockholders of JTS generally. See "The Proposed Merger and Related
Transactions -- Certain Other Items Related to the Merger -- Interests of       
Certain Persons in the Merger."                                                 

  Differences in Rights of Stockholders.  Upon consummation of the Merger,
stockholders of Atari will become stockholders of JTS. As a result, their rights
as stockholders, which are now governed by the NGCL and the Articles of         
Incorporation and Bylaws of Atari, will be governed by the DGCL and the         
Certificate of Incorporation and Bylaws of the Combined Company. Because of     
certain differences between the provisions of the NGCL and the Articles of      
Incorporation and Bylaws of Atari, on the one hand, and the DGCL and the        
Certificate of Incorporation and Bylaws of the Combined Company, on the other   
hand, the current rights of the stockholders of Atari will change after the     
Merger. See "Comparison of Rights of Stockholders of Atari and JTS."            

MARKET PRICE OF COMMON STOCK

Atari Common Stock is traded on the American Stock Exchange under the 
symbol "ATC." There is no public market for the JTS Common Stock or the JTS     
Series A Preferred Stock. The closing price per share of Atari Common Stock was 
$1 7/8 at February 12, 1996, the last day of trading before the announcement of 
the Merger, and $5.125 at July 11, 1996, the latest trading day before the      
filing of this Joint Proxy Statement/ Prospectus with the Commission.           

RISK FACTORS

   The consummation of the Merger and the Merger Agreement and an investment
in the shares of JTS Common Stock each involve a high degree of risk. Before    
voting on the Merger, stockholders of Atari and JTS should carefully consider   
the information set forth in "Risk Factors."                                    

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ATARI HISTORICAL SELECTED CONSOLIDATED FINANCIAL DATA 

     The following historical selected consolidated financial data of Atari have
been derived from the historical consolidated financial statements of Atari and 
should be read in conjunction with such consolidated financial statements and   
notes thereto, included elsewhere herein, with the exception of the Atari       
Consolidated Statement of Operations Data prior to fiscal 1993 and the Atari    
Consolidated Balance Sheet Data prior to December 31, 1994, which were derived  
from historical consolidated financial statements not included herein. The      
unaudited quarterly financial data reflects all adjustments (which include only 
normal, recurring adjustments), which are, in the opinion of management,        
necessary to state fairly the results for the periods presented. The results for
such periods are not necessarily indicative of the results to be expected for   
the full fiscal year.                                                           

                                                        [Enlarge/Download Table]

                                       QUARTER ENDED                                                           
                                         MARCH 31,                   FISCAL YEAR ENDED DECEMBER 31,            
                                    -------------------   ---------------------------------------------------- 
                                      1996       1995       1995       1994       1993       1992       1991   
                                    --------   --------   --------   --------   --------   --------   -------- 
                                                                                                               
Consolidated Statement of                                                                                      
  Operations Data:                                                                                             
  Total revenues................... $  1,272   $  4,874   $ 14,626   $ 38,748   $ 29,108   $127,340   $257,992 
  Cost of revenues.................    6,211      3,846     44,234     35,200     42,768    132,455    189,598 
  Research and development                                                                                     
    expenses.......................      201      1,815      5,410      5,775      4,876      9,171     15,333 
  Marketing and distribution                                                                                   
    expenses.......................      758      2,576     12,726     14,651      8,980     31,125     48,249 
  General and administrative                                                                                   
    expenses.......................    1,251      1,795      5,921      7,169      7,558     16,544     23,495 
  Restructuring charges............       --         --         --         --     12,425     17,053         -- 
  Operating loss...................   (7,149)    (5,158)   (53,665)   (24,047)   (47,499)   (79,008)   (18,683)
  Other income (expense), net(1)...    6,343        685      3,507     33,441     (1,631)    (4,145)    42,288 
  Income tax credit................       --         --         --         --        264        434         54 
  Income (loss) from continuing                                                                                
    operations.....................     (806)    (4,473)   (50,158)     9,394    (48,866)   (82,719)    23,659 
  Discontinued operations..........       --         --         --         --         --      9,000         -- 
  Income (loss) before                                                                                         
    extraordinary                                                                                              
    credit.........................     (806)    (4,473)   (50,158)     9,394    (48,866)   (73,719)    23,659 
  Extraordinary credit.............       --         47        582         --         --        104      1,960 
  Net income (loss)................     (806)    (4,426)   (49,576)     9,394    (48,866)   (73,615)    25,619 
Earnings (loss) per common share:                                                                              
  Income (loss) from continuing                                                                                
    operations.....................    (0.01)     (0.07)     (0.79)      0.16      (0.85)     (1.44)      0.41 
  Income (loss) before                                                                                         
    extraordinary                                                                                              
    credit.........................    (0.01)     (0.07)     (0.79)      0.16      (0.85)     (1.29)      0.41 
  Net income (loss)................    (0.01)     (0.07)     (0.78)      0.16      (0.85)     (1.28)      0.44 

                                                        [Enlarge/Download Table]

                                                                        DECEMBER 31,                      
                                       MARCH 31,  --------------------------------------------------------
                                         1996       1995        1994        1993        1992        1991  
                                       ---------  --------    --------    --------    --------    --------
                                                                                                          
Consolidated Balance Sheet Data:                                                                          
  Current assets......................  $ 55,976  $ 65,126    $113,188    $ 51,388    $109,551    $239,296
  Working capital.....................    47,200    55,084      92,670      33,896      75,563     159,831
  Total assets........................    68,406    77,569     131,042      74,833     138,508     253,486
  Current liabilities.................     8,776    10,042      20,518      17,492      33,988      79,465
  Long-term obligations...............    42,354    42,354      43,454      52,987      53,937      48,492
  Shareholders' equity................    17,276    25,173      67,070       4,354      50,583     125,529

---------------                                                                 

(1) Includes a gain from the sale of marketable securities of $6.3 million in   
   1996, a gain from the settlement of patent litigation of $32.1 million in
   1994 and a gain from the sale of a Taiwan manufacturing facility of $40.9
million in 1991.                                                      

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JTS AND MODULER ELECTRONICS UNAUDITED SELECTED FINANCIAL DATA 

   The following unaudited selected pro forma combined financial data of JTS
and Moduler Electronics presents the pro forma combined financial position and  
results of operations of JTS and Moduler Electronics as of and for the year     
ended January 28, 1996 and for the three months ended April 28, 1996 and April  
30, 1995. These unaudited selected pro forma financial data combine JTS and     
Moduler Electronics giving effect to the JTS and Moduler Electronics            
combination, which was accounted for as a purchase. The April 28, 1996 balance  
sheet reflects the acquisition of Moduler Electronics which took place on April 
4, 1996. Intercompany balances and transactions have been eliminated in the     
presentation. This financial data should be read in conjunction with the        
Unaudited Pro Forma Condensed Combined Financial Statements and related notes   
and the historical financial statements and related notes of JTS and Moduler    
Electronics which are included elsewhere herein. All amounts are stated in      
thousands, except per share amounts.                                            

                                                                [Download Table]
                                                                                
Statement of Operations Data:                                                   
Year Ended January 28, 1996 (Pro forma) --                                      
  Net revenues........................................................ $ 18,777 
  Gross margin (deficit)..............................................  (14,849)
  Research and development............................................   13,375 
  Selling, general and administrative expenses........................    5,777 
  Operating loss......................................................  (34,001)
  Net loss............................................................  (35,170)
  Loss per common share(1)............................................    (7.63)

                                                        [Enlarge/Download Table]

                                                                   THREE MONTHS ENDED       
                                                             -------------------------------
                                                             APRIL 28, 1996   APRIL 30, 1995
                                                                                            
Quarters ended April 28, 1996 and April 30, 1995 (Pro                                       
  forma) --                                                                                 
Total revenues..............................................    $ 17,581          $2,077    
Operating loss..............................................     (12,098)         (1,203)   
Net loss....................................................     (12,820)         (1,143)   
Net loss per share(1).......................................       (1.47)           (.26)   

                                                        [Enlarge/Download Table]

                                                           APRIL 28, 1996  JANUARY 28, 1996
                                                              (ACTUAL)       (PRO FORMA)   
                                                           --------------  ----------------
                                                                                           
Balance Sheet Data:                                                                        
  Current assets..........................................    $ 30,474         $ 12,722    
  Equipment and leasehold improvements, net...............      16,212           14,795    
  Total assets............................................      46,871           28,111    
  Current liabilities.....................................      61,669           30,615    
  Long-term debt..........................................       6,381            6,248    
  Redeemable Series A Preferred Stock.....................      29,697           29,696    
  Stockholders' deficit...................................     (50,876)         (38,448)   

---------------                                                                 

(1) Excludes JTS Series A Preferred Stock, warrants and options as their effect 
would be antidilutive.                                                  

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ATARI AND JTS UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA

  The following table sets forth the unaudited selected pro forma combined
financial data for the periods and as of the date indicated which are derived   
from the Unaudited Pro Forma Combined Condensed Financial Statements (the "Pro  
Forma Financial Statements") which present the pro forma combined condensed     
financial position and results of operations of Atari and JTS. The unaudited pro
forma condensed combined balance sheet has been prepared as if the Merger, which
will be accounted for as a purchase of JTS by Atari, was consummated as of March
31, 1996. The unaudited pro forma condensed combined statements of operations   
give effect to the Merger as if the acquisition were completed at the beginning 
of the periods presented. The Pro Forma Financial Statements combine the        
historical results of operations of Atari for the year ended December 31, 1995  
with the JTS and Moduler Electronics unaudited pro forma combined results of    
operations for the year ended January 28, 1996 and the historical financial     
position and results of operations of Atari as of and for the quarter ended     
March 31, 1996 with the historical financial position and results of operations 
of JTS as of and for the quarter ended April 28, 1996.                          

  The unaudited selected pro forma combined financial data is provided for
illustrative purposes only and is not necessarily indicative of the combined    
financial position or combined results of operations that would have been       
reported had the Merger occurred on the dates indicated, nor do they represent a
forecast of the combined financial position or results of operations for any    
future period. No pro forma adjustments have been included herein which reflect 
potential effects of (a) efficiencies which may be obtained by combining Atari  
and JTS operations or (b) costs of restructuring, integrating or consolidating  
their operations. The unaudited selected pro forma combined financial data      
should be read in conjunction with the Pro Forma Financial Statements and       
related notes, and the historical financial statements and related notes of     
Atari and JTS which are included elsewhere herein. All amounts are stated in    
thousands, except for per share amounts.                                        

                                                        [Enlarge/Download Table]

                                                                 QUARTER ENDED   FISCAL YEAR ENDED
                                                                 MARCH 31, 1996  DECEMBER 31, 1995
                                                                 --------------  -----------------
                                                                                                  
Pro Forma Combined Statement of Operations Data:                                                  
  Net revenues..................................................    $ 18,853          $33,403     
  Cost of revenues..............................................      27,725           86,177     
  Selling, marketing, general and administrative expenses.......       5,530           26,097     
  Research and development expenses.............................       7,607           18,785     
  Operating loss................................................     (22,009)         (97,656)    
  Net loss before extraordinary credit..........................     (22,506)         (95,318)    
  Loss per common share before extraordinary credit.............       (0.22)           (0.92)    

                                                                [Download Table]

                                                                 MARCH 31, 1996  
                                                                 --------------  
                                                                                 
Pro Forma Combined Balance Sheet Data:                                           
  Current assets................................................    $ 61,450     
  Working capital...............................................      14,805     
  Total assets..................................................     126,756     
  Current liabilities...........................................      46,645     
  Long-term debt................................................      48,735     
  Stockholders' equity..........................................      31,376     

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COMPARATIVE PER SHARE DATA

   The following table sets forth certain historical per share data of Atari
and pro forma combined per share data giving effect to the JTS and Moduler      
Electronics combination and the Atari and JTS Merger as if the combination and  
Merger were effective January 1, 1995 for the loss per common share data for the
year ended December 31, 1995 and January 1, 1996 for the loss per common share  
data for the quarter ended March 31, 1996, and March 31, 1996 for book value per
common share data using the purchase method of accounting. The pro forma        
combined per share data are derived from financial information in the Pro Forma 
Financial Statements. The pro forma data are not necessarily indicative of      
amounts which would have been achieved had the Merger been consummated at the   
beginning of the period presented and should not be construed as representative 
of future operations. This data should be read in conjunction with the Pro Forma
Financial Statements and notes thereto included elsewhere herein, and the       
separate historical financial statements and notes thereto of Atari, JTS and    
Moduler Electronics, also included elsewhere herein.                            

                                                        [Enlarge/Download Table]

                                                                                     PRO FORMA   
                                                                     PRO FORMA        COMBINED   
                                                                      COMBINED         ATARI,    
                                                                      JTS AND         JTS AND    
                                                         ATARI        MODULER         MODULER    
                                                       HISTORICAL  ELECTRONICS(1)  ELECTRONICS(2)
                                                       ----------  --------------  --------------
                                                                                                 
Loss per common share before extraordinary credit for                                            
  the year ended December 31, 1995...................    $(0.79)       $(7.63)         $(0.92)   
Loss per common share for the quarter ended March 31,                                            
  1996...............................................    $(0.01)       $(1.47)         $(0.22)   
Book value per common share at March 31, 1996........    $ 0.27        $(5.40)         $ 0.30    
Tangible book value per common share at                                                          
  March 31, 1996.....................................    $ 0.26        $(5.42)         $(0.03)   

---------------                                                                 

(1) For purposes of this table, the period presented for the unaudited pro forma
  combined net loss per share of JTS and Moduler Electronics is the fiscal
  year ended January 28, 1996 and the quarter ended April 28, 1996 and the
     book values are as of April 28, 1996. Outstanding JTS options, warrants and
JTS Series A Preferred Stock are excluded as their effect would be    
antidilutive.                                                         

(2) The unaudited pro forma combined per share data assumes conversion of all   
JTS Series A Preferred Stock outstanding into JTS Common Stock at the 
effective date.                                                       

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RISK FACTORS

The following factors should be considered carefully in evaluating the
proposals to be voted on at the Atari Special Meeting and the JTS Special       
Meeting. For periods following the Merger, references to the products, business,
results of operations or financial condition of JTS should be considered to     
refer to JTS and Atari, unless the context otherwise requires.                  

RISK FACTORS RELATED TO THE BUSINESS OF ATARI                                   

Significant Operating Losses; Disappointing Sales of Jaguar           
Products.  Atari has incurred significant operating losses for the past five    
fiscal years. Most recently, Atari incurred an operating loss of $53.7 million  
for fiscal 1995 and $24.0 million for fiscal 1994. Over the past several years, 
Atari has undergone significant change. In 1992 and 1993, Atari significantly   
downsized its operations, decided to exit the computer products business and    
focused its efforts on its video game business. While restructuring, Atari      
developed its 64-bit Jaguar interactive multimedia entertainment system, which  
was introduced in the fourth quarter of 1993. For 1995 and 1994, net sales of   
Jaguar and related software and accessories were $9.9 million and $29.3 million,
respectively, and were substantially below Atari's expectations. Atari          
attributes the poor performance of Jaguar products to a number of factors       
including (i) extensive delays in development of software for Jaguar which      
resulted in reduced orders due to consumer concern as to when titles for the    
platform would be released and how many titles would ultimately be available,   
and (ii) the introduction of competing products by Sega Enterprises, Ltd.       
("Sega") and Sony Corporation ("Sony") in May 1995 and September 1995,          
respectively. Due to disappointing sales and competitive pricing pressures,     
Atari reduced the suggested retail price of the Jaguar console from its original
price of $249.99 to its current price of $99.99. As a result of Jaguar price    
reductions, the substantial curtailment of sales and marketing activities for   
the Jaguar and the substantial curtailment of efforts by Atari and independent  
software developers to develop additional software titles for the Jaguar, Atari 
expects sales of Jaguar and related products to decline substantially in 1996   
and thereafter.                                                                 

 The failure of Jaguar to achieve commercial acceptance has had a severe
financial impact on Atari. In this regard, Atari reported a net loss of $49.6   
million for 1995 compared to net income of $9.4 million in 1994, and Atari's net
revenues declined from $38.7 million in 1994 to $14.6 million in 1995.          
Accelerated amortization and write-offs of software development costs in the    
amount of $16.6 million and inventory write-downs of $12.6 million contributed  
significantly to the 1995 loss. The net loss for the first quarter of 1996 was  
$800,000 compared to a net loss of $4.4 million for the first quarter of 1995   
and Atari's net revenues declined from $4.9 million for the first quarter of    
1995 to $1.3 million for the comparable period in 1996. The net loss in the     
first quarter of 1996 was impacted by the $6.3 million gain from sale of        
marketable securities offset by a $5.0 million inventory write-down in the      
quarter. In response to these losses, the number of employees at Atari was      
reduced from 101 at December 31, 1994 to 73 at December 31, 1995 and to 31 at   
March 31, 1996. In addition to reductions in the Atari workforce, this          
downsizing resulted in significant curtailment of research and development and  
sales and marketing activities for Jaguar and related products. Accordingly,    
Atari has decided to focus its efforts on selling its inventory of Jaguar and   
related products and to emphasize its existing licensing and development        
activities related to multimedia entertainment software for various platforms.  
See "Information Regarding Atari Corporation -- Business of Atari."             

    Risk of Additional Inventory Write-Downs.  From the introduction of Jaguar
in late 1993 through May 1996, Atari sold approximately 135,000 units of Jaguar.
As of December 31, 1995, Atari had approximately 100,000 units of Jaguar in     
inventory and the value of Jaguar inventory and related software was            
approximately $9.9 million. Due to disappointing sales of Jaguar and increased  
competition from products introduced by Sega and Sony, Atari reduced the        
suggested retail price of Jaguar to $99.99 and recorded an inventory write-down 
of $12.6 million in 1995. Despite the introduction of four additional game      
titles in the first quarter of 1996, sales of Jaguar and related software have  
remained disappointing due to uncertainty about Atari's commitment to the Jaguar
platform, increased price competition and pending competitive product           
introductions. As a result of continued disappointing sales, management revised 
estimates and wrote-down inventory by an additional $5.0 million in the first   
quarter of 1996. As of the end of May 1996, Atari had approximately 90,000 units
of Jaguar in inventory.                                                         

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Volume sales of Jaguar and related software in 1996 have consisted    
primarily of a large order from a new European customer. Atari is also pursuing 
wholesale sales channels in the U.S. as well as licensing opportunities. There  
can be no assurance that Atari's substantial unsold inventory of Jaguar and     
related software can be sold at current or reduced prices, if at all. In        
addition, any further decrease in the value of such inventory could result in   
additional inventory write-downs by Atari.                                      

 Risk of Potential Liabilities.  In connection with the restructuring of
Atari's business in 1992 and 1993 and Atari's decision in late 1995 to          
significantly downsize its Jaguar operations, Atari has terminated and plans to 
terminate numerous contracts and business relationships, including several      
related to software development activities. Although Atari does not regard such 
contracts or business relationships, either individually or in the aggregate, as
material, the termination of contracts and relationships has, from time to time,
resulted in litigation, diverting management and financial resources. There can 
be no assurance that the parties to such contracts will not commence or threaten
to commence litigation related to such contracts. Any such litigation or        
threatened litigation would further divert management and financial resources   
and could have a material adverse effect on Atari's business, operating results 
and financial condition. In addition, Atari holds several properties for sale,  
some of which are currently being leased. The ownership and use of such         
properties subjects Atari to numerous risks, including risks of environmental   
and personal injury liabilities. Although Atari is attempting to sell certain of
such properties, such sales are not expected to eliminate all the risks         
associated with Atari's ownership of such properties, including potential       
environmental liabilities and ongoing indemnification and other contractual     
obligations. At present, Atari has no such indemnification obligations and is   
not aware of any such environmental liability.                                  

 Intellectual Property.  Atari has exclusive use of its "Atari" name and
"Fuji" logo in all areas other than coin-operated arcade video game use. Atari  
also has a portfolio of other intellectual properties including patents,        
trademarks, and copyrights associated with its video game and computer          
businesses. Atari believes its patents, trademarks and other intellectual       
property are important assets. As of May 31, 1996, Atari held over 150 patents  
in the United States and other jurisdictions which expire from 1996 to 2010 and 
had applications pending for three additional patents. There can be no assurance
that any of these patent rights will be upheld in the future or that Atari will 
be able to preserve any of its other intellectual property rights. Atari has in 
the past received communications from third parties asserting rights to certain 
of its intellectual property. Atari has also been involved in several major     
lawsuits regarding its intellectual property, including a suit with Nintendo of 
America, Inc. and its affiliates ("Nintendo.") which was settled in March 1994  
and a suit with Sega which was settled in September 1994. In the event any third
party were to make a valid claim with respect to Atari's intellectual property  
and a license were not available on commercially reasonable terms, Atari's      
business, financial condition and results of operations would be materially and 
adversely affected. Litigation, which has in the past resulted and could in the 
future result in substantial costs and diversion of resources, may also be      
necessary to enforce Atari's patents or other intellectual property rights or to
defend against third party infringement claims. The occurrence of litigation    
relating to patent infringement or other intellectual property matters,         
regardless of the outcome, could have a material adverse effect on Atari's      
business, financial condition and results of operations.                        

   Competition.  The video game business is intensely competitive. Since its
introduction in late 1993, the Jaguar, Atari's principal product, has failed to 
achieve broad market acceptance. Atari does not expect that the Jaguar, even at 
its substantially reduced price, will ever become a broadly accepted video game 
console, or that Jaguar technology will be broadly adopted by software title    
developers. The video game industry is also characterized by unpredictable and  
rapid shifts in the popularity of certain platforms, by severe price            
competition, and by frequent new technology and product introductions. In this  
regard, numerous companies have introduced or have developed and are expected to
introduce video game consoles that are or may become competitive with Jaguar. In
addition, an increasing number of entertainment titles are being developed for  
or ported to the PC platform. Most of Atari's competitors have greater          
experience and expertise in 3D graphics and multimedia technology and have      
substantially greater engineering, marketing and financial resources than Atari.

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    Risks of Bridge Loan to JTS.  In February 1996, Atari loaned $25.0 million
to JTS in connection with the Merger, and in June 1996 the loan amount was      
increased to $30.0 million. The loan is due to be repaid by JTS in September    
1996 and is secured by substantially all of the assets of JTS. Atari's security 
interest in such assets is junior to existing security interests in favor of a  
bank and certain equipment lessors. In the event the Merger is not consummated, 
there can be no assurance that Atari's security interest in such assets will    
adequately protect Atari in the event JTS is unable to repay the loan. In       
addition, the loan is convertible into shares of JTS Series A Preferred Stock at
the option of Atari or JTS upon the occurrence of certain conditions, including 
a breach of the Merger Agreement by the other party. In the event such          
conversion occurs, Atari would hold a significant percentage of JTS' outstanding
equity securities and would be subject to the numerous risks associated with    
JTS' business. There can be no assurance that such securities would be freely   
tradeable at the time of conversion, if ever. See "Risk Factors Related to the  
Business of JTS."                                                               

    Reduction in Voting Control; Loss of Management Control.  Upon the closing
of the Merger, the stockholders of JTS prior to the Merger will own             
approximately 38% of the outstanding voting securities of the Combined Company  
(assuming no exercise of options or warrants after June 28, 1996). In addition, 
it is anticipated that the executive officers of JTS prior to the Merger will   
continue to serve as executive officers of the Combined Company and that none of
the executive officers of Atari prior to the Merger will serve as executive     
officers of the Combined Company. Further, the Board of Directors of the        
Combined Company will include five current JTS directors and two current Atari  
directors. The current JTS officers and directors and their affiliates will own 
approximately 23% of the outstanding voting securities of the Combined Company  
(assuming no exercise of options or warrants after June 28, 1996). As a result, 
such stockholders, acting together, could exert significant influence over      
matters requiring approval of the stockholders of the Combined Company. Such    
matters include the election of the members of the Combined Company's Board of  
Directors, proxy contests, mergers involving the Combined Company, tender offers
or other transactions that could afford stockholders of the Combined Company the
opportunity to realize a premium over the then prevailing market price of the   
Common Stock of the Combined Company.                                           

RISK FACTORS RELATED TO THE BUSINESS OF JTS                                     

 Limited Operating History; History of Operating Losses; Working Capital
Deficit; Independent Accountants' Report with Explanatory Paragraph.  JTS was   
incorporated in February 1994 and did not commence production of hard disk      
drives until October 1995. JTS experienced operating losses for its fiscal years
ended January 29, 1995 and January 28, 1996 of $5.2 million and $31.6 million,  
respectively, which resulted from the substantial costs associated with the     
design, development and marketing of new products, the establishment of         
manufacturing operations and the development of a supplier base. At January 28, 
1996, JTS had a working capital deficit of $15.2 million and a negative net     
worth of $38.6 million. JTS has yet to generate significant revenues and cannot 
assure that any level of future revenues will be attained or that JTS will      
achieve or maintain successful operations in the future. Such factors have      
raised substantial doubt about the ability of JTS to continue its operations    
without achieving successful future operations or obtaining financing to meet   
its working capital needs, neither of which can be assured. The report of       
independent public accountants on JTS' financial statements includes an         
explanatory paragraph describing uncertainties concerning the ability of JTS to 
continue as a going concern. See "Notes to JTS Financial Statements."           

Need For Additional Financing; Current Financing Plans.  The hard disk
drive business is extremely capital intensive, and JTS anticipates that it will 
need significant additional financing resources in the near term for facilities 
expansion, capital expenditures, working capital, research and development and  
vendor tooling. In this regard, JTS has held discussions with investment banking
firms regarding the possibility of raising additional capital through the       
issuance of debt or equity securities. In June 1996, JTS retained an investment 
banking firm to advise JTS with respect to the private issuance of between      
$50-100 million of 10-year debt securities convertible into JTS Common Stock,   
although the terms of such financing have not been established and the marketing
effort for such financing has not yet commenced. Recent comparable transactions 
were priced to yield between 5.5-6.5% annually and included conversion premiums 
over the market prices of the Common Stock of between 20-25%. JTS intends for   
such financing to close as soon as practicable after the closing of the Merger, 
and the terms of the debt securities and the amount of the                      

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securities offered will not be determined until the closing of the financing, if
any. There can be no assurance that JTS will be able to consummate such         
financing on terms acceptable to JTS or at all. As a result, the pro forma      
financial statements included in this Joint Proxy Statement/Prospectus do not   
reflect such transactions. The issuance of equity or convertible debt           
securities, upon conversion, would result in dilution of the voting control of  
existing stockholders, could result in dilution to earnings per share and would 
provide to the holders of convertible debt securities seniority over the holders
of JTS Common Stock issued in the Merger. There can be no assurance that        
additional funding will be available on terms acceptable to JTS or at all. The  
failure to fund its capital requirements with additional financing would have a 
material adverse effect on JTS' business, operating results and financial       
condition. Furthermore, certain equipment and receivables financing as well as  
term loans made to JTS and Moduler Electronics are contingent on JTS' ability to
comply with stringent financial covenants. In this regard, Moduler Electronics  
did not obtain certain debt and equity capital required under one of its loan   
agreements. JTS has informed the lender that it intends to provide such capital 
by August 1996. In addition, certain of Moduler Electronics' loan agreements    
require the lender's consent to mergers and similar transactions, which could be
interpreted to require the consent of the lending institution to the acquisition
of 90% of the capital stock of Moduler Electronics by JTS. Such consents were   
not obtained, but the lending institution has continued to transact business    
with Moduler Electronics and JTS since JTS' share acquisition in Moduler        
Electronics. JTS believes that such matters regarding the Moduler Electronics   
loan agreements will not have a material adverse effect on JTS' business,       
operating results or financial condition. There can be no assurance that JTS    
will be able to maintain its current financing facilities or obtain additional  
financing as needed on acceptable terms or at all. If JTS is unable to obtain   
sufficient capital, it would be required to curtail its facilities expansion,   
capital expenditures, working capital, research and development and vendor      
tooling expenditures, which would materially adversely affect JTS' business,    
operating results and financial condition. See "Information Regarding JTS       
Corporation -- Management's Discussion and Analysis of Financial Condition and  
Results of Operations of JTS -- Liquidity and Capital Resources."               

     Uncertainty of Market Acceptance; Lengthy Sales Cycle.  Since its inception
in February 1994, JTS has primarily engaged in research and development of its  
core technology for hard disk drives. JTS' marketing strategy depends           
significantly on its ability to establish distribution, licensing, product      
development and other strategic relationships with major computer OEMs and on   
the willingness and ability of these companies to utilize and to promote JTS'   
hard disk drive technology and products. JTS' first commercial product line, the
Palladium family of hard disk drives, was introduced in September 1995 and is   
targeted at the desktop personal computer market. JTS' second product line, the 
Nordic family of hard disk drives, has been designed for notebook computers. See
"Information Regarding JTS Corporation -- Business of JTS -- Products." There   
can be no assurance that any significant market for either product family will  
develop. In particular, the Nordic drives use a 3-inch form factor, which JTS   
has only recently introduced to the industry. At present, only a limited number 
of computer manufacturers are developing or have plans to develop computers that
may accommodate Nordic drives. If additional computer manufacturers do not      
modify their existing products or develop new products to accommodate 3-inch    
form factor disk drives, sales of Nordic disk drives and, hence, JTS' business, 
operating results and financial condition would be materially adversely         
affected.                                                                       

   Qualifying hard disk drives for incorporation into a new computer product
requires JTS to work extensively with the customer and the customer's other     
suppliers to meet product specifications. Customers often require a significant 
number of product presentations and demonstrations, as well as substantial      
interaction with JTS' senior management, before making a purchasing decision.   
Accordingly, JTS' products typically have a lengthy sales cycle during which JTS
may expend substantial financial resources and management time and effort with  
no assurance that a sale will result.                                           

Highly Competitive Market.  The hard disk drive industry is intensely 
competitive and dominated by a small number of large companies, including       
Quantum Corporation ("Quantum"), Seagate Technology, Inc. ("Seagate"), Western  
Digital Corporation ("Western Digital") and Maxtor Corporation ("Maxtor"). In   
addition, a number of computer companies, such as Hewlett-Packard Co.           
("Hewlett-Packard"), International Business Machines, Inc. ("IBM") and Toshiba  
Corporation ("Toshiba"), have in-house or "captive" disk drive manufacturing    
operations that produce disk drives for incorporation into their own computers  
as well as                                                                      

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for sale to other OEMs. Many of JTS' competitors have broader product lines than
JTS, and all have significantly greater financial, technical and marketing      
resources. Furthermore, JTS has licensed key 3-inch form factor technology to   
Western Digital, a potential competitor in the personal computer disk drive     
market that could become a significant supplier of 3-inch form factor disk      
drives to Compaq and other OEMs. See "Information Regarding JTS                 
Corporation -- Business of JTS -- Western Digital Arrangement." There can be no 
assurance that JTS will develop and manufacture products on a timely basis with 
the quality and features necessary to compete effectively. High volume hard disk
drive users typically will only utilize from two to four suppliers. As a result,
it may be necessary for JTS to displace competitors in many circumstances to    
increase its net sales. In addition, JTS faces competition from the             
manufacturing operations of its current and potential OEM customers, which could
initiate or increase internal production of hard disk drives and reduce or cease
purchasing from independent hard disk drive suppliers such as JTS. Moreover, the
hard disk drive industry is characterized by price erosion and resulting        
pressure on gross margins. JTS expects that hard disk drive prices will continue
to decline in the future and that competitors will offer products which meet or 
exceed the performance capabilities of JTS products. Due to such pricing        
pressures, JTS' future gross margins will be substantially dependent upon its   
ability to control manufacturing costs, improve manufacturing yields and        
introduce new products on a timely basis. Any increase in price competition     
would have a material adverse effect on JTS' business, operating results and    
financial condition. JTS may also experience competition from other forms of    
data storage, including optical storage, flash memory and holographic storage.  
If JTS' current and prospective customers and end users were to adopt such data 
storage products as an alternative to JTS' products, JTS' business, operating   
results and financial condition would be adversely affected. See "Information   
Regarding JTS Corporation -- Business of JTS -- Competition."                   

    Rapid Technological Change; Short Product Life Cycles; Price Erosion.  The
hard disk drive industry is characterized by rapid technological change, short  
product life cycles and price erosion. As a result, JTS must continually        
anticipate change and adapt its products to meet demand for increased storage   
capacity. Although JTS intends to engage in a continuous process of developing  
new products and production techniques, there can be no assurance that JTS will 
anticipate advances in hard disk drive technology and develop products          
incorporating such advances in a timely manner to compete effectively against   
its competitors' new products. Due to the rapid technological change and        
frequent development of new hard disk drive products, it is common in the       
industry for the relative mix of customers and products to change rapidly, even 
from quarter to quarter. For example, in the first half of 1996, the demand for 
1 gigabyte 3.5-inch form factor hard disk drives decreased dramatically due to  
increased availability of and demand for larger capacity disk drives. As a      
result, pricing pressure on such disk drives, including those marketed by JTS,  
increased and gross margins decreased. Generally, new products have higher      
average selling prices than more mature products. Therefore, JTS' ability to    
introduce new products in a timely fashion is an important factor in achieving  
growth and profitability. In addition, JTS anticipates continued changes in the 
requirements of its customers in the computer industry. There can be no         
assurance that JTS will be able to develop, manufacture and sell products that  
respond adequately to such changes or that future technological innovations will
not reduce demand for hard disk drives. JTS' business, operating results and    
financial condition would be materially adversely affected if its development   
efforts are not successful, if the technologies that JTS has chosen not to      
develop prove to be competitive alternatives or by trends toward technology that
would replace hard disk drives as a storage medium, such as optical storage,    
flash memory and holographic storage. As JTS increases its production and       
shipment of hard disk drives and expands its product line, JTS' inventory levels
will increase. Due to the rapid rate of change in JTS' business, a large        
inventory poses the risk of inventory obsolescence which could have an adverse  
effect on JTS' business, operating results and financial condition. In this     
regard, JTS anticipates incurring future inventory allowances, the level of     
which will depend upon a number of factors, including manufacturing yields, new 
product introductions, maturity or obsolescence of product designs, inventory   
levels and competitive pressures.                                               

Recent Significant Appreciation in Price of Atari Common Stock.  The  
closing price per share of Atari Common Stock was $1.875 at February 12, 1996,  
the last day of trading before announcement of the agreement between JTS and    
Atari to merge the two companies. The price of Atari Common Stock has           
appreciated significantly since then, notwithstanding the absence of any        
significant publicly available information regarding the financial results or   
business operations of JTS or the Combined Company and the absence of any       
material positive developments in the financial results or business operations  
of Atari. See                                                                   

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"Price Range of Common Stock." There can be no assurance that the recent price  
appreciation of Atari Common Stock is indicative of the price that will prevail 
for the JTS Common Stock following completion of the Merger.                    

 Availability of Components and Materials; Dependence on Suppliers.  JTS
relies on a limited number of suppliers for many components and materials used  
in its manufacturing processes, including recording disks, head stack components
and integrated circuits. At present, JTS does not have multiple suppliers for   
all of its materials and component requirements, and there can be no assurance  
that JTS will secure more than one source for all of its requirements in the    
future or that its suppliers will be able to meet its requirements on a timely  
basis or on acceptable terms. Furthermore, JTS does not have contractual        
arrangements with any of its sole source suppliers. In particular, JTS presently
relies on sole source suppliers for controller application specific integrated  
circuits ("ASICs"), spindle motors, certain head stack components and disk      
media. Delays in the receipt of certain components and materials have occurred  
in the past, and there can be no assurance that delays will not occur in the    
future or that suppliers will not extend lead times. Moreover, changing         
suppliers for certain materials, such as spindle motors, could require          
requalification of JTS' products with some or all of its customers.             
Requalification could prevent early design-in wins or could prevent or delay    
continued participation in hard disk drive programs for which JTS' products have
been qualified. In addition, long lead times are required to obtain many        
materials, such as integrated circuits utilized in JTS' printed circuit board   
assemblies ("PCBAs"). Regardless of whether these materials are available from  
established or new sources of supply, these lead times could impede JTS' ability
to quickly respond to changes in demand and product requirements. Any           
limitations on, or delays in, the supply of materials could disrupt JTS'        
production volume and could have a material adverse effect on JTS' business,    
operating results and financial condition. In this regard, in the fourth quarter
of fiscal 1996, JTS experienced delays in obtaining certain integrated circuits 
required in the assembly of PCBAs due to the supplier's production problems,    
which resulted in a significant reduction in production volume during such      
period. Such production problems were corrected, but there can be no assurance  
that production problems of this type or otherwise will not occur again in the  
future. Furthermore, a significant increase in the price of one or more of these
components or materials could adversely affect JTS' business, operating results 
and financial condition. In addition, there are only a limited number of        
providers of hard disk drive manufacturing equipment, such as servo-writers,    
burn-in equipment and final test equipment, and ordering additional equipment   
for replacement or expansion involves long lead times, which limit the rate and 
flexibility of capacity expansion. Failure to obtain such manufacturing         
equipment on a timely basis could limit JTS' production of hard disk drives and 
adversely affect JTS' business, operating results and financial condition. See  
"Information Regarding JTS Corporation -- Business of JTS -- Manufacturing."    

     Cyclical Nature of Hard Disk Drive and Computer Industries.  JTS' operating
results are dependent on the demand for hard disk drives, which in turn depends 
on the demand for notebook and desktop personal computers. The hard disk drive  
industry is cyclical and has experienced periods of oversupply, resulting in    
significantly reduced demand for hard disk drives, as well as pricing pressures 
and reduced production levels. The effect of these cycles has been magnified by 
computer manufacturers' practice of ordering components, including hard disk    
drives, in excess of their needs during periods of rapid growth. In recent      
years, the disk drive industry has experienced significant growth, and JTS      
intends to expand its capacity based on current and anticipated demand. There   
can be no assurance that such growth will continue or that the level of demand  
will not decline. A decline in demand for hard disk drives would have a material
adverse effect on JTS' business, operating results and financial condition.     
Additionally, in the past some computer manufacturers have experienced          
substantial financial difficulties due to the cyclical nature of the computer   
industry and other factors. In this regard, certain personal computer           
manufacturers have recently announced reductions in anticipated revenue growth. 
Any increased price pressure in the personal computer industry could be passed  
through to personal computer component suppliers, including manufacturers of    
hard disk drives.To date, JTS has not incurred significant bad debt expense.    
However, there can be no assurance that JTS will not face difficulty in         
collecting receivables or be required to offer more liberal payment terms in the
future, particularly in a period of reduced demand. Any failure to collect or   
delay in collecting receivables could have a material adverse effect on JTS'    
business, operating results and financial condition.                            

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   Dependence on Compaq Computer Relationship; Customer Concentration.  JTS'
strategy to commercialize its products and achieve market acceptance has focused
in large part on the development of distribution, licensing, product development
and other strategic relationships with leading computer companies, other        
manufacturers of computer peripherals and recognized distribution organizations.
Through these relationships, JTS seeks to establish its products and            
technologies as industry standards. In this regard, JTS has entered into a      
Development Agreement with Compaq Computer Corporation ("Compaq") pursuant to   
which Compaq has agreed to design JTS' Nordic disk drives into at least one of  
Compaq's products and to purchase a minimum number of hard disk drives from JTS 
within two years following Compaq's acceptance of the first of such products. In
return, JTS has granted to Compaq certain pricing preferences and agreed to pay 
royalties to Compaq on the sales of Nordic disk drives to third parties during  
the term of the agreement. Compaq has also been granted a license to use the    
Nordic designs to manufacture Nordic drives on a royalty-free basis in the event
that JTS fails to meet the agreed upon production schedule. The Development     
Agreement also restricts JTS' ability to sublicense Nordic technology. The      
Development Agreement has a five year term, which will automatically be renewed 
under certain circumstances and may be terminated by either party only with     
cause. In order to provide a second source of JTS' products, JTS has entered    
into a Technology Transfer and License Agreement with Western Digital pursuant  
to which Western Digital has the right to manufacture and sell Nordic disk      
drives to Compaq. If either of these agreements were to terminate prematurely,  
JTS' efforts to establish market acceptance of its products and, consequently   
its business, operating results and financial condition would be adversely      
affected. See "Information Regarding JTS Corporation -- Business of JTS --      
Relationship With Compaq" and "-- Western Digital Arrangement." In fiscal 1996, 
Olidata S.p.A, Connexe Peripherals, Ltd., Liuski International, Inc. and Aashima
Technology, B.V. accounted for 34%, 12%, 11% and 10%, respectively, of JTS'     
total revenue. In the quarter ended April 28, 1996, Peacock Systems GmbH,       
Markvision International S.A. and FutureTech accounted for 43%, 18% and 14%,    
respectively, of JTS' total revenues. JTS expects that sales to a relatively    
small number of OEMs will account for a substantial portion of its net revenues 
for the foreseeable future, although the companies that comprise JTS' largest   
customers may change from period to period. The loss of, or decline in orders   
from, one or more of JTS' key customers would have a material adverse effect on 
JTS' business, operating results and financial condition. See "Information      
Regarding JTS Corporation -- Business of JTS -- Patents and Licenses."          

 Reliance on Licensed Technology.  JTS currently owns no patents and has
obtained licenses to a substantial portion of the technology used in its hard   
disk drives pursuant to license agreements with Pont Peripherals Corporation,   
TEAC Corporation and Western Digital. If such license agreements were           
prematurely terminated or if JTS were enjoined from relying upon such licenses  
due to JTS' alleged or actual breach of such agreements, JTS would be prevented 
from manufacturing hard disk drives incorporating technology subject to such    
licenses. As a result, JTS' business, operating results and financial condition 
would be materially adversely affected. See "Information Regarding JTS          
Corporation -- Business of JTS -- Patents and Licenses."                        

 Intellectual Property and Proprietary Rights.  Although JTS attempts to
protect its intellectual property rights through patents, copyrights, trade     
secrets and other measures, there can be no assurance that JTS will be able to  
protect its technology adequately or that competitors will not be able to       
develop similar technology independently. There can be no assurance that patents
will be issued with respect to JTS' pending patent applications or that any     
future patents will be sufficiently broad to protect JTS' technology. There can 
be no assurance that any future patent issued to JTS will not be challenged,    
invalidated or circumvented or that the rights granted thereunder will provide  
adequate protection to JTS' products. Furthermore, there can be no assurance    
that others will not independently develop similar products, duplicate JTS'     
products or design around any possible patents issued to JTS in the future. In  
addition, the laws of certain foreign countries may not protect JTS'            
intellectual property rights to the same extent as do the laws of the United    
States.                                                                         

   In recent years, the hard disk drive industry has experienced an increase
in litigation to enforce intellectual property rights. Thus, litigation may be  
necessary to enforce any future JTS patents, copyrights or other intellectual   
property rights, to protect JTS' trade secrets, to determine the validity and   
scope of the proprietary rights of others, or to defend against claims of       
infringement or claims for indemnification resulting from infringement claims.  
Such litigation, even if successful, could result in substantial costs and      
diversion of resources and could have a material adverse effect on JTS'         
business, operating results and financial condition.                            

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Alternatively, if any claims are asserted against JTS, JTS may seek to obtain a 
license under the third party's intellectual property rights or to seek to      
design around such claims. There can be no assurance, however, that a license   
will be available on reasonable terms or at all, and it could be expensive and  
time consuming or prove impossible for JTS to design around such claims. Any of 
such alternatives could materially and adversely affect JTS' business, results  
of operations and financial condition.                                          

     Expansion of Manufacturing Capacity.  JTS' competitive position will depend
substantially on its ability to expand its manufacturing capacity. Accordingly, 
JTS is continuing to make significant investments to expand such capacity,      
particularly through the acquisition of capital equipment, facilities expansion 
and the hiring and training of new personnel. JTS currently plans to add new    
production lines at its existing manufacturing facility in Madras, India during 
fiscal 1997 that will utilize all available floor space at this facility. There 
can be no assurance that JTS will be able to expand such capacity in a timely   
manner, that the cost of such expansion will not exceed management's current    
estimates, that such capacity will not exceed the demand for JTS products or    
that such additional capacity will achieve satisfactory levels of manufacturing 
efficiency in a timely manner or at all. In addition, the expansion of          
manufacturing capacity will significantly increase JTS' fixed costs. JTS'       
profitability will depend on its ability to utilize its manufacturing capacity  
in an effective manner, and JTS' inability to fully utilize its capacity would  
have a material adverse effect on JTS' business, operating results and financial
condition. See "Information Regarding JTS Corporation -- Business of JTS --     
Manufacturing."                                                                 

     Dependence on Single Manufacturing Facility.  In fiscal 1996, substantially
all of JTS' manufacturing operations took place at Moduler Electronics in       
Madras, India. Because JTS does not currently operate multiple facilities in    
different geographic areas, a disruption of JTS' manufacturing operations       
resulting from various factors, including sustained process abnormalities, human
error, government interventions or a natural disaster such as fire or flood,    
could cause JTS to cease or limit its manufacturing operations and consequently 
would have a material adverse effect on JTS' business, operating results and    
financial condition.                                                            

 Risks of International Sales and Manufacturing.  In fiscal 1996 and the
three months ended April 30, 1996, substantially all of JTS' net sales consisted
of products sold to customers in Europe, Asia and Latin America, and JTS        
anticipates that a substantial percentage of its products will be sold to       
customers outside of the United States for the foreseeable future. Furthermore, 
JTS expects to conduct substantially all of its manufacturing operations in     
India, although JTS may evaluate alternative or additional locations from time  
to time. Accordingly, JTS' operating results are subject to the risks of doing  
business in a foreign country, including compliance with, or changes in, the law
and regulatory requirements of a foreign country, political instability, local  
content rules, taxes, tariffs or other barriers, and transportation delays and  
other interruptions. For example, the Indian government has granted JTS a five  
year "tax holiday," and its subsidiary, Moduler Electronics, is located in the  
Madras Export Processing Zone where it currently enjoys an exemption from Indian
taxes on export profits, although to date JTS has retained only minimal benefits
from such exemption. Such exemption may be terminated at any time for political 
or economic reasons, in which event JTS may become subject to significantly     
greater taxes on sales of disk drives outside of India at rates currently of up 
to 46%. Furthermore, JTS does not have a long-term lease agreement, but rather  
occupies the Madras facility pursuant to allotment letters from the Development 
Commissioner of the Madras Export Processing Zone. Other benefits associated    
with conducting business in India, which historically has experienced           
considerable political instability, are subject to the vagaries of the Indian   
government and may be withdrawn at any time. Although all of JTS' sales         
presently are made in U.S. dollars, there can be no assurance that future       
international sales will not be denominated in foreign currencies. Regardless of
whether JTS' sales are denominated in foreign currencies, JTS is, and will      
continue to be, subject to risks related to foreign currency fluctuations.      

Production Yields; Product Quality.  The hard disk drive manufacturing
process is complex, and low production yields may result from a variety of      
factors, including the introduction of new products, increased complexity in    
product specifications, human error, the introduction of contaminants in the    
manufacturing environment, equipment malfunction, use of defective materials and
components and inadequate testing. From time to time, JTS has experienced lower 
than anticipated production yields as a result of such factors. Furthermore,    
while JTS has implemented procedures to monitor the quality of the materials    
received from its suppliers, there can be no assurance that materials will meet 
JTS' specifications or that substandard materials will not adversely impact     
production yields or cause other production problems. JTS' failure to maintain  
high quality production standards or acceptable production yields would result  
in loss of customers, delays in                                                 

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shipments, increased costs, cancellation of orders and product returns for      
rework, any of which could have a material adverse effect on JTS' business,     
operating results and financial condition. For example, JTS' cost of sales for  
fiscal 1996 included a $4.3 million provision for inventory allowances          
principally due to the costs for return of defective products, scrapped material
associated with unrepairable damage caused during the assembly process and      
estimates of physical loss of inventory associated with high volume             
manufacturing activities.                                                       

   Variability of Operating Results.  JTS' operating results are expected to
be subject to significant quarterly and annual fluctuations based upon a variety
of factors including market acceptance of JTS' products, timing of significant  
orders, changes in pricing by JTS or its competitors, the timing of product     
announcements by JTS, its customers or its competitors, changes in product mix, 
manufacturing yields, order cancellations, modifications and quantity           
adjustments and shipment reschedulings, the level of utilization of JTS'        
production capacity, increases in production and engineering costs associated   
with initial manufacture of new products, changes in the cost of or limitations 
on availability of components and materials and customer returns. The impact of 
these and other factors on JTS' revenues and operating results in any future    
period cannot be predicted with certainty. JTS' expense levels are based, in    
large part, on its expectations as to future revenues. Substantial advance      
planning and commitment of financial and other resources is necessary for       
expansion of manufacturing capacity, while JTS' sales are generally made        
pursuant to purchase orders that are subject to cancellation, modification,     
quantity reductions or rescheduling without significant penalties. Furthermore, 
because the hard disk drive industry is capital intensive and requires a high   
level of fixed costs, operating results are extremely sensitive to changes in   
volume. Accordingly, if revenue levels do not meet expectations, operating      
results and net income, if any, are likely to be adversely affected. See        
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations of JTS."                                                             

 Management of Growth.  JTS has recently experienced and may continue to
experience substantial growth in the number of its employees and the scope of   
its operations. Such growth would further strain JTS' managerial, financial,    
manufacturing and other resources. In addition, in order to manage its growth   
effectively, JTS must implement additional operating, financial and management  
information systems and hire and train additional personnel. In particular, JTS 
must hire and train a significant number of additional personnel to operate the 
highly complex capital equipment required by its manufacturing operations. There
can be no assurance that JTS will successfully implement additional systems in a
timely or efficient manner, to hire and properly train a sufficient number of   
qualified personnel or to effectively manage such growth, and JTS' failure to do
so could have a material adverse effect on its business, operating results and  
financial condition. See "Management's Discussion and Analysis of Financial     
Condition and Results of Operations of JTS" and "Information Regarding JTS      
Corporation -- Business of JTS -- Employees."                                   

     Dependence on Key Management Personnel.  JTS' operating results will depend
in significant part upon the continued contributions of its key management and  
technical personnel, including Sirjang L. Tandon, its Chairman and Corporate    
Technical Strategist, David T. Mitchell, its President and Chief Executive      
Officer, Kenneth D. Wing, its Executive Vice President, Research and Development
Quality/Reliability, W. Virginia Walker, its Executive Vice President, Finance  
and Administration, Chief Financial Officer and Secretary, and Steven L.        
Kaczeus, its Chief Technical Officer, each of whom would be difficult to        
replace. See "Information Regarding JTS Corporation -- Management of JTS." JTS  
does not have an employment agreement with any of these individuals. The loss of
any of these key personnel could have a material adverse effect on the business,
operating results and financial condition of JTS. In addition, JTS' future      
operating results depend in part upon its ability to attract, train, retain and 
motivate other qualified management, technical, manufacturing, sales and support
personnel for its operations. Competition for such personnel is intense, and    
there can be no assurance that JTS will be successful in attracting or retaining
such personnel. The loss of the services of existing personnel as well as the   
failure to recruit additional personnel could materially adversely affect JTS'  
business, operating results and financial condition. See "Information Regarding 
JTS Corporation -- Business of JTS -- Employees."                               

Purchase Orders Subject to Cancellation, Modification and             
Rescheduling.  JTS' sales are generally made pursuant to purchase orders that   
are subject to cancellation, modification, quantity reductions or rescheduling  
without significant penalties. Changes in forecasts, cancellations, rescheduling
and quantity reductions may result in excess inventory costs, inventory losses  
and under-utilization of production capacity and could have a                   

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material adverse effect on JTS' business, operating results and financial       
condition. As a result of the foregoing, JTS' backlog as of any particular date 
may not be representative of actual sales for any succeeding period.            

 Reduction in Voting Control.  Upon the closing of the Merger, the Atari
stockholders immediately prior to the Merger will own approximately 62% of the  
outstanding voting securities of the Combined Company (assuming no exercise of  
options after June 28, 1996). As a result, such stockholders, acting together,  
could determine the outcome of matters requiring approval of the stockholders of
the Combined Company. Such matters include the election of the members of the   
Combined Company's Board of Directors, proxy contests, mergers involving the    
Combined Company, tender offers or other transactions that could afford         
stockholders of the Combined Company the opportunity to realize a premium over  
the then prevailing market price of the Common Stock of the Combined Company.   
Furthermore, following the Merger, members of the Tramiel family will own       
approximately 27% of the outstanding voting securities of the Combined Company  
(assuming no exercise of options after June 28, 1996). Jack Tramiel will also be
a member of the Combined Company's Board of Directors. As a result, the members 
of the Tramiel family, acting together, could exert significant influence over  
matters requiring approval of the stockholders of the Combined Company.         

OTHER RISK FACTORS RELATED TO THE MERGER                                        

   Risks Associated with Fixed Exchange Ratio.  All of the material terms of
the Merger, including the one-for-one exchange ratio, were agreed upon when the 
initial merger agreement was signed on February 12, 1996. Although the structure
of the transaction was modified as reflected in the Merger Agreement which was  
signed on April 8, 1996, such change did not materially modify the economic     
terms of the Merger. Since February 12, 1996, there have been ongoing business  
developments that have necessarily impacted Atari and JTS. With respect to      
Atari, these developments include continued significant operating losses and    
decreases in revenues, continued intense competition in the video game industry 
and a significant increase in the trading price for the Atari Common Stock. With
respect to JTS, these developments include continued losses, delays in the      
schedule for volume shipments of Nordic disk drives, reductions in the targeted 
revenues, gross profit and net income for fiscal 1997, JTS' decision to pursue  
additional financing as soon as practicable following the Merger and the fact   
that Compaq has accepted the JTS Nordic 3-inch disk drive. Notwithstanding these
factors, there is no provision in the Merger Agreement for adjustment prior to  
the closing of the Merger of the rate at which the Atari Common Stock will be   
exchanged for JTS Common Stock.                                                 

Significant Lapse of Time Since Delivery of Montgomery Fairness       
Opinion.  The opinion of Montgomery Securities that the conversion ratio of     
Atari Common Stock into JTS Common Stock was fair to Atari, from a financial    
point of view, was delivered to the Atari Board of Directors on February 5, 1996
and is applicable only as of such date. The Atari Board of Directors evaluated  
the business developments described above at its meeting on June 21, 1996 and   
unanimously affirmed its approval of the Merger. At this meeting, the Atari     
Board of Directors also determined not to obtain an updated fairness opinion    
from Montgomery with respect to the Merger. As a result of significant changes  
in the business of JTS since the date of Montgomery's fairness opinion, Atari   
stockholders should not place undue reliance upon the availability of such      
opinion.                                                                        

  Utilization of Net Operating Losses.  As of December 31, 1995, Atari had
federal net operating losses ("NOLs") and tax credit carryforwards in the amount
of approximately $166.8 million, and as of January 28, 1996, JTS had federal    
NOLs of approximately $27.0 million. Under the Internal Revenue Code of 1986, as
amended (the "Code"), certain changes in the ownership or business of a         
corporation that has NOLs or tax credit carryforwards will result in the        
inability to use or the imposition of significant restrictions on the use of    
such NOLs or tax credit carryforwards to offset future income and tax liability 
of such corporation, its subsidiaries or its successors. The Merger will        
constitute a change in ownership with respect to JTS, and the Merger or         
subsequent events may constitute an event with respect to Atari which results in
the imposition of restrictions on the ability of the Combined Company to utilize
NOLs and tax credit carryforwards of Atari or JTS. There can be no assurance    
that the Combined Company will be able to utilize all or any NOLs or tax credit 
carryforwards of Atari or JTS. The ability of the Combined Company to utilize   
Atari's accumulated NOLs and tax carryforwards was a factor considered by the   
boards of directors of Atari and JTS in concluding to approve the Merger and the
Merger Agreement and to recommend that the stockholders of Atari and JTS approve
the Merger and the Merger Agreement. See "The Proposed Merger and Related       
Transactions --                                                                 

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Background and Board Recommendations -- Recommendation of the Board of Directors
of Atari" and "--Recommendation of the Board of Directors of JTS."              

Control by Affiliates; Anti-takeover Effects.  Upon completion of the 
Merger, directors, officers and holders of 10% or more of the outstanding JTS   
Common Stock will own approximately 35% of the outstanding shares of the        
Combined Company (assuming no exercise of options or warrants after June 28,    
1996). As a result, these affiliates of the Combined Company, acting together,  
will have the ability to exert significant influence over the election of       
directors and other corporate actions affecting the Combined Company. Certain   
provisions of the Certificate of Incorporation and Bylaws of the Combined       
Company and certain provisions of the DGCL, including Section 203 thereof, may  
also discourage certain transactions involving a change in control of the       
Combined Company. In addition to the foregoing, the ability of the Board of     
Directors of the Combined Company to issue additional "blank check" preferred   
stock without further stockholder approval could have the effect of delaying,   
deferring or preventing a change in control of the Combined Company. See        
"Information Regarding Atari Corporation -- Principal Stockholders of Atari,"   
"Information Regarding JTS Corporation -- Principal Stockholders of JTS" and    
"Description of Capital Stock of Atari and JTS."                                

Shares Eligible for Future Sale.  Sales of substantial amounts of JTS 
Common Stock in the public market after the consummation of the Merger could    
adversely affect prevailing market prices. Following the Merger, the Combined   
Company will have approximately 102,814,954 shares of Common Stock outstanding  
(assuming no exercise of options or warrants after June 28, 1996). All of the   
63,854,718 shares of JTS Common Stock to be issued to the former stockholders of
Atari in the Merger will be eligible for sale in the public market upon the     
closing of the Merger. Of such shares, approximately 23,950,000 shares held by  
affiliates of Atari will be subject to volume and other restrictions under Rule 
145 of the Securities Act. In addition, 90 days following the consummation of   
the Merger, approximately 3,900,000 shares of JTS Common Stock will become      
eligible for sale in the public market pursuant to Rule 701 under the Securities
Act. In addition, in February and August 1997, approximately 16,200,000 shares  
and 12,500,000 shares of JTS Common Stock, respectively, will become eligible   
for sale in the public market pursuant to Rule 144 of the Securities Act upon   
expiration of the two-year holding periods from the dates such shares were      
issued.                                                                         

   In addition, the holders of approximately 42,500,000 shares of JTS Common
Stock outstanding as of the closing of the Merger will be entitled to certain   
rights with respect to registration of such shares under the Securities Act. JTS
also intends to register for sale on a Form S-8 Registration Statement under the
Securities Act an aggregate of approximately 8,985,000 shares of JTS Common     
Stock reserved for issuance under JTS' Restated Plan, 500,000 shares of JTS     
Common Stock reserved for issuance under JTS' Non-Employee Directors' Plan, and 
approximately 900,000 shares of JTS Common Stock reserved for issuance pursuant 
to the exercise of options granted under Atari's 1986 Stock Option Plan which   
will be assumed by JTS in the Merger. Former stockholders of JTS have not       
previously had the opportunity to sell their shares in the public market.       
Substantial sales of JTS Common Stock after the Merger could have a negative    
impact on the market price and liquidity of the JTS Common Stock.               

 Diversion of Management Attention.  Following the Merger, Atari and JTS
will operate as separate divisions of the Combined Company and the current      
management of JTS will serve as the management of the Combined Company. The     
Combined Company's management is expected to devote substantially all of its    
time to the affairs of JTS following the Merger. If the management of the       
Combined Company were unable to effectively manage the separate businesses, the 
operating results and financial condition of the Combined Company could be      
materially adversely affected.                                                  

  No Prior Market; Liquidity; Stock Price Volatility.  Prior to the Merger
there was no public market for JTS' capital stock. Although it is expected that 
the JTS Common Stock will be listed on the American Stock Exchange upon the     
closing of the Merger, there can be no assurance that an active public market   
for the JTS Common Stock will develop or be sustained. The trading price of the 
JTS Common Stock could be subject to wide fluctuations in response to           
quarter-to-quarter variations in operating results, announcements of            
technological innovations or new products by JTS or its competitors, general    
conditions in the hard disk drive, computer or video game industries, changes in
earnings estimates or recommendations by analysts, or other events or factors.  
In addition, the public stock markets have experienced extreme price and trading
volume volatility in recent months. This volatility has significantly affected  
the market prices of securities of many technology companies for reasons        
frequently unrelated to the operating performance of the specific companies.    
These broad market fluctuations may adversely affect the market price of the JTS
Common Stock.                                                                   

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INTRODUCTION

   This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by Atari and JTS of proxies to be voted at the Atari Special       
Meeting and the JTS Special Meeting, respectively. This Joint Proxy             
Statement/Prospectus is being mailed to stockholders of Atari and JTS on or     
about July 15, 1996.                                                            

   The purpose of the Atari and JTS Special Meetings is to consider and vote
upon a proposal to approve the Merger and the Merger Agreement. Upon            
consummation of the Merger, Atari will be merged with and into JTS, the separate
existence of Atari will cease, JTS will remain as the surviving corporation and 
all of the rights, privileges, powers, franchises, properties, assets,          
liabilities and obligations of Atari will be vested in JTS. At the Effective    
Time (as such term is defined below), each outstanding share of Atari Common    
Stock will be converted into one share of JTS Common Stock and each outstanding 
option to purchase Atari Common Stock will become an option to purchase JTS     
Common Stock.                                                                   

     Based on the number of shares of outstanding Atari Common Stock, JTS Common
Stock and JTS Series A Preferred Stock as of June 28, 1996 (assuming no exercise
of outstanding options after such date), immediately after consummation of the  
Merger (assuming the conversion of all outstanding shares of JTS Series A       
Preferred Stock into shares of JTS Common Stock and that none of the holders of 
JTS Common Stock or JTS Series A Preferred Stock perfects appraisal or          
dissenters' rights), a total of 102,814,954 shares of JTS Common Stock would be 
issued and outstanding, of which 63,854,718 shares, or 62%, would represent     
shares issued in the Merger upon conversion of Atari Common Stock.              

THE BOARDS OF DIRECTORS OF EACH OF ATARI AND JTS HAVE UNANIMOUSLY     
DETERMINED THAT THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST
INTERESTS OF, ITS RESPECTIVE CORPORATION AND ITS RESPECTIVE STOCKHOLDERS.       

     THE BOARDS OF DIRECTORS OF EACH OF ATARI AND JTS UNANIMOUSLY RECOMMEND THAT
THE STOCKHOLDERS OF ITS RESPECTIVE CORPORATION APPROVE THE MERGER AND THE MERGER
AGREEMENT.                                                                      

  This Joint Proxy Statement/Prospectus also constitutes the prospectus of
JTS under the Securities Act for the offering of JTS Common Stock in connection 
with the Merger. This Joint Proxy Statement/Prospectus does not cover resales of
the securities of JTS to be received in connection with the Merger and no person
is authorized to use this prospectus in connection with any resale.             

  The principal offices of Atari are located at 455 South Mathilda Avenue,
Sunnyvale, California 94086, and its telephone number is (408) 328-0900. The    
principal offices of JTS are located at 166 Baypointe Parkway, San Jose,        
California 95134, and its telephone number is (408) 468-1800.                   

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VOTING AND PROXIES

DATE, TIME AND PLACE OF SPECIAL STOCKHOLDER MEETINGS                            

 Atari.  The Atari Special Meeting will be held at the offices of Wilson
Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, California,     
legal counsel to Atari, on July 30, 1996 at 9:00 a.m.                           

JTS.  The JTS Special Meeting will be held at JTS's offices at 166    
Baypointe Parkway, San Jose, California 95134, on July 30, 1996 at 9:00 a.m.    

RECORD DATE AND OUTSTANDING SHARES                                              

Atari.  Stockholders of record of Atari Common Stock at the close of  
business on June 28, 1996 (the "Atari Record Date") are entitled to notice of   
and to vote at the Atari Special Meeting. At the Atari Record Date, there were  
approximately 2,375 holders of record of Atari Common Stock and 63,854,718      
shares of Atari Common Stock were issued and outstanding. Except for the        
stockholders identified below under "Information Regarding Atari Corporation -- 
Principal Stockholders of Atari," there were no persons known to the management 
of Atari to be the beneficial owners of more than 5% of the outstanding shares  
of Atari Common Stock.                                                          

     JTS.  Stockholders of record of JTS Common Stock and JTS Series A Preferred
Stock at the close of business on June 18, 1996 (the "JTS Record Date") are     
entitled to notice of and to vote at the JTS Special Meeting. At the JTS Record 
Date, there were 20 holders of record of JTS Common Stock and 54 holders of     
record of JTS Series A Preferred Stock and 9,263,866 shares of JTS Common Stock 
and 29,696,370 shares of JTS Series A Preferred Stock were issued and           
outstanding. Except for the stockholders identified below under "Information    
Regarding JTS Corporation -- Principal Stockholders of JTS," there were no      
persons known to the management of JTS to be the beneficial owners of more than 
5% of the outstanding shares of any class of JTS capital stock.                 

VOTING AND REVOCABILITY OF PROXIES                                              

 All properly executed proxies that are not revoked will be voted at the
respective Atari and JTS Special Meetings and any postponement or adjournment   
thereof, in accordance with the instructions contained therein. Proxies         
containing no instructions regarding the proposals specified in the form of     
proxy will be voted for approval of the Merger and the Merger Agreement at the  
Atari and JTS Special Meetings, as the case may be. Each record holder of Atari 
Common Stock as of the Atari Record Date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, on each matter properly    
submitted for the vote of the stockholders at the Atari Special Meeting. Each   
record holder of JTS Common Stock and JTS Series A Preferred Stock as of the JTS
Record Date is entitled to cast one vote per share, exercisable in person or by 
properly executed proxy, on each matter properly submitted for the vote of the  
stockholders at the JTS Special Meeting.                                        

    If an executed proxy card is returned and a stockholder has abstained from
voting on any matter, the shares represented by such proxy will be considered   
present at the applicable special meeting for purposes of determining a quorum  
and for purposes of calculating the vote, but will not be considered to have    
been voted in favor as to such matter. In the case of the Atari Special Meeting,
if an executed proxy is returned by a broker holding shares in street name which
indicates that the broker does not have discretionary authority as to certain   
shares to vote on one or more matters, such shares will be considered           
represented at the Atari Special Meeting for purposes of determining a quorum,  
but will not be considered to be represented at the Atari Special Meeting for   
purposes of calculating the vote with respect to such matter ("broker           
non-votes"). Because approval of the Merger and the Merger Agreement requires,  
in the case of Atari, the affirmative vote of a majority of the total number of 
outstanding shares of Atari Common Stock entitled to vote at the Atari Special  
Meeting, and in the case of JTS, the affirmative vote of a majority of the total
number of outstanding shares of JTS Common Stock and JTS Series A Preferred     
Stock (voting together) and at least two thirds of the total number of          
outstanding shares of JTS Series A Preferred Stock (voting as a separate class) 
entitled to                                                                     

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vote at the JTS Special Meeting, abstentions and, in the case of Atari, broker  
non-votes, will have the same effect as a vote against the proposal. If an      
executed proxy card is returned and a stockholder has voted against the         
proposal, the shares represented by such proxy will also be deemed to have voted
against a resolution to postpone or adjourn the meeting.                        

   The presence of a stockholder at the applicable special meeting for which
such stockholder has executed a proxy will not automatically revoke such        
stockholder's proxy. A stockholder may, however, revoke a proxy at any time     
prior to its exercise by filing a written notice of revocation with, or by      
delivering a duly executed proxy bearing a later date to, the Corporate         
Secretary at the address of the principal executive offices of the company to   
which such proxy relates, or by attending the special meeting to which such     
proxy relates and voting in person.                                             

STOCKHOLDER VOTES REQUIRED                                                      

     Atari.  The presence, in person or by proxy, of a majority of the shares of
Atari Common Stock outstanding on the Atari Record Date is necessary to         
constitute a quorum at the Atari Special Meeting. Approval of the Merger and the
Merger Agreement requires the affirmative vote of holders of a majority of the  
shares of Atari Common Stock outstanding on the Atari Record Date.              

It is expected that all of the 23,453,129 shares of Atari Common Stock
(excluding shares subject to stock options) beneficially owned by directors and 
executive officers of Atari and their affiliates at the Atari Record Date (37%  
of the total number of outstanding shares of Atari Common Stock) will be voted  
for approval of the Merger and the Merger Agreement. As of the Atari Record     
Date, JTS and its directors and executive officers and their affiliates         
beneficially owned no shares of Atari Common Stock (excluding shares of Atari   
Common Stock subject to the Voting Agreements). See "Information Regarding Atari
-- Principal Stockholders of Atari."                                            

   JTS.  The presence, in person or by proxy, of a majority of the shares of
JTS Common Stock and JTS Series A Preferred Stock outstanding on the JTS Record 
Date is necessary to constitute a quorum at the JTS Special Meeting. Approval of
the Merger and the Merger Agreement requires the affirmative vote of holders of 
(a) a majority of the shares of JTS Common Stock and JTS Series A Preferred     
Stock outstanding on the JTS Record Date, voting together, (b) a majority of the
shares of JTS Common Stock outstanding on the JTS Record Date, voting separately
as a class, and (c) at least two thirds of the shares of JTS Series A Preferred 
Stock outstanding on the JTS Record Date, voting separately as a class.         

It is expected that all of the 9,074,791 shares of JTS Common Stock   
(excluding shares subject to stock options) and 14,122,107 shares of JTS Series 
A Preferred Stock beneficially owned by directors and executive officers of JTS 
and their affiliates at the JTS Record Date (96% of the total number of         
outstanding shares of JTS Common Stock and 48% of the total number of           
outstanding shares of JTS Series A Preferred Stock) will be voted for approval  
of the Merger and the Merger Agreement. As of the JTS Record Date, Atari and its
directors and executive officers and their affiliates beneficially owned no     
shares of JTS Common Stock or JTS Series A Preferred Stock (except for shares of
JTS capital stock subject to the Voting Agreements). See "Information Regarding 
JTS Corporation -- Principal Stockholders of JTS."                              

     Voting Agreements.  Pursuant to the Voting Agreements, certain stockholders
of Atari and JTS have agreed to vote all shares held by them in favor of the    
Merger and the Merger Agreement. Specifically, holders of approximately 43% of  
the shares of Atari Common Stock, 91% of the shares of JTS Common Stock and 70% 
of the shares of JTS Series A Preferred Stock entitled to vote at the respective
stockholder meetings have entered into Voting Agreements and irrevocable        
proxies. As a result, it is expected that the Merger and the Merger Agreement   
will be approved by the holders of a majority of the shares of Atari Common     
Stock outstanding on the Atari Record Date and by the holders of a majority of  
the shares of JTS Common Stock and JTS Series A Preferred Stock outstanding on  
the JTS Record Date (voting together), a majority of the shares of JTS Common   
Stock outstanding on the JTS Record Date (voting as a separate class) and at    
least two-thirds of the shares of JTS Series A Preferred outstanding on the JTS 
Record Date (voting as a separate class). See "The Proposed Merger and Related  
Transactions -- Related Transactions -- Voting Agreements."                     

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SOLICITATION OF PROXIES; EXPENSES                                               

   Atari and JTS will equally bear the costs of solicitation of proxies from
their stockholders, all printing and mailing costs in connection with the       
preparation and mailing of this Joint Proxy Statement/Prospectus to Atari and   
JTS stockholders, all Commission filing fees with respect to the Registration   
Statement of which this Joint Proxy Statement/Prospectus is a part, and all     
costs of qualifying the shares of JTS Common Stock under state blue sky laws. In
addition to solicitation by mail, the directors, officers and employees of Atari
and JTS may solicit proxies from stockholders by telephone, telegram or letter  
or in person, but will not be specially compensated for such activities.        
Brokers, nominees, fiduciaries and other custodians have been requested to      
forward solicitation material to the beneficial owners of Atari Common Stock    
held of record by them. Such custodians will be reimbursed by Atari for their   
reasonable expenses incurred in that connection. If the Merger is consummated,  
all costs and expenses incurred in connection with the Merger not previously    
paid will be paid by the Combined Company.                                      

APPRAISAL AND DISSENTERS' RIGHTS                                                

     Stockholders of record of JTS Common Stock and JTS Series A Preferred Stock
may under certain circumstances and by following procedures prescribed by       
Section 262 of the DGCL or Chapter 13 of the CGCL, exercise either appraisal or 
dissenters' rights and receive cash for their respective shares of capital stock
of JTS. The failure of any dissenting stockholder of JTS to follow the          
appropriate procedures may result in the termination or waiver of such rights.  
See "The Proposed Merger and Related Transactions -- Appraisal and Dissenters'  
Rights."                                                                        

The stockholders of Atari are not entitled to appraisal or dissenters'
rights under the NGCL.                                                          

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THE PROPOSED MERGER AND RELATED TRANSACTIONS

BACKGROUND AND BOARD RECOMMENDATIONS                                            

BACKGROUND OF THE MERGER                                                        

 By the second half of 1995, Atari and its Board of Directors recognized
that despite the significant financial resources that had been devoted to the   
Jaguar product, it was unlikely that Jaguar would ever become a broadly accepted
video game console or that Jaguar technology would be broadly adopted by        
software title developers. As a result, at its meeting on October 13, 1995, the 
Atari Board of Directors determined to substantially reduce the resources       
devoted to the Jaguar and related products, and to change Atari's strategic     
focus by devoting its resources to PC software publishing and strategic         
opportunities. In particular, the Atari Board of Directors directed management  
to focus on evaluating strategic opportunities for Atari including potential    
investments and acquisitions.                                                   

  As part of Atari's efforts to pursue strategic opportunities, during the
fourth quarter of 1995, Atari management contacted various individuals and      
investment advisors with respect to potential strategic investments or          
acquisitions. These efforts resulted in Atari's evaluation of several strategic 
opportunities, including a potential investment in or merger with an            
entertainment software company, a video game software company, a computer video 
game peripherals company and a potential investment or merger with JTS.         

Since its inception in February 1994, JTS has continually sought to   
identify new sources of financing to support the expansion of its manufacturing 
facilities, capital expenditures and research and development activities. In    
late 1995, JTS recognized the need for a significant infusion of capital within 
the next three to four months to fund the growth of JTS' operations.            
Accordingly, at a meeting held on October 30, 1995, the JTS Board of Directors  
instructed members of management to explore various financing sources, including
the private placement of equity securities to one or more institutional         
investors.                                                                      

    In early November 1995, Sam Tramiel contacted JTS to set up a meeting with
Sirjang L. "Jugi" Tandon, the Chairman of JTS, and David T. Mitchell, JTS'      
President and Chief Executive Officer, to discuss possible strategic            
opportunities between the companies. On November 16, 1995, Sam Tramiel and Mr.  
Tandon met at the Las Vegas airport following the Comdex show. At the meeting,  
Mr. Tandon stated that JTS was pursuing additional sources of financing, and Sam
Tramiel indicated that Atari was evaluating various strategic opportunities,    
including potential investments and acquisitions. A follow-up meeting was       
scheduled for early December to further discuss a possible investment in JTS by 
Atari.                                                                          

At a meeting held on November 29, 1995, the JTS Board of Directors    
instructed Messrs. Tandon and Mitchell to accelerate their efforts to identify  
new sources of financing. In this regard, JTS initiated discussions with two    
investment banks (one of which was Montgomery) in December 1995 to explore the  
possibility of a private placement to institutional investors which would result
in a substantial infusion of capital to JTS.                                    

    On December 14, 1995, Jack Tramiel and Sam Tramiel met with Messrs. Tandon
and Mitchell at JTS. At this meeting, the parties discussed a potential         
investment by Atari in JTS and the possibility that Jack Tramiel would become a 
director of JTS. Later that day, the Executive Committee of the Atari Board of  
Directors (consisting of Jack Tramiel, Sam Tramiel and August J. Liguori) held a
special meeting to discuss the proposed transaction with JTS. At the meeting,   
the Atari Executive Committee directed Mr. Liguori, Atari's former Chief        
Financial Officer, to contact JTS to initiate due diligence.                    

 On December 22, 1995, Mr. Liguori met with Mr. Mitchell and W. Virginia
Walker, JTS' Chief Financial Officer, at JTS to conduct an initial due diligence
review of JTS' business and financial condition.                                

     On January 4, 1996, the Executive Committee of the Atari Board of Directors
held a special meeting to discuss Mr. Liguori's due diligence investigation of  
JTS. At this meeting, the Atari Executive Committee authorized Jack Tramiel to  
continue discussions with JTS regarding a potential investment or other         
strategic business relationship between Atari and JTS and instructed Mr. Liguori
to continue due diligence activities. The Atari Executive Committee also        
instructed Jack Tramiel to contact the other members of the Atari Board to      
update them on the potential business opportunity involving JTS.                

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    On January 8, 1996, Jack Tramiel, Sam Tramiel and Mr. Mitchell met at Jack
Tramiel's home to further discuss a possible strategic transaction between Atari
and JTS. At this meeting, the parties considered a significant investment by    
Atari in JTS and a merger of Atari and JTS. Mr. Mitchell indicated that JTS     
would be interested in securing a bridge loan from Atari if a merger agreement  
were signed. The parties also generally discussed that, if a merger were to     
occur, the consideration would be common stock of the acquiring company and the 
exchange ratio would be one-for-one.                                            

     On January 9, 1996, the JTS Board of Directors held a telephonic meeting at
which a possible investment by or merger with Atari was discussed. At the       
meeting, the merits of such a transaction, including the general terms of a     
possible merger, were considered and the JTS Board instructed members of        
management to initiate a due diligence review of Atari. In addition, the JTS    
Board agreed to retain the law firm of Cooley Godward Castro Huddleson & Tatum  
("Cooley Godward") to assist in the evaluation of a possible business           
combination with Atari.                                                         

    On January 10, 1996, Mr. Mitchell and Ms. Walker met with Jack Tramiel and
Mr. Liguori at Atari to conduct a due diligence review of Atari. From January 11
through January 16, Ms. Walker and Mr. Liguori had numerous meetings and phone  
calls and exchanged due diligence information and materials.                    

On January 17, 1996, a meeting was held at JTS to discuss the proposed
transaction. Present at the meeting were Jack Tramiel, Sam Tramiel and Mr.      
Liguori of Atari and Mr. Tandon, Mr. Mitchell and Ms. Walker of JTS. Also       
present were representatives from Wilson Sonsini Goodrich & Rosati, P.C.,       
counsel to Atari, and a representative of Cooley Godward. At the meeting, there 
was substantial discussion regarding a proposed merger of Atari and JTS. The    
meeting focused on the business opportunities, business risks and financial     
positions of Atari and JTS. The parties first discussed the general terms of the
proposed merger including that the Combined Company would be managed by the     
current members of JTS management, that at the time the merger agreement was    
signed Atari would extend to JTS a $25.0 million bridge loan, that the bridge   
loan would be convertible into JTS Series A Preferred Stock, and that JTS would 
issue warrants to Atari in connection with the bridge loan if the merger were   
not consummated. The parties further discussed the proposed one-for-one exchange
ratio for the Atari Common Stock, JTS Common Stock and JTS Series A Preferred   
Stock. The proposal to issue common stock of the surviving company in exchange  
for the outstanding stock of the corporation to be acquired was based upon a    
number of factors, including tax considerations, the preservation of the        
surviving company's working capital and the desire to give the JTS and Atari    
stockholders an opportunity to participate as equity holders in the surviving   
company. The proposed one-for-one exchange ratio of JTS and Atari stock, as     
well, was based upon numerous factors, including the valuation assigned to JTS  
in its most recent round of preferred stock financing the financial forecasts of
JTS furnished to Atari, the due diligence review of the two companies, the      
relative ownership interests of the JTS and Atari stockholders in the surviving 
company and the historic and current trading prices of Atari Common Stock. At   
the end of the meeting, Atari and JTS agreed to present the proposed transaction
to their respective boards of directors. Following the meeting, the Executive   
Committee of the Atari Board of Directors met separately and considered the     
advisability of obtaining a fairness opinion from an investment banking firm    
with respect to the proposed merger, and Sam Tramiel was instructed to initiate 
discussions with respect to obtaining such an opinion.                          

     On January 19, 1996, Mr. Mitchell, Ms. Walker and representatives of Cooley
Godward reported to the JTS Board of Directors on the status of the negotiations
with Atari and the preliminary results of the JTS due diligence review of Atari.
The JTS Board discussed in substantial detail the merits and the risks of a     
possible business combination with Atari, as well as the alternative sources of 
financing then available to the company. Following discussion, the JTS Board of 
Directors instructed management to continue to pursue all financing             
alternatives, including a private equity placement and a possible transaction   
with Atari.                                                                     

  Between January 20 and January 29, 1996, Atari's and JTS' management and
legal counsel continued their negotiations and due diligence reviews of the two 
companies. In addition, counsel for Atari and JTS began preparation of a merger 
agreement and bridge loan financing documentation.                              

     On January 30, 1996, the JTS Board of Directors met to consider the results
of management's further due diligence review of Atari and the merits of a merger
between the two companies. The JTS Board discussed the                          

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terms of the proposed merger with representatives of Cooley Godward and reviewed
a draft of the merger agreement. In particular, the JTS Board considered the    
possibility of obtaining bridge financing from Atari, the condition of Atari's  
business and the JTS stockholders' interest in the combined company. The JTS    
Board also discussed with management the status of a possible private equity    
placement to meet the company's immediate capital requirements. The JTS Board   
noted, among other factors, that a private equity placement would require three 
months or longer to complete and that a business combination with Atari         
represented an immediate source of financing. After further discussion, the JTS 
Board of Directors unanimously approved the principal terms of the merger and   
authorized management and Cooley Godward to proceed with the finalization of the
merger agreement and bridge loan documentation substantially on the terms       
discussed by the JTS Board. A more detailed discussion of certain matters       
considered by the JTS Board of Directors at this meeting is included under the  
caption "-- Recommendation of the Board of Directors of JTS."                   

On January 30, 1996, JTS notified Montgomery that it was no longer    
considering a private placement to institutional investors and that it was      
engaged in merger discussions with Atari, and introduced Montgomery to Atari.   
Atari informed Montgomery that it wished to retain Montgomery to render a       
fairness opinion, and negotiations commenced between Atari and Montgomery       
regarding the terms of that engagement. On January 31, 1996, Atari and          
Montgomery entered into a written engagement letter, the terms of which are     
summarized below under "-- Opinion of Montgomery Securities."                   

     On February 1, 1996, the Atari Board of Directors held a telephonic meeting
to discuss the terms of the proposed merger with JTS. At the meeting, Jack      
Tramiel, Sam Tramiel and Mr. Liguori reviewed with the Board the proposed terms 
of the merger which had been discussed with JTS on January 17. Mr. Liguori also 
presented the results of Atari's due diligence investigation of JTS. At the     
meeting, the Atari Board instructed Jack Tramiel to proceed with merger         
negotiations and due diligence pending further deliberations by the Atari Board.

  On February 5, 1996, the Atari Board of Directors met at Atari's offices
beginning at 1:00 p.m. Present were the Atari directors, representatives of     
Wilson Sonsini Goodrich & Rosati, P.C., legal counsel to Atari, and             
representatives from Montgomery, Atari's financial advisor. The Atari Board     
reviewed the status of the negotiations regarding the proposed merger of Atari  
and JTS. In particular, the Board considered the one-for-one exchange ratio,    
closing conditions and termination provisions. Mr. Liguori also reported on the 
results of Atari's due diligence investigation of JTS. At the meeting,          
Montgomery presented the results of its review of the transaction and delivered 
its oral and written opinion that the conversion ratio of Atari Common Stock    
into JTS Common Stock is fair to Atari from a financial point of view, as of    
February 5, 1996. Following the Montgomery presentation, the Board conducted    
substantial deliberations regarding the proposed transaction including the      
future prospects for Atari's business and the risks and prospects associated    
with the JTS business. At the end of the meeting, the Atari Board instructed Mr.
Liguori to conduct further due diligence with respect to JTS' transaction with  
Moduler Electronics and other matters. The Board deferred a final decision on   
the merger pending the results of Mr. Liguori's additional due diligence. The   
meeting was adjourned at 7:00 p.m. on February 5 and continued for several hours
on the morning of February 6.                                                   

As the merger discussions continued, it became apparent that JTS'     
acquisition of Moduler Electronics would not be completed prior to the signing  
of the Merger Agreement. Accordingly, JTS agreed that the closing of JTS'       
acquisition of Moduler Electronics would be a condition to Atari's obligation to
close the Merger. JTS also agreed not to effect the acquisition of Moduler      
Electronics without the consent of Atari. Subsequent to the signing of the      
merger agreement, JTS and Moduler Electronics negotiated the final documentation
related to the terms of their merger. As part of Atari's due diligence, Atari   
was provided copies of the interim and definitive acquisition agreements.       

   From February 5, 1996 to February 12, 1996, Jack Tramiel, Sam Tramiel and
Mr. Liguori held a series of telephonic conversations and meetings with Mr.     
Tandon, Mr. Mitchell and Ms. Walker regarding the proposed transaction and due  
diligence matters. There were also numerous telephone calls among Jack Tramiel, 
Sam Tramiel, Michael Rosenberg (an Atari director) and Leonard Schreiber (an    
Atari director) regarding the proposed transaction and the results of the       
ongoing due diligence review. Similarly, JTS                                    

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management held a number of informal meetings with certain JTS Board members to 
discuss the results the ongoing due diligence review.                           

On February 12, 1996, the Atari Board of Directors held two telephonic
meetings to discuss the final terms of the merger agreement and the additional  
due diligence materials. Prior to the meeting, each member of the Board had been
provided with a draft of the proposed merger agreement and related documents,   
including disclosure schedules provided by Atari and JTS. Based on such         
information and further discussions, the Atari Board of Directors unanimously   
approved the merger agreement and the transactions contemplated thereby.        

    The merger agreement and related documents were executed by the parties on
February 12, 1996, and a press release was issued on February 13, 1996.         

   On April 8, 1996, JTS and Atari amended and restated the merger agreement
to modify the legal structure of the Merger from a consolidation of JTS and     
Atari into a newly-formed Delaware corporation to a merger of Atari with and    
into JTS, with JTS as the surviving company. This change in the legal structure 
of the Merger did not materially modify the economic terms of the merger. The   
merger agreement, as so amended and restated, is attached hereto as Annex A.    

    On June 21, 1996, the Atari Board of Directors met to review the status of
the Merger. Jack Tramiel, who had attended recent JTS Board meetings, updated   
the other members of the Board on the business prospects of JTS including the   
financial targets discussed at the JTS Board meeting on June 18, 1996 and the   
recent acceptance by Compaq of the Nordic 3-inch disk drive. See                
"-- Forward-Looking Financial Information Provided by JTS." Based on such       
information and further discussions, the Atari Board of Directors unanimously   
affirmed its approval of the Merger.                                            

   In June 1996, JTS and Atari amended the bridge loan documents to increase
the amount lent pursuant thereto to $30.0 million.                              

RECOMMENDATION OF THE BOARD OF DIRECTORS OF ATARI                               

     The Atari Board of Directors has determined that the Merger is fair to, and
in the best interests of, Atari and Atari's stockholders and unanimously        
recommends that the Atari stockholders vote in favor of approval of the Merger  
and the Merger Agreement.                                                       

   The Atari Board held a series of meetings at which a business combination
with or an investment in JTS was discussed. Individual members of the Board were
updated from time to time on developments. In reaching its conclusion to approve
the Merger and the Merger Agreement and to recommend that the stockholders      
approve the Merger and the Merger Agreement, the Atari Board considered a number
of factors, including, without limitation, the following:                       

     -  The level of working capital required to support Atari's future business
    which was significantly downsized in late 1995 and early 1996 as Atari
focused on licensing and software development activities.         

-  The future prospects for Atari's financial performance, taking into
       consideration the substantial decrease in net sales from 1994 to 1995 and
  the substantial operating losses sustained in the past several years
among other things.                                               

-  The prospects of the business of JTS, based partly upon financial  
forecasts, including cash flow, gross margin and unit shipment    
     projections, and related assumptions of JTS provided by JTS management.

-  The intense competition in the video game industry.                

  -  The significant equity position that the former stockholders of Atari
would have in the Combined Company.                               

-  The risks associated with the businesses of Atari and JTS.         

   -  The treatment of the Merger as a tax-free reorganization under Section
368(a) of the Code.                                               

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-  The opinion of Montgomery that the conversion ratio of Atari Common
     Stock into JTS Common Stock is fair to Atari, from a financial point of
view, as of February 5, 1996.                                     

-  The anticipated ability of the Combined Company to utilize Atari's 
     accumulated NOLs and tax carryforwards (although the Board of Directors
    did not assign material value to the NOLs and tax carryforwards due to
 the inherent limitations on the survival of such carryovers and the
complexity of applicable tax laws).                               

   -  The results of the due diligence review of JTS by management of Atari,
 Deloitte & Touche LLP and Wilson, Sonsini, Goodrich & Rosati, P.C.,
counsel to Atari.                                                 

    The Atari Board did not attempt to prioritize the foregoing factors in any
manner.                                                                         

RECOMMENDATION OF THE BOARD OF DIRECTORS OF JTS                                 

   The JTS Board of Directors has determined that the Merger is fair to, and
in the best interests of, JTS and JTS' stockholders and unanimously recommends  
that the JTS stockholders vote in favor of approval of the Merger and the Merger
Agreement.                                                                      

     The JTS Board of Directors held a series of formal and informal meetings in
January and February 1996 at which a business combination with Atari was        
discussed. During this period, an extensive financial and legal due diligence   
review of Atari was conducted by members of JTS management and accountants and  
legal counsel retained by JTS. Individual members of the JTS Board of Directors 
were updated regularly on developments and certain members of the Board         
participated actively in negotiations and discussions with Atari and the due    
diligence review of Atari. In reaching its conclusion to approve the Merger and 
the Merger Agreement and to recommend that the stockholders approve the Merger  
and the Merger Agreement, the JTS Board considered a number of factors,         
including, without limitation, the following:                                   

   -  JTS' need for working capital to maintain and expand its manufacturing
      operations and research and development activities and the immediate and
       significant source of capital to fund such operations and activities that
the merger with Atari would provide.                              

   -  The availability to JTS of alternative sources of capital and the time
required to obtain such capital.                                  

-  The benefits to the stockholders of JTS resulting from the expected
   trading market for JTS Common Stock following the Merger, which would
provide a means of liquidity for such stockholders' stock.        

   -  The opportunity for JTS stockholders to continue to participate in the
potential growth of JTS.                                          

    -  The diminished equity position that the former stockholders of JTS will
have in the Combined Company.                                     

-  The risks associated with the businesses of Atari and JTS.         

   -  The treatment of the Merger as a tax-free reorganization under section
368(a) of the Code.                                               

-  The anticipated ability of the Combined Company to utilize Atari's 
     accumulated NOLs and tax carryforwards (although the Board of Directors
    did not assign material value to the NOLs and tax carryforwards due to
 the inherent limitations on the survival of such carryovers and the
complexity of applicable tax laws).                               

  -  The results of the due diligence review of Atari by management of JTS
and Cooley Godward, counsel to JTS.                               

  The JTS Board did not attempt to prioritize the foregoing factors in any
manner.                                                                         

OPINION OF MONTGOMERY SECURITIES                                                

 Pursuant to an engagement letter dated January 31, 1996, Atari retained
Montgomery to render an opinion with respect to the fairness from a financial   
point of view of the consideration to be paid by Atari in connection with the   
acquisition of JTS. Montgomery is a nationally recognized firm and, as part of  
its investment banking activities, is regularly engaged in the valuation of     
businesses and their securities in connection with merger transactions and other
types of acquisitions, negotiated underwritings, secondary                      

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distributions of listed and unlisted securities, private placements and         
valuations for corporate and other purposes. Atari selected Montgomery to render
a fairness opinion on the basis of Montgomery's experience and expertise in     
transactions similar to the Merger and its reputation in the computer           
peripherals and investment communities.                                         

     On February 5, 1996, Montgomery delivered its oral and written opinion that
the conversion ratio of Atari Common Stock into JTS Common Stock was fair to    
Atari, from a financial point of view, as of that date. The amount of such      
consideration was determined pursuant to negotiations between Atari and JTS and 
not pursuant to recommendations of Montgomery. No limitations were imposed by   
Atari on Montgomery with respect to the investigations made or procedures       
followed in rendering its opinion.                                              

   THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO ATARI IS ATTACHED HERETO
AS APPENDIX C AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF 
MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT 
OF THE OPINION. MONTGOMERY'S OPINION IS DIRECTED TO THE ATARI BOARD OF DIRECTORS
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ATARI OR JTS AS  
TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. IN FURNISHING   
ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF
THE TERM "EXPERT" AS USED IN THE SECURITIES ACT, OR THAT ITS OPINION CONSTITUTES
A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT,   
AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN  
OPINION.                                                                        

In connection with its opinion, Montgomery, among other things: (i)   
reviewed certain publicly available financial and other data with respect to    
Atari, including the consolidated financial statements for recent years and     
interim periods to September 30, 1995, and certain other relevant financial and 
operating data relating to Atari and JTS made available to Montgomery from      
published sources and from the internal records of Atari and JTS, including the 
consolidated financial statements of JTS for recent years and interim periods to
November 30, 1995; (ii) reviewed the February 2, 1996 draft of the Merger       
Agreement provided to Montgomery by Atari; (iii) reviewed certain historical    
market prices and trading volumes of Atari Common Stock as reported on the      
American Stock Exchange; (iv) compared Atari and JTS from a financial point of  
view with certain other companies in the computer peripherals industry that     
Montgomery deemed to be relevant; (v) considered the financial terms, to the    
extent publicly available, of selected recent business combinations of companies
in the computer peripherals industry that Montgomery deemed to be comparable, in
whole or in part, to the Merger; (vi) reviewed and discussed with               
representatives of the management of Atari and JTS certain information of a     
business and financial nature regarding Atari and JTS, furnished to Montgomery  
by them, including the number of shares to be issued by JTS in connection with  
the acquisition of Moduler Electronics; (vii) reviewed and discussed with       
representatives of the management of Atari and JTS financial forecasts,         
including cash flow, gross margin and unit shipment projections, and related    
assumptions of JTS, provided to Montgomery by JTS management, which forecasts   
and assumptions included the estimated contribution of Moduler Electronics to   
JTS' financial performance; (viii) made inquiries regarding and discussed the   
Merger and the draft of the Merger Agreement and other matters related thereto  
with Atari's counsel; and (ix) performed such other analyses and examinations as
Montgomery deemed appropriate.                                                  

In connection with its review, Montgomery assumed and relied upon the 
accuracy and completeness of the foregoing information and did not assume any   
responsibility for independent verification of such information. With respect to
the financial forecasts provided to it as described above, Montgomery assumed   
for purposes of its opinion that such forecasts had been reasonably prepared on 
bases reflecting the best available estimates and judgments of the management of
JTS at the time of preparation as to the future financial performance of JTS,   
and, except as described below, that they provided a reasonable basis upon which
Montgomery could form its opinion. For purposes of its opinion and with the     
agreement of management of Atari, Montgomery adjusted the financial forecasts   
for JTS provided to Montgomery by the management of JTS to reflect more         
conservative assumptions regarding future results of operations. Such forecasts 
were based upon numerous variables and assumptions that are inherently          
uncertain, including, without limitation, factors related to general economic   
and competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such forecasts. Montgomery has assumed no liability for 
such forecasts. Montgomery also assumed that there had been no material changes 
in Atari's or JTS' assets, financial condition, results of                      

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operations, business or prospects since the respective dates of their last      
financial statements made available to Montgomery, and that there had occurred  
no material changes in the terms of JTS' proposed acquisition of Moduler        
Electronics. Montgomery relied on advice of counsel and independent accountants 
to Atari as to all legal and financial reporting matters with respect to Atari, 
the Merger and the draft of the Merger Agreement. In addition, Montgomery did   
not assume responsibility for making an independent evaluation, appraisal or    
physical inspection of the assets or individual properties of Atari or JTS, nor 
was Montgomery furnished with any such appraisals. Finally, Montgomery's opinion
is based on economic, monetary and market and other conditions as in effect on, 
and the information made available to Montgomery as of, February 5, 1996.       

  Montgomery further assumed, with the consent of Atari's management, that
the Merger would be consummated in accordance with the terms described in the   
draft of the Merger Agreement without any amendments thereto, and without waiver
by Atari or JTS of any of the conditions to their respective obligations        
thereunder.                                                                     

     Set forth below is a brief summary of the report presented by Montgomery to
Atari's Board of Directors on February 5, 1996 in connection with its opinion.  

   Discounted Cash Flow Analysis.  Montgomery applied a discounted cash flow
analysis to JTS financial forecasts for 1996, 1997 and 1998, prepared by JTS's  
management and provided to Montgomery, and for 1999 and 2000, prepared by       
Montgomery using assumptions more conservative than those underlying the JTS    
management forecasts. JTS did not provide Montgomery with any financial         
forecasts for periods beyond 1998. As described above, with Atari's consent     
Montgomery adjusted the forecasts prepared by JTS management, and the extensions
thereof prepared by Montgomery, to reflect more conservative assumptions        
regarding future results of operations. In conducting its review, Montgomery    
adjusted JTS' financial projections by reducing JTS' forecasted revenues and    
earnings before interest and taxes ("EBIT") by approximately 45% and 68%,       
respectively. The unadjusted forecasts are referred to as the "Base Case        
Forecasts," and the Base Case Forecasts as so adjusted by Montgomery are        
referred to as the "Alternative Case Forecasts."                                

In conducting its discounted cash flow analysis, Montgomery first     
calculated the estimated future streams of free cash flows that JTS would       
produce through the year 2000. Montgomery then estimated JTS's aggregate value  
at the end of 2000 by applying multiples ranging from 7.0x to 8.0x to JTS'      
estimated EBIT in 2000. Finally, Montgomery discounted such cash flow streams   
and aggregate values to present values using discount rates ranging from 25.0%  
to 35.0%, chosen to reflect different assumptions regarding Atari's cost of     
capital, and reduced such present values by JTS' net debt as of December 31,    
1995. This analysis indicated an imputed equity value (defined as aggregate     
value minus net debt) of JTS of between $449.3 million and $725.9 million based 
on the Base Case Forecasts, and of between $106.1 million an $192.5 million     
based on the Alternative Case Forecasts. By contrast, the consideration to be   
provided by Atari in the Merger, based on the Exchange Ratio and the February 2,
1996 closing sale price of Atari Common Stock on the American Stock Exchange of 
$2.00 per share, equals approximately $75.7 million.                            

     Comparable Company Analysis.  Using public and other available information,
Montgomery calculated the imputed equity value of JTS based on the multiples of 
estimated 1996 revenue, EBIT and net income at which three publicly traded disk 
drive companies were trading on February 2, 1996. The February 2, 1996 stock    
prices of the comparable companies reflected the following median multiples:    
0.3x estimated 1996 revenues; 4.8x estimated 1996 EBIT; and 8.5x estimated 1996 
net income. Montgomery applied the foregoing median multiples to the analogous  
forecasted 1996 statistics for JTS, made applicable adjustments to reflect JTS' 
net debt (defined as debt minus cash) at December 31, 1995, narrowed the        
resulting range of data to exclude valuations that Montgomery deemed to be      
unrealistically high, and applied a private company illiquidity discount to the 
resulting totals. This analysis indicated an imputed equity value of JTS of     
between $70.0 million and $175.0 million based on the Base Case Forecasts, and  
of between $49.0 million and $105.0 million based on the Alternative Case       
Forecasts. By contrast, the consideration to be provided by Atari in the Merger,
based on the Exchange Ratio and the February 2, 1996 closing sale price of Atari
Common Stock on the American Stock Exchange of $2.00 per share, equals          
approximately $75.7 million.                                                    

  Comparable Transactions Analysis.  Montgomery reviewed the consideration
paid in the following twelve acquisitions of comparable disk drive and other    
computer storage companies that were announced since                            

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1989 (target/acquiror): Micropolis (disk drive business)/Singapore Technologies 
Industrial; Maxtor/Hyundai Electronics Industries (two separate transactions);  
Conner Peripherals Inc./Seagate; Digital Equipment Corporation (disk drive      
business)/Quantum; Sunward Technologies Inc./Read-Rite Corporation; Archive     
Corporation/Conner Peripherals Inc.; Dastek Inc./Komag Inc.; MiniScribe         
Corporation (assets)/Maxtor; Cipher Data Products Inc./Archive Corporation;     
Imprimis Technology Inc./Seagate; and Irwin Magnetic Systems Inc./Cipher Data   
Products Inc. Montgomery analyzed the consideration paid in such transactions as
a multiple of the target companies' revenue, EBIT and net income for the latest 
twelve months ("LTM"). Such analysis yielded median multiplies of 0.5x LTM      
revenue, 17.6x LTM EBIT and 18.4x LTM net income. Montgomery applied the        
foregoing median multiples to the analogous forecasted 1996 statistics for JTS  
and made applicable adjustments to reflect JTS' net debt at December 31, 1995.  
The foregoing process yielded a range of imputed equity values of JTS as of     
December 31, 1996. Montgomery then discounted that range to present values using
a discount rate of 40%, a rate generally considered to reflect the standard     
venture capital return hurdle, and narrowed the resulting range of data to      
exclude valuations that Montgomery deemed to be unrealistically high. This      
analysis indicated an imputed equity value of JTS of between $150.0 million and 
$300.0 million based on the Base Case Forecasts, and of between $100.0 million  
and $250.0 million based on the Alternative Case Forecasts. By contrast, the    
consideration to be provided by Atari in the Merger, based on the Exchange Ratio
and the February 2, 1996 closing sale price of Atari Common Stock on the        
American Stock Exchange of $2.00 per share, equals approximately $75.7 million. 

No other company or transaction used in the comparable transactions   
analysis as a comparison is identical to JTS or the Merger. Accordingly, an     
analysis of the results of the foregoing is not mathematical; rather, it        
involves complex considerations and judgments concerning differences in         
financial and operating characteristics of the companies and other factors that 
could affect the public trading value of the companies to which JTS and the     
Merger are being compared.                                                      

    Contribution Analysis.  Montgomery compared the percentage interest in the
Combined Company that will be held by present stockholders of Atari and JTS     
immediately following the Merger -- approximately 62% and 38%, respectively --  
to the relative contributions of the two companies to various operating         
statistics of the merged entity. Montgomery compared Atari's revenues for the   
twelve months ended September 30, 1995 (the last date for which revenue         
statistics for Atari were available) to JTS's revenues for the twelve months    
ended January 15, 1996, which comparison indicated a relative contribution of   
approximately 66% and 34%, respectively, for Atari and JTS. Montgomery also     
compared Atari's estimated 1996 revenues (which Montgomery assumed would be     
equal to Atari's revenues for the twelve months ended September 30, 1995) to    
JTS' backlog of approximately $25.2 million as of January 15, 1996, to JTS's    
1996 run rate revenues (defined as JTS' actual revenues for January 1 through   
15, 1996, which equaled approximately $3.1 million, on an annualized basis) and 
to JTS's forecasted 1996 revenues (based on the Base Case Forecasts). Such      
comparisons indicated relative contributions of approximately 52% and 48%, 26%  
and 74%, and 6% and 94%, respectively, for Atari and JTS.                       

   The summary set forth above does not purport to be a complete description
of the presentation by Montgomery to Atari or of the analyses performed by      
Montgomery. The preparation of a fairness opinion necessarily is not susceptible
to partial analysis or summary description. Montgomery believes that its        
analyses and the summary set forth above must be considered as a whole and that 
selecting portions of its analyses and of the factors considered, without       
considering all analyses and factors, would create an incomplete view of the    
process underlying the analyses set forth in its presentation to Atari. In      
addition, Montgomery may have given various analyses more or less weight than   
other analyses, and may have deemed various assumptions more or less probable   
than other assumptions, so that the ranges of valuations resulting from any     
particular analysis described above should not be taken to be Montgomery's view 
of the actual value of JTS. Although Montgomery did not consider any of the     
foregoing analyses in isolation for purposes of rendering its opinion,          
Montgomery does not believe that any of such analyses is inconsistent with its  
opinion.                                                                        

In performing its analyses, Montgomery made numerous assumptions with 
respect to industry performance, general business and economic conditions and   
other matters, many of which are beyond the control of Atari and JTS. The       
analyses performed by Montgomery are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
those suggested by such analyses.                                               

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Such analyses were prepared solely as part of Montgomery's analysis of the      
fairness of the Merger to Atari and were provided to Atari in connection with   
the delivery of Montgomery's opinion. The analyses do not purport to be         
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at any time in the future.         
Montgomery used in its analyses various projections of future performance       
prepared by the managements of Atari and JTS. The projections are based on      
numerous variables and assumptions which are inherently unpredictable and must  
be considered not certain of occurrence as projected. Accordingly, actual       
results could vary significantly from those set forth in such projections.      

 As described above, Montgomery's opinion and presentation to Atari were
among the many factors taken into consideration by Atari in making its          
determination to approve, and to recommend that its stockholders approve, the   
Merger.                                                                         

Pursuant to a letter agreement dated January 31, 1996 (the "Engagement
Letter"), Atari engaged Montgomery to render an opinion with respect to the     
fairness from a financial point of view of the consideration to be paid by Atari
in connection with the acquisition of JTS. The Engagement Letter provides for   
Atari to pay Montgomery a fee of $325,000, which was paid upon delivery of      
Montgomery's opinion. The fee is not conditioned on the outcome of Montgomery's 
opinion or whether or not such opinion was deemed to be favorable for any       
party's purposes. The Engagement Letter also calls for Atari to reimburse       
Montgomery for its reasonable out-of-pocket expenses. Pursuant to a separate    
letter agreement, Atari has agreed to indemnify Montgomery, its affiliates, and 
their respective partners, directors, officers, agents, consultants, employees  
and controlling persons against certain liabilities, including liabilities under
the federal securities laws.                                                    

  Montgomery has not performed investment banking services for JTS, except
that Montgomery was contacted in connection with a potential private placement  
of JTS securities.                                                              

    The Atari Board of Directors does not intend to obtain an updated fairness
opinion with respect to the Merger.                                             

FORWARD-LOOKING FINANCIAL INFORMATION PROVIDED BY JTS*                          

As a matter of course, JTS does not intend to publicly disclose       
forward-looking financial information. Nevertheless, in connection with the due 
diligence review of JTS' business, the Atari Board of Directors and Montgomery  
reviewed preliminary financial targets furnished by JTS in January 1996. Such   
financial targets indicated revenues of $445 million, gross profit of $100      
million and net income of $53 million for fiscal 1997. These financial targets  
were based on certain assumptions including assumptions that JTS would develop  
and introduce new products on a timely basis, that Indian bank funding would be 
available on a timely basis for facility expansion at Moduler Electronics, that 
the notebook computer systems designed to accept the Nordic disk drive would be 
released within a certain time frame, that competitive conditions within the    
disk drive industry would not undergo material adverse change, that the market  
for computer systems, storage upgrades to computer systems and multimedia       
applications, such as digital video and video on demand and hence the market for
hard disk drives, would remain strong, and that there would be no material      
adverse change in JTS' operations or business. Such assumptions involve         
judgments with respect to, among other things, future economic conditions,      
financial market conditions and future business decisions, all of which are     
difficult or impossible to predict accurately and many of which are beyond the  
control of JTS.                                                                 

   In June 1996, JTS management provided to the Boards of Directors of Atari
and JTS updated preliminary financial targets for JTS, based on the assumption  
that the Merger would be consummated in June 1996. Such financial targets for   
JTS indicated revenues of $238 million, gross profit of $31 million and a net   
loss of $12 million for fiscal 1997. The decline in targeted revenues and gross 
profit and the increase in net                                                  

---------------                                                                 

* The statements contained in this section regarding JTS' financial targets     
constitute "forward-looking statements" within the meaning of Section 27A of
 the Securities Act and Section 21E of the Exchange Act and are subject to the
safe harbors created thereby.                                               

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loss in the June 1996 targets compared to the January 1996 targets resulted     
primarily from delays in the scheduled releases of notebook computers which     
would incorporate JTS' Nordic drives. JTS' manufacturing schedule was changed to
reflect this delay in expected shipments of its Nordic products. As a result of 
the delay in production and sales of Nordic disk drives, Palladium disk drives, 
on which JTS earns a lower gross margin than Nordic drives, are expected to     
comprise a greater proportion of total revenues for fiscal 1997. Accordingly,   
JTS' targeted gross margin decreased from January 1996 to June 1996.            
Additionally, expected funding from an Indian bank, for facilities expansion and
capital equipment for Moduler Electronics was delayed three months resulting in 
a decrease in targeted production capacity. The net loss in the June 1996       
updated preliminary financial targets does not include expenses associated with 
the Merger, including a write-off of approximately $100 million of purchased    
in-process research and development in addition to goodwill amortization, Atari 
general and administrative expenses and interest expense related to the Atari   
convertible debentures.                                                         

While JTS believes that the assumptions underlying the preliminary    
financial targets are reasonable, any of the assumptions could prove inaccurate 
and, therefore, there can be no assurance that the forward-looking financial    
information will prove to be accurate. In addition, as disclosed elsewhere in   
this Joint Proxy Statement/Prospectus under "Risk Factors," the business and    
operations of JTS are subject to substantial risks which increase the           
uncertainty inherent in such preliminary financial targets. Any of the factors  
disclosed under "Risk Factors" could cause the actual revenues, operating income
and net income of JTS to differ materially from the preliminary financial       
targets described above. Accordingly, for these reasons it is expected that     
there will be differences between the actual and targeted results, and actual   
results may be materially higher or lower than those indicated above.           

In light of the significant uncertainties inherent in forward-looking 
financial information of any kind, the inclusion of such information herein     
should not be regarded as a representation by JTS, Atari or any other person    
that the preliminary financial targets will be achieved. Investors are cautioned
that these preliminary financial targets should not be regarded as fact and     
should not be relied upon as an accurate representation of future results.      
Further, the preliminary financial targets furnished by JTS were not prepared   
with a view to public disclosure or in compliance with the established          
guidelines concerning financial projections promulgated by the American         
Institute of Certified Public Accountants. In addition, such preliminary        
financial targets do not purport to present operations in accordance with       
generally accepted accounting principles and have not been audited, compiled or 
otherwise examined by Arthur Andersen LLP, JTS' independent auditors, or by any 
other independent auditor. Accordingly, neither Arthur Andersen LLP nor any     
other independent auditor assumes any responsibility for the preliminary        
financial targets disclosed herein. The preliminary financial targets are being 
presented solely because they were furnished to the Atari Board of Directors and
Montgomery, and they should not be interpreted as suggesting that the Atari     
Board or Montgomery relied solely upon such targets or placed any particular    
emphasis upon such targets in evaluating any proposed transaction. JTS has      
advised Atari and Montgomery that its preliminary financial targets were        
prepared solely for internal use and capital budgeting and other management     
decisions, and are subjective in many respects and thus susceptible to          
interpretations and periodic revision based on actual experience and business   
developments. JTS does not intend publicly to update or otherwise publicly to   
revise the preliminary financial targets disclosed above to reflect             
circumstances existing after the date of their preparation.                     

SUMMARY OF THE MERGER AGREEMENT                                                 

  The detailed terms of, and conditions to, the Merger and certain related
transactions are contained in the Merger Agreement, a copy of which is attached 
hereto as Appendix A. The statements made in this Joint Proxy                   
Statement/Prospectus with respect to the terms of the Merger and such related   
transactions are qualified in their entirety by reference to the more complete  
information set forth in the Merger Agreement.                                  

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EFFECTIVE TIME                                                                  

    The Merger will become effective at such time as the Certificate of Merger
has been duly filed with the Secretary of State of the State of Nevada in       
accordance with the NGCL and with the Secretary of State of the State of        
Delaware in accordance with the DGCL, or at such later time as is specified in  
the Certificate of Merger (the "Effective Time"). See "-- Conditions to the     
Merger." It is anticipated that, if the Merger and the Merger Agreement are     
approved at the respective stockholder meetings of Atari and JTS and all other  
conditions to the Merger have been fulfilled or waived, the Effective Time will 
occur as soon as practicable following the approval of the Merger and the Merger
Agreement by the stockholders of Atari and JTS.                                 

MANNER AND BASIS OF CONVERTING ATARI COMMON STOCK                               

   Conversion of Atari Stock.  At the Effective Time, each outstanding share
of Atari Common Stock will be automatically converted into one share of JTS     
Common Stock. Shares of Atari Common Stock held as treasury stock and shares of 
Atari Common Stock held directly or indirectly by JTS shall not be converted    
into JTS Common Stock.                                                          

   Based on the number of shares of Atari Common Stock, JTS Common Stock and
JTS Series A Preferred Stock outstanding as of June 18, 1996, immediately after 
consummation of the Merger (assuming the conversion of all outstanding shares of
JTS Series A Preferred Stock into shares of JTS Common Stock and that none of   
the holders of JTS Common Stock or JTS Series A Preferred Stock perfect         
appraisal or dissenters' rights), a total of 102,814,954 shares of JTS Common   
Stock would be issued and outstanding, of which 63,854,718 shares, or 62%, would
represent shares issued in the Merger upon conversion of Atari Common Stock.    

Fractional Shares.   No fractional shares of JTS Common Stock will be 
issued as a result of the Merger. In lieu thereof, each holder of Atari Common  
Stock shall receive cash (without interest) in an amount equal to the fraction  
of a share of JTS Common Stock otherwise issuable to such holder multiplied by  
the last sale price per share of Atari Common Stock for the trading day         
preceding the date of the Effective Time as reported in The Wall Street Journal.

     Exchange of Certificates.  Registrar and Transfer Company, Cranford, NJ has
been designated to act as Exchange Agent for the purpose of exchanging Atari    
Common Stock certificates for JTS Common Stock certificates. As promptly as     
practicable after the Effective Time, instructions will be mailed to all holders
of Atari Common Stock regarding treatment of their stock certificates. After the
Effective Time, there will be no further registration of transfers of Atari     
Common Stock.                                                                   

 Upon the surrender of a certificate representing shares of Atari Common
Stock to the Exchange Agent, together with a duly executed letter of            
transmittal, the holder of such certificate will be entitled to receive in      
exchange therefor the number of shares of JTS Common Stock to which the holder  
of Atari Common Stock is entitled pursuant to the provisions of the Merger      
Agreement. Until outstanding certificates formerly representing shares of Atari 
Common Stock are properly surrendered to the Exchange Agent, no dividend or     
distribution payable to holders of record of JTS Common Stock shall be paid to  
any holder of such outstanding certificates, but upon surrender of such         
outstanding certificates by such holder there shall be paid to such holder the  
amount of any dividends or distributions (without interest) theretofore paid    
with respect to such whole shares of JTS Common Stock, but not paid to such     
holder, and which dividends or distributions had a record date occurring on or  
subsequent to the Effective Time.                                               

Until a certificate representing shares of Atari Common Stock has been
surrendered to the Exchange Agent, each such certificate shall be deemed at any 
time after the Effective Time to represent the right to receive upon such       
surrender the number of shares of JTS Common Stock to which the stockholder is  
entitled under the Merger Agreement.                                            

  ATARI STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE INSTRUCTIONS TO DO SO AFTER COMPLETION OF THE MERGER.                   

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REPRESENTATIONS AND WARRANTIES                                                  

 The Merger Agreement contains various representations and warranties by
each of the parties to the effect that, subject to certain exceptions, among    
other things: (a) such party is duly organized and in good standing, and has the
requisite corporate power to own its properties and carry on its business; (b)  
each subsidiary of JTS and each significant subsidiary of Atari has been duly   
organized and is in good standing, and all issued and outstanding capital stock 
of such subsidiary is owned by its respective parent company; (c) such party has
a certain number of authorized shares, issued and outstanding shares, and shares
reserved for issuance; (d) such party has all requisite corporate power and     
authority to enter into the Merger Agreement and to consummate the Merger, the  
execution and delivery of the Merger Agreement has been duly authorized, and the
Merger Agreement constitutes the valid and binding obligation of such party; (e)
the execution, delivery and consummation of the Merger will not conflict with   
such party's Certificate of Incorporation or Bylaws, or violate any material    
agreement or law to which such party or its assets are bound; (f) the financial 
statements of such party have been prepared in accordance with generally        
accepted accounting principles and fairly present its financial condition,      
results of operations and cash flows; (g) such party has operated its business  
in the ordinary course consistent with past practice since certain dates        
(January 28, 1996, in the case of JTS, and December 31, 1995, in the case of    
Atari (respectively, such party's "Balance Sheet Date")), and, since such       
Balance Sheet Date, there have been no actions or events that have materially   
adversely affected such party; (h) such party has no material obligations or    
liabilities other than those adequately provided for in such party's balance    
sheet as of the Balance Sheet Date, or those incurred in the ordinary course of 
business; (i) there is no litigation pending or, to the best of such party's    
knowledge threatened against such party that, if determined or resolved         
adversely, would have a material adverse effect on such party; (j) there is no  
agreement or order binding upon such party which has or could have the effect of
prohibiting or impairing such party's business; (k) such party has obtained each
governmental license or permit required for the operation of such party's       
business; (l) such party has good and marketable title to all of its properties 
and assets reflected in its balance sheet or acquired after such party's Balance
Sheet Date, except for such liens as do not materially impair such party's      
business or are reflected on such party's balance sheet; (m) such party owns    
certain intellectual property, has no knowledge of material unauthorized use,   
disclosure infringement or misappropriation of any such intellectual property,  
and has not entered into any agreement to indemnify any other person against a  
charge of infringement of such intellectual property; (n) to the knowledge of   
such party, no hazardous material is present on such party's property and such  
party has materially complied with certain laws and regulations relating to such
hazardous materials; (o) such party has timely filed all required tax returns or
statements, and such party has provided adequate accruals in its financial      
statements for any taxes not yet paid; (p) such party has complied with the     
provisions of the Employment Retirement Income Security Act of 1974, as amended,
with respect to each "employee benefit plan" maintained by it; (q) execution of 
the Merger Agreement will not result in extraordinary payments to or the        
acceleration of benefits to such party's employees; (r) such party is in        
material compliance with applicable laws and regulations regarding employment,  
discrimination, and other terms and conditions of employment, and such party has
no pending or, to its knowledge threatened material controversy with any of its 
employees.                                                                      

   In addition to the foregoing mutual representations and warranties, Atari
has made certain representations and warranties to JTS to the effect that: (a)  
Atari has furnished to JTS copies of each report, registration statement, proxy 
statement and other document filed with the Commission by Atari since January 1,
1993, such reports as of the dates they were filed do not contain an untrue     
statement or omit to state a material fact, and such reports complied in all    
material respects, when filed, with the then applicable requirements of the     
Commission and (b) Atari has obtained an opinion from Montgomery Securities to  
the effect that the Merger is fair, from a financial point of view, to Atari.   

The foregoing summary of the various representations and warranties is
qualified in its entirety by the full text of the representations and warranties
of Atari and JTS set forth in Articles III and IV of the Merger Agreement       
attached to the Joint Proxy Statement/Prospectus as Appendix A.                 

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CONDUCT OF BUSINESS PRIOR TO THE MERGER                                         

   Under the terms of the Merger Agreement, and for the period from the date
of the Merger Agreement and continuing until the earlier of the termination of  
the Merger Agreement or the Effective Time of the Merger, each of Atari and JTS 
has agreed (except to the extent expressly contemplated by the Merger Agreement 
or as consented to in writing by the other), to carry on its and its            
subsidiaries' business in the usual, regular and ordinary course in             
substantially the same manner as heretofore conducted, to pay and to cause its  
subsidiaries to pay debts and taxes when due subject to good faith disputes over
such debts or taxes and to pay or perform other obligations when due. Each of   
Atari and JTS has also agreed to promptly notify the other of any event or      
occurrence not in the ordinary course of its or its subsidiaries' business, and 
of any event which could have a material adverse effect on it and its           
subsidiaries, taken as a whole. In addition, each of Atari and JTS has agreed   
that it will not, among other things, do, cause or permit any of the following, 
or allow, cause or permit any of its subsidiaries to do, cause or permit any of 
the following, without the prior written consent of the other: (a) cause or     
permit any amendments to its Certificate of Incorporation or Bylaws; (b) issue, 
deliver or sell or authorize or propose the issuance, delivery or sale of, or   
purchase or propose the purchase of, any shares of its capital stock or         
securities convertible into, or subscriptions, rights, warrants or, options to  
acquire, or other agreements or commitments of any character obligating it to   
issue any such shares or other convertible securities, other than the issuance  
of shares of its Common Stock pursuant to the exercise of stock options,        
warrants or other rights therefor outstanding as of the date of the Merger      
Agreement (provided, however, that JTS may, in the ordinary course of business  
consistent with past practice, grant options to purchase up to 250,000 shares of
Common Stock under its 1995 Stock Option Plan, and that Atari may issue         
securities under certain existing benefit plans); (c) declare or pay any        
dividends on or make any other distributions (whether in cash, stock or         
property) in respect of any of its capital stock, or split, combine or          
reclassify any of its capital stock or issue or authorize the issuance of any   
other securities in respect of, in lieu of or in substitution for shares of its 
capital stock, or repurchase or otherwise acquire, directly or indirectly, any  
shares of its capital stock except from former employees, directors and         
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries; (d)    
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or   
any corporation or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in   
the aggregate, to its and its parent's/subsidiaries' business, taken as a whole;
(e) other than in the ordinary course of business, make or change any material  
election in respect of taxes, adopt or change any accounting method in respect  
of taxes, file any material return or any amendment to a material return, enter 
into any closing agreement, settle any claim or assessment in respect of taxes, 
or consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of taxes; (f) accelerate, amend or change the    
period of exercisability of options, warrants or other rights granted under its 
employee stock plans or authorize cash payments in exchange for any options,    
warrants or other rights granted under any of such plans; or (g) take, or agree 
in writing or otherwise to take, any of the actions described in (a) through (f)
above, or any action which would make any of its representations or warranties  
contained in the Merger Agreement untrue or incorrect or prevent it from        
performing or cause it not to perform its covenants thereunder.                 

     In addition, under the terms of the Merger Agreement, each of Atari and JTS
has agreed that, during the period from the date of the Merger Agreement and    
continuing until the earlier of the termination of the Merger Agreement or the  
Effective Time, and except as expressly contemplated by the Merger Agreement, it
will not, among other things, do, cause or permit any of the following, or allow
cause or permit any of its subsidiaries to do, cause or permit any of the       
following, without the prior written consent of the other party: (a) enter into 
any material contract or commitment, or violate, amend or otherwise modify or   
waive any of the terms of any of its material contracts, other than in the      
ordinary course of business consistent with past practice; (b) transfer to any  
person or entity any rights to its intellectual property other than in the      
ordinary course of business consistent with past practice; (c) sell, lease,     
license or otherwise dispose of or encumber any of its properties or assets     
which are material, individually or in the aggregate, to its and its            
subsidiaries' business, taken as a whole, except in the ordinary course of      
business consistent with past practice; (d) incur any indebtedness for borrowed 
money (except amounts borrowed under such party's existing revolving credit line
or drawdowns of existing credit facilities for working capital or construction  
purposes only) or guarantee                                                     

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any such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others; (e) revalue any of its assets, including without          
limitation writing down the value of inventory or writing off notes or accounts 
receivable other than in the ordinary course of business and other than as      
disclosed in such party's disclosure schedule; (f) pay, discharge or satisfy in 
an amount in excess of $50,000 in any one case or $250,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,      
contingent or otherwise) arising other than in the ordinary course of business, 
other than the payment, discharge or satisfaction of liabilities reflected or   
reserved against in such party's financial statements; (g) terminate or waive   
any right of substantial value, other than in the ordinary course of business;  
(h) adopt or amend any employee benefit or stock purchase or option plan; (i)   
commence a lawsuit other than (i) for the routine collection of bills, (ii) in  
such cases where it in good faith determines that failure to commence suit would
result in the material impairment of a valuable aspect of its business, provided
that it consults with the other party prior to the filing of such a suit, or    
(iii) for a breach of the Merger Agreement; (j) take, or agree in writing or    
otherwise to take, any of the actions described in (a) through (i) above, or any
action which would make any of its representations or warranties contained in   
the Merger Agreement untrue or incorrect or prevent it from performing or cause 
it not to perform its covenants thereunder. In addition, Atari has agreed that, 
during the period from the date of the Merger Agreement and continuing until the
earlier of the termination of the Merger Agreement or the Effective Time, it    
shall not, without the prior written consent of JTS, make any capital           
expenditures, capital additions or capital improvements except in the ordinary  
course of business and consistent with past practice, and in any event not to   
exceed $25,000 per quarter.                                                     

    Each of the parties has further agreed that from and after the date of the
Merger Agreement until the earlier of the effective time of the Merger or the   
termination of the Merger Agreement in accordance with its terms, it will not,  
directly or indirectly (i) solicit, initiate discuss or engage in negotiations  
with any person (whether such negotiations are initiated by such party or       
otherwise) or take any other action intended or designed to facilitate the      
efforts of any person, other than the other party, relating to the possible     
acquisition of such party or any of its subsidiaries (whether by way of merger, 
purchase of capital stock, purchase of assets of otherwise) or any material     
portion of its or their capital stock or assets (with any such efforts by any   
such person, including a firm proposal to make such an acquisition, being       
referred to as an "Acquisition Proposal"), (ii) provide non-public information  
with respect to such party or any of its subsidiaries to any person relating to 
a possible Acquisition Proposal by any person, other than the other party, (iii)
enter into an agreement with any person, other than the other party, providing  
for a possible Acquisition Proposal, or (iv) make or authorize any statement,   
recommendation or solicitation in support of any possible Acquisition Proposal  
by any person other than the other party. If either party receives any          
unsolicited offer or proposal to enter into negotiations relating to an         
Acquisition Proposal, such party shall immediately notify the other party       
thereof, including information as to the identity of the party making any such  
offer and the specific terms of such offer. Each party agrees that the issuance 
of an injunction or other equitable remedy is an appropriate remedy for any     
breach of such agreements.                                                      

  Notwithstanding the foregoing, nothing contained in the Merger Agreement
prevents the Board of Directors of Atari (or its agents pursuant to its         
instructions) from taking any of the following actions: (i) informing any third 
party of the foregoing conditions or providing a copy of the Merger Agreement   
(other than the JTS Disclosure Schedule) to any third party and (ii)            
considering, negotiating, approving and recommending to the stockholders of     
Atari an unsolicited, bona fide, written Acquisition Proposal which the Board of
Directors of Atari determines in good faith (after consultation with its        
financial advisors and after consultation with outside counsel as to whether the
Board of Directors is required to do so in order to discharge properly its      
fiduciary duties to stockholders under applicable law) would result in a        
transaction more favorable to Atari's stockholders from a financial point of    
view than the Merger (a "Superior Atari Proposal"). However, in the event Atari 
were to accept a Superior Atari Proposal, JTS would be entitled to convert the  
Atari loan into shares of JTS Series A Preferred Stock.                         

ADDITIONAL AGREEMENTS                                                           

   Each of Atari and JTS shall afford the other with reasonable access prior
to the Effective Time to (a) all of such party's properties, books, contracts,  
commitments and records and (b) all other information                           

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concerning the business, properties and personnel of such party as the other    
party may reasonably request. Each party shall promptly apply for or otherwise  
seek, and use its best efforts to obtain, all consents and approvals required to
be obtained by it for the consummation of the Merger, and shall use its best    
efforts to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment thereof.    

     Each person or entity who holds one percent (1%) or more of the outstanding
shares of JTS capital stock and each person or entity who holds more than five  
percent (5%) of the outstanding shares of Atari capital stock shall execute and 
deliver a "continuity of interest certificate" (the "Continuity of Interest     
Certificate") prior to the Closing. The Continuity of Interest Certificate shall
contain certain representations relating to such stockholders' intention to sell
or dispose of their respective holdings of Atari or JTS capital stock. The      
Combined Company shall be entitled to place appropriate legends on the          
certificates evidencing any JTS Common Stock to be received by such persons or  
entities pursuant to the terms of the Merger Agreement. Such legends shall refer
to, among other things, restrictions on disposition of JTS Common Stock pursuant
to Rule 145 under the Securities Act.                                           

     Certain stockholders of Atari and JTS, prior to the execution of the Merger
Agreement, executed and delivered a Voting Agreement pursuant to which such     
stockholders agreed to: (a) refrain from selling or otherwise disposing of any  
shares of Atari or JTS capital stock, as applicable, prior to the Effective Time
or the date of termination of the Merger Agreement; (b) vote such shares in     
favor of the Merger Agreement, the Merger and any matter that could reasonably  
be expected to facilitate the Merger; and (c) deliver to Atari or JTS, as       
applicable, an irrevocable proxy to vote such shares in favor of the Merger     
Agreement and the Merger.                                                       

    At the Effective Time, each outstanding option to purchase shares of Atari
Common Stock under the Atari Stock Option Plan, whether vested or unvested, will
be assumed by JTS. Each such option so assumed by JTS under the Merger Agreement
shall continue to have, and be subject to, the same terms and conditions set    
forth in the Atari Stock Option Plan.                                           

   After the Effective Time, JTS shall (to the extent not prohibited by law)
indemnify and hold harmless, and pay in advance expenses, costs, damages,       
settlements and fees to each director or officer of Atari serving as such as of 
the date of the Merger Agreement as provided under Nevada law or the Articles of
Incorporation or Bylaws of Atari, or any indemnification agreement to which     
Atari and such officer or director is a party, in each case as in effect at the 
date of the Merger Agreement, which provisions shall survive the Merger and     
shall continue in full force and effect after the Effective Time.               

BOARD OF DIRECTORS AND OFFICERS FOLLOWING MERGER                                

At the Effective Time, the directors of the Combined Company will be  
Sirjang L. Tandon, David T. Mitchell, Alain L. Azan, Jean D. Deleage, Roger W.  
Johnson, Lip-Bu Tan, Jack Tramiel and Michael Rosenberg. Messrs. Tandon,        
Mitchell, Azan, Deleage, Johnson and Tan are currently directors of JTS, and    
Messrs. Tramiel and Rosenberg are currently directors of Atari. The executive   
officers of JTS immediately prior to the effective time will be the executive   
officers of the Combined Company. The parties have also agreed that Jack Tramiel
or a person designated by Jack Tramiel shall be a member of each committee of   
the Board of Directors of the Combined Company.                                 

CONDITIONS TO THE MERGER                                                        

Each party's respective obligation to effect the Merger is subject to,
among other things, the approval of the Merger Agreement and the Merger by the  
requisite votes of the stockholders of Atari and JTS, the Commission having     
declared this Joint Proxy Statement/Prospectus effective, and the satisfaction  
prior to the Effective Time of the Merger of the additional following           
conditions: (a) the absence of any injunction or other legal action or          
regulatory restraint or prohibition preventing the consummation of the Merger or
rendering the consummation of the Merger illegal; (b) all government approvals, 
waivers and consents, if any, necessary for consummation of or in connection    
with the Merger and the several transactions contemplated thereby, including    
such approvals, waivers and consents as may be required under the Securities    
Act, under state Blue Sky laws, and under the Hart-Scott-Rodino Antitrust       
Improvements Act of 1976, as amended (the "HSR                                  

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Act") having been received; (c) Atari and JTS having received substantially     
identical written opinions of their respective counsel to the effect that, based
upon certain representations and assumptions and subject to certain             
qualifications, the Merger will constitute a tax-free reorganization; (d) the   
JTS Common Stock shall have been approved for listing on the Nasdaq National    
Market or the American Stock Exchange; (e) no more than five percent (5%) of the
shareholders of JTS shall have exercised appraisal or dissenter's rights with   
respect to the Merger; (f) certain significant stockholders of each party shall 
have executed Continuity of Interest Certificates; and (g) JTS shall have       
assumed the Atari Debentures.                                                   

 The obligations of JTS to effect the Merger are subject to, among other
things, the satisfaction prior to the Effective Time of the Merger of the       
following conditions, unless waived by JTS: (a) the representations and         
warranties of Atari in the Merger Agreement shall be true and correct in all    
respects on and as of the Effective Time as though such representations and     
warranties were made on and as of such time, except to the extent that the      
failure of such representations and warranties to be true and accurate in such  
respects has not had and could not reasonably be expected to have a material    
adverse effect on Atari and its subsidiaries; (b) Atari shall have performed and
complied in all respects with all covenants, obligations and conditions of the  
Merger Agreement required to be so performed and complied with, except to the   
extent that the failure to so perform and comply has not had and could not      
reasonably be expected to have a material adverse effect on Atari and its       
subsidiaries; (c) JTS shall have received a certificate executed on behalf of   
Atari by its President and its Chief Financial Officer to the effect that, as of
the Effective Time, (i) all representations and warranties made by Atari under  
the Merger Agreement are true and complete and (ii) all covenants, obligations  
and conditions of the Merger Agreement to be performed by Atari have been so    
performed; (d) JTS shall have been furnished with evidence satisfactory to it of
the consent or approval of third parties whose consent or approval shall be     
required in connection with the merger; (e) the absence of any injunction or    
other legal action or restraint limiting or restricting JTS's conduct or        
operation of the business of Atari and its subsidiaries following the Merger    
shall be in effect; (f) JTS shall have received a legal opinion as to certain   
matters from Wilson Sonsini Goodrich & Rosati, P.C., counsel to Atari; (f) there
shall not have occurred any material adverse change in the condition (financial 
or otherwise), properties, assets (including intangible assets), liabilities,   
business, operations, results of operations or prospects of Atari and its       
subsidiaries, taken as a whole.                                                 

   The obligations of Atari to effect the Merger are subject to, among other
things, the satisfaction prior to the Effective Time of the following           
conditions, unless waived by Atari: (a) the representations and warranties of   
JTS in the Merger Agreement shall be true and correct in all respects on and as 
of the effective time of the Merger as though such representations and          
warranties were made on and as of such time, except to the extent that the      
failure of such representations and warranties to be true and accurate in such  
respects has not had and could not reasonably be expected to have a material    
adverse effect on JTS and its subsidiaries; (b) JTS shall have performed and    
complied in all respects with all covenants, obligations and conditions of the  
Merger Agreement required to be performed and complied with by it as of the     
effective time of the Merger, except to the extent that the failure to so       
perform or comply has not had and could not reasonably be expected to have a    
material adverse effect on JTS and its subsidiaries; (c) Atari shall have       
received a certificate executed on behalf of JTS by its Chief Executive Officer 
and its Chief Financial Officer to the effect that, as of the Effective Time,   
(i) all representations and warranties made by JTS under the Merger Agreement   
are true and complete and (ii) all covenants, obligations and conditions of the 
Merger Agreement to be performed by JTS have been so performed; (d) Atari shall 
have been furnished with evidence satisfactory to it of the consent or approval 
of third parties whose consent or approval shall be required in connection with 
the Merger; (e) the absence of any injunction or other legal action or restraint
limiting or restricting JTS' conduct or operation of the business of Atari and  
its subsidiaries following the Merger shall be in effect; (f) Atari shall have  
received a legal opinion as to certain matters from Cooley Godward Castro       
Huddleson & Tatum, counsel to JTS; (g) there shall not have occurred any        
material adverse change in the condition (financial or otherwise), properties,  
assets (including intangible assets), liabilities, business, operations, results
of operations or prospects of JTS and its subsidiaries, taken as a whole; (h)   
the outstanding shares of JTS Series A Preferred Stock shall have converted into
shares of JTS Common Stock; and (i) that certain Right of First Refusal and     
Co-Sale Agreement between JTS and certain stockholders of JTS shall have been   
terminated.                                                                     

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As promptly as practicable after the satisfaction or waiver of the    
conditions set forth in the Merger Agreement, (i) JTS will file certificates of 
merger with the Secretary of State of Delaware and the Recorder of the County in
which the registered office of JTS is located and (ii) Atari will file a        
certificate of merger with the Secretary of State of Nevada. The Merger will    
become effective upon such filings.                                             

TERMINATION, AMENDMENT AND WAIVER                                               

     The Merger Agreement may be terminated by mutual written agreement of Atari
and JTS, or by either Atari or JTS, if (a) as a result of a breach by the other 
party of a representation, warranty, covenant or agreement set forth in the     
Merger Agreement which has or can reasonably be expected to have a material     
adverse effect on such other party which breach is not cured within five days   
after written notice from the other (except that no cure period is provided for 
a breach which by its nature cannot be cured), or (b) there shall be any final  
action taken, or any statute, rule, regulation or order enacted which would     
prohibit JTS' ownership or operation of all or a material portion of the        
business of Atari, or which compels JTS or Atari to dispose of or otherwise     
relinquish all or a material portion of either such party's assets.             

 The Merger Agreement may be terminated by any party if (a) the required
approvals of the stockholders of JTS and Atari are not obtained at the          
respective stockholder meetings, (b) the closing of the Merger has not occurred 
on or before July 31,1996, (c) there is a final, non-appealable order of a      
federal or state court in effect preventing consummation of the Merger, or (d)  
if the Atari Board of Directors accepts, approves or recommends a Superior Atari
Proposal to the Atari stockholders.                                             

   The Merger Agreement may be amended by Atari or JTS at any time before or
after approval by the Atari stockholders or the JTS stockholders, provided that 
an amendment made subsequent to the adoption of the Merger Agreement by the     
stockholders of JTS and Atari, shall not (a) alter or change the amount or kind 
of consideration to be received on conversion of the Atari Common Stock, (b)    
alter or change any term of the Certificate of Incorporation of JTS to be       
effected by the Merger or (c) alter or change any of the terms and conditions of
the Merger Agreement if such alteration or change would adversely affect the    
holders of JTS Common Stock, JTS Series A Preferred Stock or Atari Common Stock.

   At any time prior to the Effective Time any party to the Merger Agreement
may (a) extend the time for performance of any obligation of the other parties, 
(b) waive any inaccuracies in the representations and warranties made to such   
party in the Merger Agreement or any document delivered in connection therewith 
and (c) waive compliance with any of the agreements or conditions for the       
benefit of such party contained in the Merger Agreement.                        

MERGER EXPENSES                                                                 

   Atari and JTS will equally bear the costs of solicitation of proxies from
their stockholders, all printing and mailing costs in connection with the       
preparation and mailing of this Joint Proxy Statement/Prospectus to Atari and   
JTS stockholders, all Commission filing fees with respect to the Registration   
Statement of which this Joint Proxy Statement/Prospectus is a part, and all     
costs of qualifying the shares of JTS Common Stock under state blue sky laws. In
addition to solicitation by mail, the directors, officers and employees of Atari
and JTS may solicit proxies from stockholders by telephone, telegram or letter  
or in person, but will not be specially compensated for such activities.        
Brokers, nominees, fiduciaries and other custodians have been requested to      
forward solicitation material to the beneficial owners of Atari Common Stock    
held of record by them. Such custodians will be reimbursed by Atari for their   
reasonable expenses incurred in that connection. If the Merger is consummated,  
all costs and expenses incurred in connection with the Merger not previously    
paid will be paid by the Combined Company.                                      

CERTAIN OTHER ITEMS RELATED TO THE MERGER                                       

ACCOUNTING TREATMENT                                                            

    For accounting purposes, the Merger is treated as if Atari acquired JTS. A
new basis of accounting will be established for the assets and liabilities of   
JTS. The new basis reflects the allocation of the purchase price                

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to the JTS assets and liabilities on the basis of their fair values at the time 
the proposed transaction was announced. The aggregate purchase price to be      
allocated includes the outstanding common stock of JTS, valued using $2.50 per  
share which is the representative value of the Atari Common Stock at the time   
the proposed transaction was announced, as well as the value of JTS options and 
warrants and direct costs of the acquisition. Subsequent to the Merger, the     
financial statements of the Combined Company will reflect the combined financial
position, results of operations and cash flows of Atari and JTS based on the new
basis of accounting for JTS and the historic cost basis of Atari. Pro forma     
combined condensed financial statements are presented herein giving effect to   
the Merger as if the transaction occurred, for purposes of the pro forma        
combined financial position of the Combined Company, on March 31, 1996, and for 
purposes of the pro forma combined results of operations of the Combined        
Company, on the first day of each of the periods presented. The allocation of   
the purchase price in the pro forma statements was based on an independent      
analysis of the tangible and intangible assets of JTS, which will be revised as 
updated information becomes available at the Effective Time. Under the purchase 
accounting method, giving effect to the Merger, existing technology and goodwill
in the amount of approximately $22.0 million and $11.7 million, respectively,   
are expected to be recognized by the Combined Company. It is anticipated that   
the Combined Company will amortize the resulting existing technology and        
goodwill over periods of three and seven years, respectively, which will have an
adverse effect on its results of operations. In addition, upon the consummation 
of the Merger, in the third quarter of calendar year 1996, the Combined Company 
expects to expense approximately $100.0 million of purchased in-process         
technology. See "Unaudited Pro Forma Combined Condensed Financial Statements."  

RESALE OF JTS COMMON STOCK                                                      

The shares of JTS Common Stock to be issued to holders of Atari Common
Stock in the Merger have been registered under the Securities Act by a          
registration statement, of which this Joint Proxy Statement/Prospectus is a     
part, thereby allowing such shares of JTS Common Stock to be traded without     
restriction under the Securities Act by all such holders, except that such      
holders who are "affiliates" (as such term is defined for purposes of Rule 145  
promulgated under the Securities Act) of Atari will be subject to restrictions  
on transferability as provided in Rule 145.                                     

Notwithstanding the Merger, certain shares of JTS Common Stock will   
continue to be subject to contractual restrictions on transfer, rights of       
repurchase and other provisions (and corresponding restrictive legends on       
certificates issued representing such shares), if any, to the same extent as    
were applicable immediately prior to the Effective Time, all as set forth in the
restricted stock purchase agreements entered into by the holders of such shares 
of JTS Common Stock upon the purchase of such shares by such holder and any     
restrictive legends set forth on any certificates representing such shares. See 
"Information Regarding JTS Corporation -- Management of JTS -- Executive        
Compensation."                                                                  

CERTIFICATE OF INCORPORATION AND BYLAWS OF COMBINED COMPANY                     

   Upon consummation of the Merger, the Certificate of Incorporation and the
Bylaws of JTS will be amended and restated as approved by the JTS stockholders  
in May 1996, and such documents will be the Certificate of Incorporation and the
Bylaws of the Combined Company. See "Comparison of Rights of Stockholders of    
Atari and JTS."                                                                 

ASSUMPTION OF ATARI OPTIONS                                                     

     Upon consummation of the Merger, each option to purchase Atari Common Stock
then outstanding will be assumed by JTS and will be converted automatically into
an option to purchase the same number of shares of JTS Common Stock at an       
exercise price per share equal to the exercise price per share of the Atari     
option. The other terms of the Atari options, including vesting schedules, will 
remain unchanged.                                                               

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ASSUMPTION OF ATARI DEBENTURES                                                  

Upon consummation of the Merger, all of Atari's obligations under its 
outstanding 5 1/4% convertible subordinated debentures due April 29, 2002 (the  
"Atari Debentures") will be assumed by JTS. The Atari Debentures are presently  
convertible into Atari Common Stock at a conversion price of $16.3125 per share 
and, following the Merger, will be convertible into JTS Common Stock at the same
conversion price. The other terms of the Atari Debentures will remain unchanged.

INTERESTS OF CERTAIN PERSONS IN THE MERGER                                      

As of June 28, 1996, members of the Board of Directors and executive  
officers of Atari beneficially owned approximately 23,952,129 shares (37%) of   
the outstanding Common Stock of Atari. As of the same date, members of the Board
of Directors and executive officers of JTS beneficially owned approximately     
9,075,000 shares (96%) of the outstanding JTS Common Stock and approximately    
14,120,000 shares (48%) of the outstanding JTS Series A Preferred Stock.        
Following the consummation of the Merger, the executive officers and the members
of the Board of Directors of the Combined Company will beneficially own         
approximately 35,740,000 shares (35%) of the outstanding Common Stock of the    
Combined Company. See "-- Summary of the Merger Agreement -- Board of Directors 
and Officers Following the Merger," "Information Regarding Atari Corporation -- 
Principal Stockholders of Atari" and "Information Regarding JTS Corporation --  
Principal Stockholders of JTS."                                                 

     Mr. David T. Mitchell, Chief Executive Officer, President and a director of
JTS, Mr. Kenneth D. Wing, Executive Vice President, Research and Development    
Quality/Reliability of JTS, and Ms. W. Virginia Walker, Executive Vice          
President, Finance and Administration and Chief Financial Officer of JTS, have  
purchased 2,000,000 shares, 300,000 shares and 250,000 shares of restricted JTS 
Common Stock, respectively, pursuant to restricted stock purchase agreements.   
Each of the agreements provides that such shares of JTS Common Stock shall fully
vest over a four year period; provided, however, such shares of JTS Common Stock
shall immediately vest in the event that there occurs a change of control of JTS
and, within three years thereafter, the holder of such JTS Common Stock is      
reassigned to a lesser position, terminated without cause or relocated. The     
Merger constitutes a change of control under such restricted stock purchase     
agreements.                                                                     

     In March 1996, Mr. Mitchell and Mr. Sirjang L. Tandon, JTS' Chairman of the
Board and Corporate Technical Strategist, each purchased 1,000,000 shares of JTS
Common Stock at a purchase price of $1.00 per share. All of such shares are     
subject to a right of repurchase at cost in favor of JTS, which repurchase      
option lapses as to all such shares after five years of service with JTS;       
provided, however, that with respect to each individual, JTS' right of          
repurchase will lapse at the rate of one-eighth of the total shares purchased in
September 1996 and as to 1/48th of the total shares purchased per month         
thereafter if the Merger closes. In addition, at the discretion of JTS' Board of
Directors, the right of repurchase with respect to Mr. Mitchell's 1,000,000     
shares of JTS Common Stock may be caused to lapse as to all such shares at any  
time.                                                                           

GOVERNMENTAL AND REGULATORY APPROVALS                                           

Under the provisions of the HSR Act, certain acquisitions of voting   
securities may not be consummated unless certain information has been filed with
the Federal Trade Commission (the "FTC") and the Antitrust Division of the      
Department of Justice (the "Antitrust Division") and the applicable waiting     
period under the HSR Act has expired or been terminated. Neither Atari nor JTS  
is required to file HSR forms under the HSR Act in connection with the Merger,  
except to the extent that the acquisition of JTS Common Stock by certain Atari  
stockholders in connection with the Merger may separately be subject to the     
premerger notification and waiting period requirements of the HSR Act. All      
necessary filings have been made and the applicable waiting period has          
terminated with respect to such filings.                                        

 At any time before or after the Effective Time, and notwithstanding the
termination of the HSR Act waiting period, the Antitrust Division, the FTC or a 
private person could seek under the antitrust laws, among other things, to      
enjoin the Merger or to cause Atari or JTS to divest itself, in whole or in     
part, of a portion of its business, or the Combined Company to divest itself, in
whole or in part, of any of the businesses of Atari or                          

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JTS. There can be no assurance that a challenge to the Merger will not be made  
or that, if such a challenge is made, Atari and JTS will prevail.               

     Other than the waiting period under the HSR Act, Atari and JTS are aware of
no governmental or regulatory approvals required for consummation of the Merger,
other than compliance with the federal securities laws and applicable securities
laws of the various states.                                                     

RELATED TRANSACTIONS                                                            

ATARI LOAN TO JTS                                                               

On February 13, 1996, Atari loaned $25.0 million to JTS pursuant to a 
Subordinated Secured Convertible Promissory Note (the "Note") which is secured  
by substantially all of the assets of JTS. Interest accrues on the unpaid       
principal amount of the Note at the rate of 8.5% per annum. The Note was amended
in June 1996 to increase the amount lent pursuant thereto to $30.0 million. The 
Note provides that JTS shall repay the outstanding principal and interest under 
the Note on September 30, 1996 if the Merger has not occurred prior to such     
time. The Note is expressly subordinated to outstanding indebtedness in         
connection with JTS' primary bank loan agreement, up to an amount of $5.0       
million at any one time. In addition, Atari's security interest in JTS' assets  
is junior to security interests previously obtained by a bank and certain       
equipment lessors. The amount of the senior obligations was approximately $9.1  
million at January 28, 1996. In addition, the Note provides that JTS may incur  
(a) indebtedness to trade creditors in the ordinary course of business, (b)     
contingent obligations consisting of guarantees of the obligations of vendors   
and suppliers of JTS in respect to transactions entered into in the ordinary    
course of business, (c) indebtedness with respect to capital lease obligations  
and indebtedness secured by certain permitted liens, (d) other indebtedness, not
exceeding $1.0 million in the aggregate at any time, and (e) obligations with   
respect to extensions, renewals or refinancings of any of the items in (a)-(d), 
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon JTS.                      

   Under the terms of the Note, the occurrence of any of the following shall
constitute an event of default entitling Atari to declare immediately due and   
payable all outstanding obligations under the Note: (a) failure by JTS to pay   
when due any principal or interest payment required under the Note; (b) failure 
by JTS to observe or perform its agreements regarding prohibitions on certain   
transactions and on the use of proceeds from the Note; (c) breach of any        
representation or warranty made in connection with the Note or the Merger       
Agreement; (d) default by JTS under certain existing loan obligations, the      
effect of which is to cause indebtedness of JTS in the amount of $250,000 or    
more to become due prior to its stated date of maturity; (e) involuntary or     
voluntary bankruptcy proceedings with respect to JTS; (f) a final judgment or   
order for the payment of money in excess of $250,000 being rendered against JTS 
in which such judgment or order remains undischarged for a period of 30 days; or
(g) the uncured breach by JTS with respect to certain other obligations         
specified in the Note.                                                          

 In the event that the Merger Agreement is terminated, either party may,
under certain conditions, elect to convert the outstanding indebtedness under   
the Note into shares of JTS Series A Preferred Stock in an amount determined by 
dividing the aggregate amount of the indebtedness to be converted by the        
"Conversion Price" then in effect. The initial Conversion Price is $1.00 per    
share, subject to adjustments for stock splits and similar events. Atari may    
effect a conversion upon (a) a mutual written consent of JTS and Atari, (b) a   
breach of any representation, warranty or agreement in the Merger Agreement by  
JTS, provided that Atari has not materially breached its obligations under the  
Merger Agreement at such time, (c) the failure of the parties to consummate the 
Merger by July 31, 1996, or (d) failure by JTS' stockholders to approve the     
Merger. JTS may effect a conversion of the outstanding indebtedness under the   
Note in the event that (x) Atari breaches any representation, warranty or       
agreement contained in the Merger Agreement, provided that JTS has not          
materially breached its obligations under the Merger Agreement at such time, (y)
Atari's stockholders do not approve the Merger, or (z) the Atari Board of       
Directors shall have accepted, approved or recommended to the Atari Stockholders
a Superior Atari Proposal.                                                      

In the event that either Atari or JTS elects to convert at least $5.0 
million of indebtedness outstanding under the Note into shares of JTS Series A  
Preferred, JTS shall be obligated to issue to Atari warrants to                 

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purchase shares of JTS Series A Preferred Stock. Pursuant to the terms of the   
Note, JTS shall, upon the conversion of such outstanding indebtedness, be       
obligated to issue a warrant to purchase up to 9,375,000 shares of JTS Series A 
Preferred. Each warrant to be issued by JTS pursuant to the Note shall have an  
exercise price of $2.00 per share, subject to adjustment on certain events, and 
a term of five years. The shares of JTS Series A Preferred issuable upon        
exercise of any warrants issued pursuant to the Note shall be entitled to       
registration rights on parity with the existing registration rights held by the 
holders of JTS Series A Preferred Stock.                                        

VOTING AGREEMENTS                                                               

   In connection with the Merger, certain stockholders of Atari and JTS have
entered into Voting Agreements. The terms of such Voting Agreements provide (i) 
that such stockholders will not transfer (except as may be specifically required
by court order), sell, exchange, pledge (except in connection with a bona fide  
loan transaction) or otherwise dispose of or encumber their shares of Atari     
Common Stock, JTS Common Stock or JTS Series A Preferred Stock, as the case may 
be, beneficially owned by them, or any new shares of such stock they may        
acquire, at any time prior to the effective time or earlier termination of the  
Merger, and (ii) that such stockholders will vote all shares of Atari Common    
Stock, JTS Common Stock or JTS Series A Preferred Stock, as the case may be,    
beneficially owned by them in favor of the approval of the Merger Agreement and 
the Merger. Such voting agreements are accompanied by irrevocable proxies       
whereby the stockholders of Atari provide to JTS, and the stockholders of JTS   
provide to Atari, the right to vote their shares on the proposals relating to   
the Merger Agreement and the Merger at the Atari Special Meeting and JTS Special
Meeting, respectively. Holders of approximately 43% of the shares of Atari      
Common Stock, 91% of the shares of JTS Common Stock and 70% of the shares of JTS
Series A Preferred Stock entitled to vote at the respective stockholder meetings
have entered into such Voting Agreements and irrevocable proxies.               

APPRAISAL AND DISSENTERS' RIGHTS                                                

GENERAL                                                                         

Stockholders of JTS who do not vote in favor of the Merger may, under 
certain circumstances and by following the procedures prescribed by the DGCL,   
exercise appraisal rights and receive cash for their shares of JTS Common Stock 
and JTS Series A Preferred Stock. Alternatively, although JTS is a Delaware     
corporation and is therefore subject to DGCL, the CGCL provides that JTS may be 
subject to California law with respect to dissenters' rights. Accordingly,      
pursuant to Chapter 13 of the CGCL, stockholders of JTS who do not vote in favor
of the Merger and who comply with the requirements of the CGCL will have a right
to demand payment for, and appraisal of the "fair value" of, their shares       
("Dissenting Shares"). Although a dissenting stockholder may choose to proceed  
under one or both of the states' statutes, the dissenting stockholder must      
specify which statute the stockholder is proceeding under and must follow the   
appropriate procedures under either the DGCL or the CGCL or suffer termination  
or waiver of such rights.                                                       

DELAWARE APPRAISAL RIGHTS                                                       

  If the Merger is consummated, dissenting holders of JTS Common Stock and
JTS Series A Preferred Stock may be entitled to have the "fair value" (exclusive
of any element of value arising from the accomplishment or expectation of the   
Merger) of their shares immediately prior to the Effective Time paid to them by 
complying with the provisions of Section 262 of the DGCL.                       

The following is a brief summary of Section 262, which sets forth the 
procedures for dissenting from the Merger and demanding statutory appraisal     
rights. This summary does not purport to be a complete statement of the         
provisions of the Delaware Law relating to the rights of JTS stockholders to an 
appraisal of the value of their shares and is qualified in its entirety by      
reference to Section 262, the full text of which is attached hereto as Appendix 
D. Failure to follow these procedures exactly could result in the loss of       
appraisal rights (if available). This Joint Proxy Statement/Prospectus          
constitutes notice to holders of JTS Common Stock and JTS Series A Preferred    
Stock concerning the availability of appraisal rights under Section 262.        

Under Section 262, a stockholder of record wishing to assert appraisal
rights must hold the shares of stock on the date of making a demand for         
appraisal rights with respect to such shares and must continuously hold         

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such shares through the Effective Time. Stockholders who desire to exercise     
their appraisal rights (if available) must satisfy all of the conditions of     
Section 262. A written demand for appraisal of shares must be filed with JTS    
before the taking of the vote on the Merger. This written demand for appraisal  
of shares must be in addition to and separate from any proxy vote abstaining    
from or voting against the Merger. Any such abstention or vote against the      
Merger will not constitute a demand for appraisal within the meaning of Section 
262.                                                                            

 Stockholders electing to exercise their appraisal rights (if available)
under Section 262 must not vote for approval of the Merger. If a stockholder    
returns a signed proxy but does not specify a vote against approval of the      
merger or a direction to abstain, the proxy will be voted for approval of the   
Merger, which will have the effect of waiving that stockholder's appraisal      
rights (if available).                                                          

A demand for appraisal must be executed by or for the stockholder of  
record, fully and correctly, as such stockholder's name appears on the share    
certificate. If the shares are owned of record in a fiduciary capacity, such as 
by a trustee, guardian or custodian, this demand must be executed by or for the 
fiduciary. If the shares are owned by or for more than one person, as in a joint
tenancy or tenancy in common, such demand must be executed by or for all joint  
owners. An authorized agent, including an agent for two or more joint owners,   
may execute the demand for appraisal for a stockholder of record; however, the  
agent must identify the record owner and expressly disclose the fact that, in   
exercising the demand, he is acting as agent for the record owner. A person     
having a beneficial interest in JTS Common Stock or JTS Series A Preferred Stock
held of record in the name of another person, such as a broker or nominee, must 
act promptly to cause the record holder to follow the steps summarized below and
in a timely manner to perfect whatever appraisal rights the beneficial owner may
have.                                                                           

    A record owner, such as a broker, who holds JTS Common Stock or JTS Series
A Preferred Stock as a nominee for others may exercise his or her right of      
appraisal with respect to the shares for all or less than all of the beneficial 
owners of shares as to which he or she is the record owner. In such case, the   
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly mentioned, the demand will be presumed to 
cover all shares outstanding in the name of such record owner.                  

  A JTS stockholder who elects to exercise appraisal rights (if available)
should mail or deliver his or her written demand to JTS at its address at 166   
Baypointe Parkway, San Jose, California 95134, Attention: W. Virginia Walker,   
Corporate Secretary. The written demand for appraisal should specify the        
stockholder's name and mailing address, and that the stockholder is thereby     
demanding appraisal of his or her JTS stock. If appraisal rights are available  
in connection with the Merger, within ten days after the Effective Time, JTS    
must provide notice of the Effective Time to all of its stockholders who have   
complied with Section 262 and have not voted for approval of the Merger.        

     Within 120 days after the Effective Time, any stockholder who has satisfied
the requirements of Section 262 may deliver to JTS a written demand for a       
statement listing the aggregate number of shares not voted in favor of the      
merger and with respect to which demands for appraisal have been received and   
the aggregate number of holders of such shares.                                 

   Within 120 days after the Effective Time (but not thereafter), either JTS
or any stockholder who has complied with the required conditions of Section 262 
may file a petition in the Delaware Court of Chancery (the "Court") demanding a 
determination of the fair value of the dissenting shares. If no petition for    
appraisal is filed with the Court within 120 days after the Effective Time,     
stockholders' rights to appraisal (if available) will cease and stockholders    
will be entitled to receive shares of JTS Common Stock as provided in the Merger
Agreement. Any stockholder who desires a petition to be filed is advised to file
it on a timely basis. JTS has no present intention to file such a petition if   
demand for appraisal is made.                                                   

     Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy will be made upon JTS, which will, within 20 days after  
service, file in the office of the Register in Chancery in which the petition   
was filed, a duly verified list containing the names and addresses of all       
stockholders who have demanded payment for their shares and with whom agreements
as to the value of their shares have not been reached by JTS.                   

If a petition for an appraisal is filed in a timely fashion, after a  
hearing on the petition, the Court will determine which stockholders are        
entitled to appraisal rights and will appraise the shares owned by these        

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stockholders, determining the fair value of such shares, exclusive of any       
element of value arising from the accomplishment or expectation of the Merger,  
together with a fair rate of interest to be paid, if any, upon the amount       
determined to be fair value. In determining fair value, the Court is to take    
into account all relevant factors.                                              

    JTS stockholders considering seeking appraisal of their shares should note
that the fair value of their shares determined under Section 262 could be more, 
the same or less than the consideration they would receive pursuant to the      
Merger Agreement if they did not seek appraisal of their shares. The costs of   
the appraisal proceeding may be determined by the Court and taxed against the   
parties as the Court deems equitable in the circumstances.                      

    Any stockholder who has duly demanded appraisal in compliance with Section
262 will not, after the Effective Time, be entitled to vote for any purpose the 
shares subject to demand or to receive payment of dividends or other            
distributions on such shares, except for dividends or distributions payable to  
stockholders of record at a date prior to the Effective Time.                   

   At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw his or her demand for appraisal and to accept the    
terms offered in the Merger Agreement. After this period, a stockholder may     
withdraw his or her demand for appraisal and receive payment for his or her     
shares as provided in the Merger Agreement only with the consent of JTS. No     
petition demanding appraisal may be dismissed without approval of the Court.    

    Pursuant to the Merger Agreement, JTS will give Atari prompt notice of any
demands received by JTS, and Atari will have the right to participate in all    
negotiations and proceedings with respect to the demands. JTS will not, except  
with the prior written consent of Atari, make any payment with respect to, or   
settle or offer to settle, any such demands.                                    

   Cash received pursuant to the exercise of appraisal rights may be subject
to federal or state income tax. See "-- Certain Federal Income Tax              
Considerations."                                                                

  The foregoing summary of the applicable provisions of Section 262 is not
intended to be a complete statement of such provisions and is qualified in its  
entirety by reference to such Section, the full text of which is attached as    
Appendix D-1 to this Joint Proxy Statement/Prospectus.                          

CALIFORNIA DISSENTERS' RIGHTS                                                   

   By virtue of Section 2115 of the CGCL, if holders of JTS Common Stock and
JTS Series A Preferred Stock exercise dissenters' rights in connection with the 
Merger under Chapter 13 of the CGCL ("Chapter 13"), any shares of JTS Common    
Stock and JTS Series A Preferred Stock as to which such dissenters' rights are  
exercised will be converted into the right to receive such consideration as may 
be determined to be due with respect to such Dissenting Shares pursuant to the  
laws of the State of California.                                                

     The following summary of the provisions of Chapter 13 is not intended to be
a complete statement of such provisions and is qualified in its entirety by     
reference to the full text of Chapter 13, a copy of which is attached hereto as 
Appendix D-2 and is incorporated herein by reference.                           

   If the Merger is approved by the required vote of JTS' stockholders, each
holder of shares of JTS Common Stock and JTS Series A Preferred Stock who does  
not vote in favor of the Merger and who follows the procedures set forth in     
Chapter 13 will be entitled to have shares of JTS Common Stock and JTS Series A 
Preferred Stock purchased by JTS for cash at their fair market value. Abstention
of the stockholder from voting will not waive the stockholders' dissenter's     
rights. Voting against the proposed Merger will not constitute the written      
demand on the corporation for purchase of the Dissenting Shares as required     
under Chapter 13. The fair market value of shares of JTS Common Stock and JTS   
Series A Preferred Stock will be determined as of the day before the first      
announcement of the terms of the proposed Merger, excluding any appreciation or 
depreciation in consequence of the proposed Merger and therefore valuing the    
shares of JTS Common Stock and Series A Preferred Stock as if the Merger had not
occurred.                                                                       

     Within ten days after approval of the Merger by JTS' stockholders, JTS must
mail a notice of such approval (the "Approval Notice") to all stockholders who  
have not voted in favor of the Merger, together with                            

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a statement of the price determined by JTS to represent the fair market value of
the applicable Dissenting Shares, a brief description of the procedures to be   
followed in order for the stockholder to pursue dissenters' rights, and a copy  
of Sections 1300-1304 of Chapter 13. The statement of price by JTS constitutes  
an offer by JTS to purchase all Dissenting Shares at the stated amount.         

   A stockholder of JTS electing to exercise dissenters' rights must, within
thirty days after the date on which the Approval Notice is mailed to such       
stockholder, mail or deliver the written demand to JTS stating that such holder 
is demanding purchase of his or her shares of JTS Common Stock and/or JTS Series
A Preferred Stock, stating the number of shares which JTS must purchase, what   
the stockholder claims to be the fair market value of such shares and enclosing 
the share certificates for endorsement by JTS. The statement of fair market     
value constitutes an offer by the stockholder to sell the shares at such price. 
A dissenting stockholder may not withdraw a demand for payment unless JTS       
consents to it.                                                                 

    If JTS and the stockholder agree that the shares are Dissenting Shares and
agree upon the price of the shares, JTS must pay the stockholder the agreed upon
price plus interest thereon at the legal rate from the date of the agreement on 
Dissenting Shares within thirty days from the later of (i) the date of the      
agreement on Dissenting Shares, or (ii) the date all contractual conditions to  
the Merger are satisfied.                                                       

If JTS denies that the shares are Dissenting Shares, or if JTS and the
stockholder fail to agree upon the fair market value of shares of capital stock,
then within six months after the date the Approval Notice was mailed to         
stockholders, any stockholder who has made a valid written purchase demand and  
who has not voted in favor of approval and adoption of the Merger may file a    
complaint in California superior court requesting a determination as to whether 
the shares are Dissenting Shares or as to the fair market value of such holder's
shares of JTS Common Stock and/or JTS Series A Preferred Stock, or both.        

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS 

The following discussion summarizes the material federal income tax   
consequences of the exchange of shares of Atari capital stock for JTS capital   
stock pursuant to the Merger. This summary is based upon opinions of counsel    
(the "Tax Opinions") delivered by Wilson Sonsini Goodrich & Rosati, P.C. and    
Cooley Godward Castro Huddleson & Tatum (collectively "Counsel") that the Merger
will constitute a "reorganization" within the meaning of Section 368 of the     
Internal Revenue Code of 1986, as amended (a "Reorganization").                 

  Atari and JTS stockholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to         
particular stockholders of Atari and JTS in light of their particular           
circumstances, such as stockholders who are banks, insurance companies,         
tax-exempt organizations, dealers in securities, foreign persons or who do not  
hold their Atari or JTS capital stock as capital assets or who acquired their   
shares in connection with stock option or stock purchase plans or in other      
compensatory transactions. In addition, the following discussion does not       
address the tax consequences of the Merger under foreign, state or local tax    
laws or the tax consequences of transactions effectuated prior or subsequent to 
or concurrently with the Merger (whether or not such transactions are in        
connection with the Merger), including, without limitation, transactions in     
which Atari capital stock is acquired or JTS capital stock is disposed of.      
ACCORDINGLY, ATARI AND JTS STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX      
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE       
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE    
MERGER IN THEIR PARTICULAR CIRCUMSTANCES.                                       

   Subject to the limitations and qualifications referred to herein, Counsel
is of the opinion that the Merger will qualify as a Reorganization which will   
result in the following federal income tax consequences:                        

  (a) No gain or loss will be recognized by holders of Atari capital stock
solely upon their receipt of JTS capital stock solely in exchange for Atari     
capital stock in the Merger (except to the extent of cash received in lieu of a 
fractional share of JTS capital stock).                                         

(b) The aggregate tax basis of the JTS capital stock received by Atari
stockholders in the Merger will be the same as the aggregate tax basis of Atari 
capital stock surrendered in exchange therefor less the tax basis, if any,      
allocated to fractional share interests.                                        

     (c) The holding period of the JTS capital stock received in the Merger will
include the period for which the Atari capital stock surrendered in exchange    
therefor was held, provided that the Atari capital stock is held as a capital   
asset at the time of the Merger.                                                

   (d) Cash payments received by holders of Atari capital stock in lieu of a
fractional share will be treated as if a fractional share of JTS capital stock  
had been issued in the Merger and then redeemed by JTS. A stockholder of Atari  
receiving such cash will generally recognize gain or loss upon such payment,    
equal to the difference (if any) between such stockholder's basis in the        
fractional share and the amount of cash received.                               

(e) A shareholder who exercises appraisal or dissenters' rights with  
respect to a share of JTS capital stock and who receives payment for such stock 
in cash should generally recognize capital gain or loss (if such share was held 
as a capital asset at the time of the Merger) measured by the difference between
the shareholder's basis in such share and the amount of cash received, provided 
that such payment is neither essentially equivalent to a dividend nor has the   
effect of a distribution of a dividend (a "Dividend Equivalent Transaction"). A 
sale of capital stock of JTS pursuant to an exercise of appraisal or dissenters'
rights will generally not be a Dividend Equivalent Transaction if, as a result  
of such exercise, the shareholder exercising dissenters' rights and all parties 
related to such Shareholder own no shares of JTS Stock (either actually or      
constructively with the meaning of Section 318 of the Code) after the Merger.   
If, however, a stockholder's sale for cash of JTS capital stock pursuant to an  
exercise of appraisal or dissenters' rights is a Dividend Equivalent            
Transaction, then such shareholder will generally recognize income for federal  
income tax purposes in an amount up to the entire amount of cash so received.   

     (f) Neither JTS nor Atari will recognize material amounts of gain solely as
a result of the Merger.                                                         

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  No ruling has been or will be obtained from the Internal Revenue Service
(the "IRS") in connection with the Merger. Atari and JTS stockholders should be 
aware that the Tax Opinions do not bind the IRS and that the IRS is therefore   
not precluded from successfully asserting a contrary opinion. The Tax Opinions  
are also subject to certain limitations and qualifications, they are based upon 
certain factual assumptions, and are subject to the truth and accuracy of       
certain representations made by Atari and JTS. Of particular importance are     
certain representations relating to the Code's "continuity of shareholder       
interest" and "continuity of business enterprise" requirements.                 

To satisfy the continuity of shareholder interest requirement, Atari  
shareholders must not, pursuant to a plan or intent existing at or prior to the 
Merger, dispose of or transfer so much of either (i) their Atari capital stock  
in anticipation of the Merger or (ii) the JTS capital stock to be received in   
the Merger (collectively, "Planned Dispositions"), such that Atari shareholders,
as a group, would no longer have a significant equity interest in the Atari     
business being conducted by JTS after the Merger. Atari shareholders will       
generally be regarded as having a significant equity interest as long as the    
number of shares of JTS capital stock received in the Merger less the number of 
shares subject to Planned Dispositions (if any) represents, in the aggregate, a 
substantial portion of the entire consideration received by the Atari           
shareholders in the Merger. To satisfy the continuity of business enterprise    
requirement, JTS must either (i) continue the historic business conducted by    
Atari or (ii) use a significant portion of the historic business assets of Atari
in a business.                                                                  

     A successful IRS challenge to the Reorganization status of the Merger would
result in the Merger being treated as a taxable sale of Atari's assets.         
Additionally, a successful IRS challenge to such Reorganization status would    
result in Atari stockholders recognizing taxable gain or loss with respect to   
each share of Atari capital stock surrendered equal to the difference between   
the stockholder's basis in such share and the fair market value, as of the      
Effective Time, of the JTS capital stock received in exchange therefor. In such 
event, a stockholder's aggregate basis in the JTS capital stock so received     
would equal its fair market value and the holding period for such stock would   
begin the day after the Effective Time.                                         

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STOCK PRICE AND DIVIDEND INFORMATION

ATARI                                                                           

  Atari's Common Stock has traded on the American Stock Exchange under the
symbol "ATC" since November 7, 1986. As of the close of business on June 28,    
1996, 63,854,718 shares of Atari Common Stock were outstanding and no shares of 
Preferred Stock were outstanding. As of that date, there were approximately     
2,375 stockholders of record of Atari Common Stock. The following table sets    
forth the high and low sale prices of Atari's Common Stock for the periods      
indicated as reported on the consolidated transaction system.                   

                                                                [Download Table]

                                                                  HIGH      LOW     
                                                                  ----      ----    
                                                                                    
FISCAL YEAR 1996                                                                    
  Second Quarter (through July 12, 1996)......................... $ 9       $ 3  5/8
  First Quarter..................................................   4  1/8    1  5/8
FISCAL YEAR 1995                                                                    
  Fourth Quarter................................................. $ 3 5/16  $ 1  1/8
  Third Quarter..................................................   3  5/8    2 9/16
  Second Quarter.................................................   3  1/8    2  1/2
  First Quarter..................................................   4  1/4    2  3/4
FISCAL YEAR 1994                                                                    
  Fourth Quarter................................................. $ 7  3/8  $ 3 9/16
  Third Quarter..................................................   7  3/4    2  7/8
  Second Quarter.................................................   6  5/8    2  7/8
  First Quarter..................................................   8  1/8    5  5/8

Atari has never paid cash dividends on its Common Stock and does not  
anticipate a change in this practice in the foreseeable future.                 

JTS                                                                             

    JTS is a privately held company, and there is no public trading market for
its stock. As of the close of business on June 18, 1996, 9,263,866 shares of JTS
Common Stock and 29,696,370 shares of JTS Series A Preferred Stock were issued  
and outstanding. There are a total of 54 holders of record of JTS Series A      
Preferred Stock and 20 holders of record of JTS Common Stock. After the Closing,
the JTS Common Stock is expected to be publicly traded on the American Stock    
Exchange under the symbol "JTS". No cash dividend has ever been paid on any     
class of JTS capital stock.                                                     

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JTS' ACQUISITION OF THE DISK DRIVE DIVISION OF MODULER ELECTRONICS

    Moduler Electronics is located in Madras, India and was founded in 1986 by
members of the family of Sirjang L. Tandon, JTS' Chairman and Corporate         
Technical Strategist, as a contract manufacturer of power supplies for computers
and hard disk drive subassemblies. In December 1994, Moduler Electronics        
received Indian government approval to manufacture hard disk drives. At         
approximately the same time, Moduler Electronics discontinued production of hard
disk drive subassemblies for customers other than JTS. In March 1995, JTS       
entered into a verbal agreement to acquire the hard disk drive division of      
Moduler Electronics for 1,911,673 shares of JTS Series A Preferred Stock and a  
warrant to purchase 500,000 shares of JTS Common Stock at an exercise price of  
$.25 per share. JTS subsequently assumed operational and management control of  
certain portions of the hard disk drive business of Moduler Electronics. The    
verbal agreement contemplated that prior to JTS' acquisition, Moduler           
Electronics would divest itself of certain voice coil assembly and other        
operations not directly involved in its hard disk drive business.               

     In April 1996, following Moduler Electronics' divestiture of its voice coil
business and businesses unrelated to its hard disk drive operations, JTS        
purchased 90% of the outstanding capital stock of Moduler Electronics in        
consideration for 1,911,673 shares of JTS Series A Preferred Stock and a warrant
to purchase 750,000 shares of JTS Common Stock at an exercise price of $.25 per 
share. The warrant is immediately exercisable as to 500,000 shares of JTS Common
Stock and becomes exercisable with respect to the remaining 250,000 shares when 
certain borrowings and credit facilities in the amount of $29 million become    
available to Moduler Electronics. The 250,000 share portion of the warrant      
related to the credit facilities of Moduler Electronics will be valued and      
recorded as additional interest expense over the term of the borrowings, if and 
when such portion of the warrant becomes exercisable.                           

In connection with the acquisition of the hard disk drive business of 
Moduler Electronics, JTS agreed not to compete in the head stack manufacturing  
business within India for a period of five years, provided that JTS may         
manufacture head stacks for its internal requirements. In return, the former    
owners of Moduler Electronics agreed not to compete in the disk drive           
manufacturing business within India for a period of five years. In addition, JTS
granted certain registration rights with respect to the shares of JTS capital   
stock issued in the acquisition. JTS has a right of first refusal to purchase   
the remaining 10% equity interest in Moduler Electronics at 10% of the net book 
value of Moduler Electronics at the time of the purchase.                       

     Since JTS began hard disk drive production in early 1995, JTS has conducted
substantially all of its manufacturing operations at the Moduler Electronics    
facility. As of April 26, 1996, Moduler Electronics employed 1,760 individuals. 
The Madras facility presently occupies 85,000 square feet in a single building, 
4,000 square feet of which are designated a "clean room" environment. At this   
facility, JTS is adding production lines and expanding its clean room           
environment. JTS believes that locating its manufacturing operations in India   
represents an important element of its manufacturing strategy due to the local  
availability of a high-quality, low-cost technical labor pool. See "Information 
Regarding JTS Corporation -- Business of JTS -- Manufacturing."                 

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JTS CORPORATION AND 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 

   The following unaudited pro forma condensed combined financial statements
give effect to the Merger of JTS and Moduler Electronics which was consummated  
on April 4, 1996 and will be accounted for as a purchase. The accompanying pro  
forma combined condensed balance sheet as of January 28, 1996 assumes that the  
acquisition of Moduler Electronics by JTS took place on that date and combines  
JTS' and Moduler Electronics' balance sheets as of January 28, 1996. The        
accompanying pro forma combined condensed statement of operations for the year  
ended January 28, 1996 assumes that the acquisition took place as of the        
beginning of fiscal 1996, and combines JTS' and Moduler Electronics' statements 
of operations for the year ended January 28, 1996. The pro forma combined       
condensed statements of operations do not include the effect of any nonrecurring
charges directly attributable to the acquisition.                               

In March 1995, JTS agreed to acquire the hard disk drive division of  
Moduler Electronics and subsequently assumed operational and management control 
of certain portions of the hard disk drive business of Moduler Electronics. The 
purchase price included 1,911,673 shares of JTS Series A Preferred Stock and a  
warrant to purchase JTS Common Stock at an exercise price of $0.25 per share in 
exchange for 90% of the outstanding capital stock of Moduler Electronics. Actual
statements of the companies will be combined after the consummation date with no
retroactive restatements. The accompanying pro forma combined condensed         
financial statements should be read in conjunction with JTS' and Moduler        
Electronics' historical financial statements and related notes thereto.         

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JTS CORPORATION AND 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                  AS OF JANUARY 28, 1996                 
                                                  ------------------------------------------------------ 
                                                                HISTORICAL                               
                                                  HISTORICAL     MODULER       PRO FORMA       PRO FORMA 
                                                     JTS        ELECTRONICS   ADJUSTMENTS      COMBINED  
                                                  ----------    ----------    -----------      --------- 
                                                                                                         
                                                 ASSETS                                                  
CURRENT ASSETS:                                                                                          
  Cash, cash equivalents and restricted cash....   $     547     $    868                      $   1,415 
  Trade and other receivable....................       2,098           --                          2,098 
  Receivable from Moduler Electronics...........       6,892           --       $(6,892)(a)           -- 
  Receivable from related parties...............          --           --           380(a)           380 
  Inventories...................................       2,093        5,983                          8,076 
  Prepaid and other current assets..............         240          513                            753 
                                                     -------       ------                        ------- 
          Total current assets..................      11,870        7,364                         12,722 
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET.......       7,943        5,603         1,249(b)        14,795 
GOODWILL........................................          --           --           594(b)           594 
                                                     -------       ------                        ------- 
                                                   $  19,813     $ 12,967                      $  28,111 
                                                     =======       ======                        ======= 
                                 LIABILITIES AND STOCKHOLDERS' DEFICIT                                   
CURRENT LIABILITIES:                                                                                     
  Bank line of credit and short-term                                                                     
     borrowing..................................   $   4,323     $  6,085                      $  10,408 
  Note payable to stockholder...................       1,000           --                          1,000 
  Accounts payable --                                                                                    
     Trade......................................       7,226        6,268                         13,494 
     Moduler Electronics........................       9,546           --        (5,734)(a)           -- 
                                                                                 (3,812)(b)              
     Related parties............................          --        1,168          (778)(a)          390 
  Accrued liabilities...........................       3,501          197                          3,698 
  Current portion of capitalized lease                                                                   
     obligations                                                                                         
     and long-term debt.........................       1,520          105                          1,625 
                                                     -------       ------                        ------- 
          Total current liabilities.............      27,116       13,823                         30,615 
LONG-TERM LIABILITIES...........................       3,485        2,763                          6,248 
                                                     -------       ------                        ------- 
          Total Liabilities.....................      30,601       16,586                         36,863 
REDEEMABLE SERIES A PREFERRED STOCK.............      27,785           --         1,911(b)        29,696 
STOCKHOLDERS' DEFICIT:                                                                                   
  Common stock..................................          --           --                             -- 
  Warrant for common stock......................          --           --           125(b)           125 
  Additional paid-in capital....................       6,004           --                          6,004 
  Deferred compensation.........................      (4,320)          --                         (4,320)
  Notes receivable from stockholders............        (623)          --                           (623)
  Accumulated deficit...........................     (39,634)                                    (39,634)
  Liabilities in excess of assets...............          --       (3,619)        3,619(b)            -- 
                                                                   ======                                
                                                     -------                                     ------- 
          Total stockholders' deficit...........     (38,573)                                    (38,448)
                                                     -------                                     ------- 
                                                   $  19,813                                   $  28,111 
                                                     =======                                     ======= 

See notes to unaudited pro forma condensed combined financial statements. 

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JTS CORPORATION AND 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                         FOR THE YEAR ENDED JANUARY 28, 1996             
                                              ---------------------------------------------------------- 
                                                             HISTORICAL                                  
                                              HISTORICAL       MODULER        PRO FORMA        PRO FORMA 
                                                 JTS         ELECTRONICS     ADJUSTMENTS       COMBINED  
                                              ----------     -----------     -----------       --------- 
                                                                                                         
REVENUE:                                                                                                 
  Product sales..............................  $  13,502       $15,580        $ (15,580)(c)    $  13,502 
  Technology license revenue.................      5,275            --                             5,275 
                                                 -------        ------                           ------- 
                                                  18,777        15,580                            18,777 
COST OF PRODUCT SALES........................     28,548        19,160          (15,580)(c)       33,626 
                                                 -------        ------                           ------- 
                                                                                   (599)(e)              
                                                                                  2,097(e)               
GROSS MARGIN (DEFICIT).......................     (9,771)       (3,580)                          (14,849)
OPERATING EXPENSES:                                                                                      
  Research and development...................     13,375            --                            13,375 
  Selling, general and administrative........      5,579            --              198(d)         5,777 
  Manufacturing start-up costs...............      3,812            --           (3,812)(f)           -- 
                                                 -------        ------                           ------- 
                                                  22,766            --                            19,152 
                                                 -------        ------                           ------- 
OPERATING LOSS...............................    (32,537)       (3,580)                          (34,001)
OTHER INCOME (EXPENSE):                                                                                  
  Interest income............................        108           141                               249 
  Interest expense...........................       (589)         (464)                           (1,053)
  Other, net.................................        (32)         (333)                             (365)
                                                 -------        ------                           ------- 
NET LOSS.....................................  $ (33,050)      $(4,236)                        $ (35,170)
                                                 =======        ======                           ======= 
NET LOSS PER COMMON SHARE....................  $   (7.17)                                      $   (7.63)
                                                 =======                                         ======= 
SHARES USED IN COMPUTING NET LOSS PER                                                                    
  SHARE......................................      4,611                               (g)         4,611 

See notes to unaudited pro forma condensed combined financial statements. 

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JTS CORPORATION AND 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

NOTE 1.  PURCHASE PRICE ALLOCATION                                              

     The purchase price of the acquisition of Moduler Electronics is computed as
follows (in thousands):                                                         

                                                                [Download Table]
                                                             
Preferred stock.....................................  $1,911 
Warrants............................................     125 
                                                      -------
                                                      $2,036 
                                                      =======

     The preferred stock is valued at $1.00 per share, such number of shares and
   the value per share were agreed to in March 1995. The price per preferred
share was identical to the price per preferred share received by the  
    Company in cash sales to unrelated parties in February and September 1995.
   The warrant to purchase 500,000 shares of common stock at $.25 was valued
   at $125,000 and reflects the higher value of the preferred stock relative
 to the common stock. Subsequent to the March 1995 agreement to purchase
Moduler Electronics, JTS assumed operational and management control of
    certain portions of the Disk Drive Unit and funded certain of the start-up
    losses. Accordingly, JTS expensed 90% of the Unit's loss in its historical
financial statements.                                                 

   The purchase price is expected to be allocated as follows (in thousands):

                                                                [Download Table]
                                                             
Current assets acquired...........................  $  6,628 
Property acquired.................................     6,292 
Liabilities assumed...............................   (11,478)
Goodwill..........................................       594 
                                                     ------- 
                                                    $  2,036 
                                                     ======= 

NOTE 2.  PRO FORMA ADJUSTMENTS                                                  

    Certain pro forma adjustments have been made to the accompanying pro forma
combined condensed balance sheet and statement of operations as described below:

(a) Eliminates intercompany receivable and payable balances.          

  (b) Reflects the acquisition of 90% ownership of Moduler Electronics for
      1,911,673 shares of JTS Series A Preferred Stock valued at $1.00 per
    share and a warrant to purchase 500,000 shares of JTS Common Stock
valued at $125,000.                                           

(c) Eliminates intercompany sales.                                    

 (d) Reflects the amortization of goodwill on a straight-line basis over
three years.                                                                    

(e) Reflects the depreciation of the step-up of fixed assets.         

(f) Eliminates 90% of loss of Moduler Electronics' start-up costs.    

  (g) Pro forma weighted average common shares do not include common stock
  equivalents as inclusion of these shares would be anti-dilutive.

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ATARI CORPORATION AND JTS CORPORATION 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 

   The following unaudited pro forma condensed combined financial statements
give effect to the proposed merger of Atari and JTS. The merger is subject to   
shareholder and regulatory approval and other conditions. The unaudited pro     
forma condensed combined balance sheet has been prepared as if the acquisition, 
which will be accounted for as a purchase of JTS by Atari, was consummated as of
March 31, 1996. Such pro forma balance sheet combines Atari's balance sheet as  
of March 31, 1996 and the balance sheet of JTS as of April 28, 1996. Although   
the business combination will result in Atari merging into the JTS legal entity,
the substance of the transaction is that Atari, a public company with           
substantially greater operating history and net worth, will own approximately   
62% of the combined equity at the date of the acquisition.                      

  The aggregate purchase price of $112.3 million has been allocated to the
acquired assets and liabilities of JTS. Included in the pro forma purchase price
are the approximately 40 million shares of outstanding common stock of JTS,     
assuming conversion of all outstanding preferred stock of JTS, the value of the 
assumed JTS options and warrants of $11.1 million and the estimated direct      
transaction costs. The common stock, options and warrants were valued using     
$2.50 per share which is the representative value of Atari stock at the time the
proposed transaction was announced. The fair value of JTS assets and liabilities
will be revised as updated information becomes available at the Effective Time. 
Such preliminary appraisal allocated $119.0 million to purchased technology,    
$97.0 million of which represented in-process research and development. The     
$97.0 million will be expensed upon the closing of the Merger as the technology 
had not yet reached technological feasibility and does not have alternative     
future uses.                                                                    

     The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1995 give effect to the proposed merger as if the       
acquisition was completed at the beginning of the year and combines Atari's     
statement of operations as of December 31, 1995 with the pro forma combined     
statement of operations for JTS and Moduler Electronics for the year ended      
January 28, 1996. The unaudited pro forma condensed combined statements of      
operations for the quarter ended March 31, 1996 give effect to the proposed     
merger as if the acquisition was completed at the beginning of the quarter and  
combines Atari's statement of operations as of March 31, 1996 with the JTS pro  
forma statement of operations for the quarter ended April 28, 1996. Such        
statements do not include the effect of the approximately $97.0 million         
nonrecurring charge for in-process research and development, as such charges    
will be included in the consolidated statement of operations in the third       
calendar quarter of 1996. Such statements also exclude Atari's extraordinary    
gain generated from the Atari Debentures extinguished in 1995 and the $6.3      
million gain on sale of marketable securities in the first quarter of 1996.     

This method of combining historical financial statements for the      
preparation of the pro forma condensed combined statements is for presentation  
only. Actual statements of operations of the companies will be combined from the
closing date of the acquisition with no retroactive restatements. The unaudited 
pro forma condensed combined financial statements are provided for illustrative 
purposes only and is not necessarily indicative of the combined financial       
position or combined results of operations that would have been reported had the
Merger occurred on the dates indicated, nor do they represent a forecast of the 
combined financial position or results of operations for any future period. The 
unaudited pro forma condensed combined financial statements should be read in   
conjunction with the historical financial statements and accompanying notes for 
Atari, JTS and Moduler Electronics.                                             

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ATARI AND JTS 

UNAUDITED PRO FORMA CONDENSED 
COMBINED BALANCE SHEETS 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                  ATARI         JTS                                 
                                                MARCH 31,    APRIL 28,    PRO FORMA       PRO FORMA 
                                                  1996         1996      ADJUSTMENTS      COMBINED  
                                                ---------    ---------   -----------      --------- 
                                                                                                    
                                               ASSETS                                               
CURRENT ASSETS:                                                                                     
  Cash and equivalents........................  $  23,748    $   5,116                    $  28,864 
  Accounts receivable.........................        601        9,608                       10,209 
  Other receivables...........................         --        1,182                        1,182 
  Inventories.................................      5,526       12,983                       18,509 
  Subordinated secured convertible note.......     25,000           --      (25,000)(k)          -- 
  Other current assets........................      1,101        1,585                        2,686 
                                                ---------     --------                    --------- 
     Total current assets.....................     55,976       30,474                       61,450 
GAME SOFTWARE DEVELOPMENT                                                                           
  COSTS.......................................        861           --                          861 
EQUIPMENT AND TOOLING.........................        577       16,212        2,970(d)       19,759 
REAL ESTATE HELD FOR SALE.....................     10,468           --                       10,468 
INTANGIBLE & OTHER ASSETS.....................        524           --       21,980(d)       22,504 
GOODWILL......................................         --          185         (185)(c)      11,714 
                                                                             11,714(d)              
                                                ---------     --------                    --------- 
     TOTAL....................................  $  68,406    $  46,871                    $ 126,756 
                                                =========     ========                    ========= 
                                LIABILITIES AND SHAREHOLDERS' EQUITY                                
CURRENT LIABILITIES:                                                                                
  Bank borrowings.............................  $      --    $  10,277                    $  10,277 
  Notes payable to stockholders...............         --        1,965                        1,965 
  Subordinated secured convertible note.......         --       25,000      (25,000)(k)          -- 
  Accounts payable............................      3,295       18,240        1,200(i)       22,735 
  Accrued liabilities.........................      5,481        4,536                       10,017 
  Current portion of long-term obligations....         --        1,651                        1,651 
                                                ---------     --------                    --------- 
     Total current liabilities................      8,776       61,669                       46,645 
LONG-TERM OBLIGATIONS.........................     42,354        6,381                       48,735 
REDEEMABLE PREFERRED STOCK....................         --       29,697      (29,697)(c)          -- 
SHAREHOLDERS' EQUITY (DEFICIT):                                                                     
  Common stock................................        637           --          400(a)        1,037 
  Additional paid-in capital..................    196,272        8,088      103,105(a,c)    307,465 
  Deferred compensation.......................         --       (3,990)       3,990(c)           -- 
  Common stock warrants.......................         --          125        1,985(b)        2,110 
  Notes receivable from sale of common                                                              
     stock....................................         --       (2,610)                      (2,610)
  Accumulated translation adjustments.........       (730)                                     (730)
  Accumulated deficit.........................   (178,903)     (52,489)      52,489(c)     (275,896)
                                                                            (96,993)(e)             
                                                ---------     --------                    --------- 
     Total shareholders' equity (deficit).....     17,276      (50,876)                      31,376 
                                                ---------     --------                    --------- 
          TOTAL...............................  $  68,406    $  46,871                    $ 126,756 
                                                =========     ========                    ========= 

See notes to unaudited pro forma condensed combined financial statements. 

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ATARI AND JTS 
UNAUDITED PRO FORMA CONDENSED 
COMBINED STATEMENTS OF OPERATIONS 
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                             ATARI               JTS                                   
                                         QUARTER ENDED      QUARTER ENDED      PRO FORMA     PRO FORMA 
                                         MARCH 31, 1996    APRIL 28, 1996     ADJUSTMENTS    COMBINED  
                                         --------------  -------------------  -----------    --------- 
                                                                                                       
NET REVENUES............................    $  1,272          $  17,581                      $  18,853 
COST AND EXPENSES:                                                                1,832(f)             
  Cost of revenues and inventory                                                                       
     write-downs........................       6,211             19,434             248(h)      27,725 
  Research and development..............         201              7,406                          7,607 
  Sales, marketing, general and                                                                        
     administrative.....................       2,009              3,103             418(g)       5,530 
                                            --------           --------                       -------- 
     Total operating expenses...........       8,421             29,943                         40,862 
OPERATING LOSS..........................      (7,149)           (12,362)                       (22,009)
  Gain on sale of marketable                                                                           
     securities.........................       6,347                 --          (6,347)(1)         -- 
  Other income (expense)................         233                (56)                           177 
  Interest income.......................         332                105                            437 
  Interest expense......................        (569)              (542)                        (1,111)
                                            --------           --------                       -------- 
     Loss before income taxes...........        (806)           (12,855)                       (22,506)
Income tax credit.......................          --                 --                             -- 
                                            --------           --------                       -------- 
NET LOSS................................    $   (806)         $ (12,855)                       (22,506)
                                            ========           ========                       ======== 
LOSS PER COMMON SHARE...................    $  (0.01)         $   (1.47)                     $   (0.22)
Number of shares used in computation....      63,701              8,732                (j)     103,701 

See notes to unaudited pro forma condensed combined financial statements. 

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ATARI AND JTS 
UNAUDITED PRO FORMA CONDENSED 
COMBINED STATEMENTS OF OPERATIONS 
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                              PRO FORMA                              
                                                          COMBINED JTS AND                           
                                              ATARI      MODULER ELECTRONICS                         
                                           YEAR ENDED        YEAR ENDED        PRO FORMA   PRO FORMA 
                                          DEC. 31, 1995     JAN. 28, 1996     ADJUSTMENTS  COMBINED  
                                          -------------  -------------------  -----------  --------- 
                                                                                                     
NET REVENUES.............................   $  14,626         $  18,777                    $  33,403 
COST AND EXPENSES:                                                               7,327(f)            
  Cost of revenues.......................      44,234            33,626            990(h)     86,177 
  Research and development...............       5,410            13,375                       18,785 
  Sales, marketing, general and                                                                      
     administrative......................      18,647             5,777          1,673(g)     26,097 
                                             --------          --------                     -------- 
     Total operating expenses............      68,291            52,778                      131,059 
OPERATING LOSS...........................     (53,665)          (34,001)                     (97,656)
  Other income (expense).................       2,683              (365)                       2,318 
  Interest income........................       3,133               249                        3,382 
  Interest expense.......................      (2,309)           (1,053)                      (3,362)
                                             --------          --------                     -------- 
     Loss before income taxes............     (50,158)          (35,170)                     (95,318)
Income tax credit........................          --                --                           -- 
                                             --------          --------                     -------- 
NET LOSS BEFORE EXTRAORDINARY CREDIT.....   $ (50,158)        $ (35,170)                     (95,318)
                                             ========          ========                     ======== 
LOSS PER COMMON SHARE BEFORE                                                                         
  EXTRAORDINARY CREDIT...................   $   (0.79)        $   (7.63)                   $   (0.92)
Number of shares used in computation.....      63,697             4,611               (j)    103,697 

See notes to unaudited pro forma condensed combined financial statements. 

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED 
FINANCIAL STATEMENTS OF ATARI AND JTS 

NOTE 1 -- PURCHASE PRICE                                                        

The purchase price of the acquisition of JTS is computed as follows:  

                                                                [Download Table]
                                                                              
Warrants and employee stock options............................  $  11,093,000
Common stock to be issued......................................    100,000,000
Direct transaction costs.......................................      1,200,000
                                                                  ------------
     TOTAL.....................................................  $ 112,293,000
                                                                  ============

The JTS common stock, options and warrants were valued using $2.50 per
share which is the representative value of Atari stock at the time the proposed 
transaction was announced.                                                      

The purchase price is expected to be allocated as follows:            

                                                                [Download Table]
                                                                              
Current assets.................................................  $ 30,474,000 
Equipment and tooling..........................................    19,182,000 
In-process technology..........................................    96,993,000 
Existing technology............................................    21,980,000 
Liabilities assumed............................................   (68,050,000)
Goodwill.......................................................    11,714,000 
                                                                 ------------ 
     TOTAL.....................................................  $112,293,000 
                                                                 ============ 

NOTE 2 -- PRO FORMA ADJUSTMENTS                                                 

 The following pro forma adjustments have been made to the unaudited pro
forma condensed combined financial statements:                                  

     (a) --  Reflects the value of all outstanding JTS common stock and the fair
value of JTS options.                                 

(b) -- Reflects the fair value of JTS common stock warrants.          

  (c) --  Reflects elimination of JTS common and preferred stock, deferred
compensation, goodwill and shareholders' deficit.     

(d) -- Reflects allocation of purchase price to acquired equipment,   
existing technology and goodwill.                       

 (e) --  Reflects a one-time charge for purchased in-process technology.

(f) --  Reflects amortization of purchased existing technology on a   
straight-line basis over three years.                 

 (g) --  Reflects amortization of goodwill on a straight-line basis over
seven years.                                          

     (h) -- Reflects depreciation of the step-up of equipment on a straight-line
basis over three years.                                 

(i) --  Reflects accrual of direct transaction costs.                 

(j) --  Reflects the outstanding common stock of JTS assuming the     
        conversion of outstanding preferred stock of JTS excluding the
      impact of stock options and warrants which are antidilutive.

(k) -- Reflects elimination of note between Atari and JTS.            

   (l) --  Reflects elimination of nonrecurring gain on sale of a marketable
security.                                             

    No deferred tax adjustments is made as the deferred tax assets, consisting
primarily of net operating loss carryforwards, exceed the deferred tax          
liabilities and the excess of the deferred tax assets over the deferred tax     
liabilities is offset by a valuation allowance due to the uncertainty           
surrounding the realization.                                                    

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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED 
FINANCIAL STATEMENTS OF ATARI AND JTS (CONTINUED) 

NOTE 3 -- IN-PROCESS RESEARCH AND DEVELOPMENT                                   

   The allocation of the purchase price among identifiable intangible assets
was based on a preliminary independent appraisal of the fair value of those     
assets. The fair value of JTS assets and liabilities will be revised as updated 
information become available at the Effective Time. Such preliminary appraisal  
allocated $97.0 million to purchased in-process research and development. The   
$97.0 million will be expensed in the third calendar quarter upon closing as the
technology had not yet reached technological feasibility and does not have      
alternative future uses. The unaudited pro forma condensed combined statements  
of operations do not include this one-time charge for purchased in-process      
technology as it represents a material nonrecurring charge in accordance with   
the rules for the preparation of pro forma financial statements.                

NOTE 4 -- DEFERRED COMPENSATION                                                 

   Upon the closing of the merger, JTS will record a one-time expense charge
of approximately $4.3 million of deferred compensation which it is currently    
amortizing. Such expense has not been recorded in the accompanying pro forma    
financial statements.                                                           

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA COMBINED FINANCIAL CONDITION
AND PRO FORMA COMBINED RESULTS OF OPERATIONS OF THE COMBINED COMPANY FOR THE
QUARTER ENDED MARCH 31, 1996

  The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations of     
Atari and JTS and the introduction to the pro forma financial statements on page
59. The pro forma combined results are not necessarily indicative of what would 
have occurred had the acquisition actually been made at the beginning of each of
the respective periods presented or of future operations of the Combined        
Company.                                                                        

The net loss on a pro forma basis for the Combined Company was $22.5  
million on net revenues of $18.9 million. The Combined Company expects sales of 
Atari's Jaguar and related products to decline substantially in 1996 and        
thereafter as a result of Atari's decision to focus its efforts on selling its  
inventory of Jaguar and related products and to emphasize its existing licensing
and development activities related to multimedia entertainment software. The    
Combined Company is expected to focus a substantial portion of its resources on 
the disk drive portion of its business which is expected to represent a         
substantial portion of the operations of the Combined Company. Sales of disk    
drives in the Combined Company are expected to increase during 1996 with the    
initiation of shipments of the Nordic 3-inch disk drives to Compaq late in the  
second quarter and the introduction of additional disk drive products with      
higher performance characteristics and increased capacities beyond JTS' current 
1.6 gigabyte product.* There can be no assurance that the Combined Company will 
be successful in the production and shipment of these products.                 

The Combined Company anticipates that it will have a five year period 
during which it will not pay taxes on its operations in India. Further, the     
Combined Company's operations in India are in a tax exempt facility. These tax  
benefits, to the extent the Combined Company is able to generate profitable     
operations to utilize them, will provide the Combined Company with a lower tax  
rate than would otherwise be the case. No assurance can be given, however, that 
the Combined Company will achieve profitable operations in India or be able to  
utilize these tax benefits or achieve a lower tax rate.                         

     Upon consummation of the Merger, the subordinated convertible note due from
JTS to Atari will be canceled. The unaudited pro forma Combined Balance Sheets  
reflect cash and cash equivalents of $28.9 million and working capital of $14.8 
million. The Combined Company will need significant additional financing        
resources over the next several years for facilities expansion, capital         
expenditures, working capital, research and development and vendor tooling. In  
order for the Combined Company to accelerate or increase planned expenditures or
to the extent orders do not materialize as currently projected, additional      
capital will be required. Furthermore, certain equipment and receivable         
financing as well as existing term loans in place are contingent on compliance  
with stringent financial covenants. The Combined Company will pursue equity     
and/or debt financing in the near future to meet its funding requirements. The  
issuance of equity or convertible debt securities would result in dilution of   
the voting control of existing stockholders of the Combined Company and could   
result in dilution to earnings per share. The issuance of debt securities would 
provide to the holders of those securities seniority over the holders of JTS    
Common Stock issued in the Merger. There can be no assurance that the Combined  
Company will be able to maintain its current financing facilities or obtain     
additional financing as needed on acceptable terms or at all. See "Management's 
Discussion and Analysis of Financial Condition and Results of Operations of     
JTS."                                                                           

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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INFORMATION REGARDING ATARI CORPORATION 

BUSINESS OF ATARI                                                               

   Atari was incorporated under the laws of Nevada in May 1984. From 1984 to
1992, Atari designed, manufactured and marketed proprietary personal computers  
and video games and related software. Over the past several years, Atari has    
undergone significant change. In 1992 and 1993, Atari significantly downsized   
operations, decided to exit the computer business and focused on its video game 
business. As a result, revenues from computer products as a percentage of total 
revenues declined from 67% in 1993 to 16% in 1994 and 12% in 1995, while sales  
of entertainment systems and related software and peripheral products and the   
receipt of royalties represented the balance of revenues in each such year.     
These actions resulted in significant restructuring charges for closed          
operations and write-downs of computer and certain video game inventories in    
1992 and 1993.                                                                  

While restructuring, Atari developed its 64-bit Jaguar interactive    
multimedia entertainment system, which was introduced in selected markets in the
fourth quarter of 1993. For 1995 and 1994, total sales of Jaguar and related    
products were $9.9 million and $29.3 million, respectively, and represented 68% 
and 76% of Atari's net revenues, respectively. These Jaguar sales were          
substantially below Atari's expectations, and Atari's business and financial    
results were materially adversely affected in 1995 as Atari continued to invest 
heavily in Jaguar game development, entered into arrangements to publish certain
licensed titles and reduced the retail price for its Jaguar console unit. Atari 
attributes the poor performance of Jaguar to a number of factors including (i)  
extensive delays in development of software for the Jaguar which resulted in    
reduced orders due to consumer concern as to when titles for the platform would 
be released and how many titles would ultimately be available, and (ii) the     
introduction of competing products by Sega and Sony in May 1995 and September   
1995, respectively.                                                             

   By late 1995, Atari recognized that despite the significant commitment of
financial resources that were devoted to the Jaguar and related products, it was
unlikely that Jaguar would ever become a broadly accepted video game console or 
that Jaguar technology would be broadly adopted by software title developers. As
a result, Atari decided to significantly downsize its Jaguar operations. This   
downsizing resulted in significant reductions in Atari's workforce, and         
significant curtailment of research and development and sales and marketing     
activities for Jaguar and related products. Accordingly, Atari decided to focus 
its efforts on selling its inventory of Jaguar and related products and to      
emphasize its existing licensing and development activities related to          
multimedia entertainment software for various platforms. Atari presently has a  
substantial unsold inventory of Jaguar and related products and there can be no 
assurance that such inventory can be sold at current prices. Despite the        
introduction of four additional game titles in the first quarter of 1996, sales 
of Jaguar and related software have remained disappointing due to uncertainty   
about Atari's commitment to the Jaguar platform, increased price competition and
pending competitive product introductions. As a result of continued             
disappointing sales, management revised estimates and wrote-down inventory by an
additional $5.0 million in the first quarter of 1996. As of the end of May 1996,
Atari had approximately 90,000 units of Jaguar in inventory.                    

PRODUCTS                                                                        

Atari's principal products are described below:                       

Jaguar Entertainment System.  Atari introduced its 64-bit Jaguar      
interactive multimedia entertainment system in late November 1993 into selected 
markets. During 1994, Atari rolled out a nationwide program and commenced       
initial shipments into Europe. From its launch through the end of 1994, Jaguar's
suggested retail price was $249.99. As a result of competition and cost         
reductions, during the first quarter of 1995, Atari reduced the retail price of 
Jaguar to $149.99. The current retail price of Jaguar is $99.99. Despite its    
substantially lower retail price, sales of Jaguar continue to be disappointing. 
Volume sales of Jaguar and related software in 1996 have consisted primarily of 
a large order from a new European customer. Atari is also pursuing wholesale    
sales channels in the U.S. as well as licensing opportunities. There can be no  
assurance that Atari's substantial unsold inventory of Jaguar and related       
software can be sold at current or reduced                                      

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prices, if at all. In addition, any further decrease in the value of such       
inventory could result in additional inventory write-downs by Atari.            

    The Jaguar is a 64-bit interactive multimedia system that incorporates two
proprietary chips developed by Atari which are specialized for multimedia       
entertainment. The proprietary chips include four processors (graphics          
processing unit, object processor, blitter and digital signal processor) and a  
standard Motorola 68000 microprocessor. The computational speed of the system is
approximately 44 MIPS and the bus bandwidth is 106.4 megabytes per second. The  
video features include 24-bit graphics with up to 16.8 million colors and a 3-D 
engine which can render 3-D shaded or texture mapped polygons in real time. The 
sound system is based on a high-speed custom digital signal processor dedicated 
to audio. The audio is 16-bit compact disk ("CD") quality from cartridge-based  
software, and can be processed from simultaneous sources of audio data. This    
allows for very realistic sounds in the software, including human voices.       
Through the use of a compression technology customized by Atari (called         
"JAGPEG"), software developers can compress data to the point that a 100-megabit
game can fit into a 16-megabit ROM cartridge. This allows for more exciting     
experiences both visually and in game play due to the vast amount of data       
available.                                                                      

     Jaguar Software Titles.  From 1994 through 1995, Atari developed titles for
the Jaguar primarily under contract with third party software developers. To    
date, Atari has published approximately 45 software titles for the Jaguar. These
titles include an array of licensed and nonlicensed titles, some of which       
utilize 3-D graphics, high speed animation, 16.8 million colors, full motion    
video, motion capture techniques and 16-bit stereo sound. Atari's software      
library includes titles which are cartridge based (ROM chips) and CD based.     
Since 1995, the development of titles for Jaguar has been curtailed             
substantially and Atari is currently developing a very limited number of titles 
which it expects to publish in either cartridge or CD format. In addition to    
Atari's software development efforts, in 1994 and 1995 Atari licensed           
independent software vendors ("ISVs") to develop and publish titles for the     
Jaguar. Atari is not aware of any current development of Jaguar titles by ISVs  
and does not expect any such development in the foreseeable future.             

   Jaguar Peripherals.  Atari offers a CD-ROM peripheral for the Jaguar that
enables software end users to have full motion video clips and more complex     
games than are available on cartridges. Publishers can take advantage of lower  
media cost and quicker turnaround on orders with CD-ROM software as compared to 
a ROM cartridge. The CD-ROM peripheral is a double speed player that can play   
Jaguar video games, regular audio CD's and CD + G (graphics). The suggested     
retail price of the CD-ROM peripheral is $149.99. The success of the CD-ROM     
peripheral is substantially dependent on the size of the installed base of      
cartridge-based Jaguar consoles.                                                

 PC Software.  As a result of Atari's investment in game design, art and
programming for its Jaguar software, Atari has ported certain of its Jaguar     
titles to the IBM PC compatible platform. Atari intends to publish and/or       
license these titles in 1996. In this regard, Atari commenced shipment of the PC
CD-ROM version of Tempest 2000 in Europe during the first quarter of 1996.      

     Library of Titles.  In 1996, Atari plans to increase its efforts to license
titles from its game library to third party publishers. Atari has over 100      
titles in its game library, including the following:                            

                                                                [Download Table]
                                                                                 
Asteroids     Combat           Iron Soldier     RealSport Baseball  Tempest      
Battlezone    Crystal Castles  Major Havoc      RealSport Football  Warbird      
Bentley Bear  Earthworld       Millipede        Space War           Warlords     
Breakout      Food Fight       Missile Command  Star Raiders        Yar's Revenge
Centipede                      Pong                                              

COMPETITION                                                                     

     The video game business is intensely competitive. Since its introduction in
late 1993, Jaguar has failed to achieve broad market acceptance. Atari does not 
expect that Jaguar, even at its substantially reduced price, will ever become a 
broadly accepted video game console, or that Jaguar technology will be broadly  
adopted by software title developers. The video game industry is also           
characterized by unpredictable and rapid shifts in the popularity of certain    
platforms, by severe price competition, and by frequent new technology and      
product                                                                         

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introductions. In this regard, numerous companies have introduced or have       
developed and are expected to introduce video game consoles that are or may     
become competitive with Jaguar. In addition, an increasing number of            
entertainment titles are being developed for or ported to the PC platform. Most 
of Atari's competitors have greater experience and expertise in 3D graphics and 
multimedia technology and have substantially greater engineering, marketing and 
financial resources than Atari. Jaguar presently competes with products offered 
by the following companies:                                                     

   - Nintendo commenced development, in collaboration with Silicon Graphics,
     Inc., of the Nintendo 64 player, expected to be released in Autumn 1996
 in the United States. Nintendo also sells the 16 bit Super NES at a
retail price of $99.95.                                           

  - Sega commenced shipment of the Sega Saturn in the United States in May
     1995 with a current retail price of $299.00. Sega also sells the 16 bit
Genesis at a retail price of $99.95.                              

     - Sony released the Sony PlayStation in the United States in late 1995 with
a current retail price of $299.00.                                

   - The 3DO Company licenses the 3DO Interactive Multiplayer System console
architecture for retail sale worldwide.                           

MARKETING AND DISTRIBUTION                                                      

 Atari distributes its products domestically through various independent
channels. Jaguar is sold primarily through national retailers, consumer         
electronic specialty stores and distributors of electronic products. European   
sales are conducted from Atari's European headquarters in London, U.K. Jaguar   
and Atari's PC titles are sold in European markets through substantially the    
same channels of distribution as those in the United States. Net sales outside  
North America for fiscal years 1995, 1994 and 1993 constituted approximately    
44%, 40% and 75%, respectively, of total net revenues. No single customer       
accounted for 10% or more of total net revenues for the years ended December 31,
1995, 1994 or 1993.                                                             

RESEARCH AND DEVELOPMENT                                                        

    Most of Atari's products, including Jaguar, were developed by its internal
engineering and software groups as well as independent software developers under
contract with Atari. Atari's research and development expenses totaled $5.4     
million, $5.8 million and $4.9 million in 1995, 1994, and 1993, respectively.   
Atari has significantly downsized its research and development efforts and      
currently has five employees dedicated to such efforts. As a result, Atari      
expects its research and development expenses to decline substantially in 1996.*

   Atari's current development efforts are dedicated to developing a limited
number of Jaguar software titles and porting certain existing Jaguar titles to  
the PC platform. As part of this development process, Atari has agreements with 
third parties to develop and/or license properties. Under these agreements,     
Atari will make payments to these parties as either development fees and/or     
advance royalties, and is obligated to make certain minimum royalty guarantees  
on future sales. There can be no assurance that all payments for development    
fees and/or advance royalties will be recoverable through future sales of       
products.                                                                       

MANUFACTURING                                                                   

Atari has placed no manufacturing orders for the Jaguar console since 
mid-1995. Based on current and expected sales and inventory levels, Atari does  
not intend to pursue additional Jaguar manufacturing. The Jaguar console unit   
was assembled in the United States by a third-party subcontractor under a       
manufacturing arrangement. The agreement may be canceled by either party with 90
days' notice. Jaguar software products                                          

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and      
elsewhere in this Joint Proxy Statement/Prospectus.                         

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and accessories are manufactured by several suppliers and are assembled by      
subcontractors. Atari believes that it could readily replace these sources of   
supply and assembly, if necessary.                                              

INTELLECTUAL PROPERTY RIGHTS                                                    

  Atari has exclusive use of its "Atari" name and "Fuji" logo in all areas
other than coin-operated arcade video game use. Atari also has a portfolio of   
other intellectual properties including patents, trademarks, and copyrights     
associated with its video game and computer businesses. Atari believes its      
patents, trademarks and other intellectual property are important assets. As of 
December 31, 1995, Atari held over 150 patents in the United States and other   
jurisdictions which expire from 1996 to 2010 and had applications pending for   
three additional patents. There can be no assurance that any of these patent    
rights will be upheld in the future or that Atari will be able to preserve any  
of its other intellectual property rights. Atari has in the past received       
communications from third parties asserting rights to certain of its            
intellectual property. Atari has also been involved in several major lawsuits   
regarding its intellectual property, including a suit with Nintendo which was   
settled in March 1994 and a suit with Sega which was settled in September 1994. 
In the event any third party were to make a valid claim with respect to Atari's 
intellectual property and a license were not available on commercially          
reasonable terms, Atari's business, financial condition and results of          
operations would be materially and adversely affected. Litigation, which has in 
the past and could in the future result in substantial costs and diversion of   
resources, may also be necessary to enforce Atari's patents or other            
intellectual property rights or to defend against third-party infringement      
claims. The occurrence of litigation relating to patent infringement or other   
intellectual property matters, regardless of the outcome, could have a material 
adverse effect on Atari's business, financial condition and results of          
operations.                                                                     

BACKLOG                                                                         

Orders are usually placed by purchasers on an as-needed basis, are    
sometimes cancelable before shipment, and are usually filled from inventory     
shortly after receipt. Atari currently has a substantial inventory of finished  
products and product components for which there are no orders. Although Atari is
taking steps to realize revenue from such inventory, Atari recognized           
substantial inventory write-downs in 1995 and the first quarter of 1996 and     
there can be no assurance that additional write-downs will not be required.     

EMPLOYEES                                                                       

  Due to disappointing sales of Jaguar and related products, Atari reduced
its workforce from 101 persons at December 31, 1994 to 73 persons at December   
31, 1995 and 31 persons at March 31, 1996. Atari had 22 employees at June 19,   
1996, including 15 in the United States and seven outside the United States.    
None of the employees are represented by a labor union. Atari considers its     
employee relations to be good.                                                  

PROPERTIES                                                                      

Atari leases its 7,200 square feet headquarters facility in Sunnyvale,
California under a lease which expires in 2001. Atari also leases a 20,200      
square feet warehouse facility in Santa Clara, California, a 33,600 square feet 
international sales facility in Slough, England and a 19,400 square feet vacant 
facility in Viannen, Holland. Atari also holds certain properties in Southern   
California and Texas for sale. Some of these properties are currently being     
leased by Atari. These properties are reported as real estate held for sale in  
the Atari Consolidated Financial Statements. See Note 7 of Notes to Atari       
Consolidated Financial Statements.                                              

LEGAL PROCEEDINGS                                                               

     Atari is a defendant in a civil action brought in the Superior Court of the
State of California in and for the County of Santa Clara by Citizen America     
Corporation, a former supplier, in February 1994 seeking damages of             
approximately $900,000 for alleged breach of contract and related claims. Atari 
believes this action will have no material adverse effect on its business,      
financial condition or results of operations.*                                  

 Atari is a defendant and counter claimant in a civil action for alleged
breach of contract brought in U.S. District Court for the Northern District of  
New York, case number 95 Civ. 1945, by Tradewell, Inc., a New                   

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York corporation, seeking specific performance for release of goods having a    
value of $1.6 million. Atari has counterclaimed seeking specific performance for
the purchase of media or, alternatively, damages in the amount of $3.3 million. 
As a result of a partial settlement, Atari now seeks damages of approximately   
$1.5 million. Atari believes this action will have no material adverse effect on
its business, financial condition or results of operations.*                    

     Atari is a plaintiff in a civil action brought in the Superior Court of the
State of California in and for the County of Santa Clara brought against Philips
Laser Magnetic Storage ("Philips") for breach of contract and breach of implied 
covenant of good faith and fair dealing arising out of Philips' failure to      
deliver goods to Atari. Philips has filed a counterclaim seeking damages in     
excess of $3.0 million. Atari believes this action will have no material adverse
effect on its business, financial condition or results of operations.*          

     Atari is a plaintiff in a civil action brought in the Superior Court of the
State of California in and for the County of Santa Clara and removed to the     
United States District Court, Northern District of California brought against   
Probe Entertainment Limited for breach of contract and related claims.          
Counterclaims have been filed against Atari for alleged breach of contract.     
Atari believes this action will have no material adverse effect on its business,
financial condition or results of operations.*                                  

     Atari is not aware of any other pending legal proceedings against Atari and
its consolidated subsidiaries other than routine litigation incidental to their 
normal business.                                                                

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and      
elsewhere in this Joint Proxy Statement/Prospectus.                         

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SELECTED CONSOLIDATED FINANCIAL DATA OF ATARI                                   

The following selected consolidated financial data of Atari have been 
derived from the historical consolidated financial statements of Atari, included
elsewhere herein, with the exception of the Atari Consolidated Statement of     
Operations Data prior to fiscal 1993 and the Atari Consolidated Balance Sheet   
Data prior to December 31, 1994 which were derived from historical consolidated 
financial statements not included herein. The information set forth below should
be read in conjunction with Atari's Consolidated Financial Statements and notes 
thereto and with Management's Discussion and Analysis of Financial Condition and
Results of Operations of Atari. The unaudited quarterly financial data reflect  
all adjustments (which include only normal, recurring adjustments), which are,  
in the opinion of management, necessary to state fairly the results for the     
periods presented. The results for such periods are not necessarily indicative  
of the results to be expected for the full fiscal year.                         

                                                        [Enlarge/Download Table]

                               QUARTER ENDED                                                          
                                 MARCH 31,                     YEAR ENDED DECEMBER 31,                
                             -----------------   ---------------------------------------------------- 
                              1996      1995       1995       1994       1993       1992       1991   
                             -------   -------   --------   --------   --------   --------   -------- 
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)         
                                                                                                      
Consolidated Statement of                                                                             
  Operations Data:                                                                                    
  Total revenues............ $ 1,272   $ 4,874   $ 14,626   $ 38,748   $ 29,108   $127,340   $257,992 
  Operating loss............  (7,149)   (5,158)   (53,665)   (24,047)   (47,499)   (79,008)   (18,683)
  Income (loss) from                                                                                  
     continuing                                                                                       
     operations(1)..........    (806)   (4,473)   (50,158)     9,394    (48,866)   (82,719)    23,659 
  Income (loss) before                                                                                
     extraordinary credit...    (806)   (4,473)   (50,158)     9,394    (48,866)   (73,719)    23,659 
  Net income (loss).........    (806)   (4,426)   (49,576)     9,394    (48,866)   (73,615)    25,619 
Per common share data:                                                                                
  Income (loss) from                                                                                  
     continuing                                                                                       
     operations............. $ (0.01)  $ (0.07)  $  (0.79)  $   0.16   $  (0.85)  $  (1.44)  $   0.41 
  Income (loss) before                                                                                
     extraordinary credit...   (0.01)    (0.07)     (0.79)      0.16      (0.85)     (1.29)      0.41 
  Net income (loss).........   (0.01)    (0.07)     (0.78)      0.16      (0.85)     (1.28)      0.44 

                                                        [Enlarge/Download Table]

                                                                     DECEMBER 31,                   
                                      MARCH 31,   --------------------------------------------------
                                         1996      1995       1994      1993       1992       1991  
                                      ----------  -------   --------   -------   --------   --------
                                                             (IN THOUSANDS)                         
                                                                                                    
Consolidated Balance Sheet Data:                                                                    
  Current assets.....................  $ 55,976   $65,126   $113,188   $51,388   $109,551   $239,296
  Working capital....................    47,200    55,084     92,670    33,896     75,563    159,831
  Total assets.......................    68,406    77,569    131,042    74,833    138,508    253,486
  Current liabilities................     8,776    10,042     20,518    17,492     33,988     79,465
  Long-term obligations..............    42,354    42,354     43,454    52,987     53,937     48,492
  Shareholder's equity...............    17,276    25,173     67,070     4,354     50,583    125,529

---------------                                                                 
(1) Includes a gain from the sale of marketable securities of $6.3 million in   
 1996, a gain from the settlement of patent litigation of $32.1 million in
 1994 and a gain from the sale of a Taiwan manufacturing facility of $40.9
million in 1991.                                                        

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ATARI 

   This Joint Proxy Statement/Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E 
of the Securities Exchange Act of 1934. Actual results could differ materially  
from those projected in the forward-looking statements as a result of certain   
factors, including those set forth under "Risk Factors -- Risk Factors Related  
to the Business of Atari" and elsewhere in this Joint Proxy                     
Statement/Prospectus.                                                           

 Over the past several years, Atari has undergone significant change. In
1992 and 1993, Atari significantly downsized operations, decided to exit the    
computer business and focused on its video game business. As a result, revenues 
from computer products as a percentage of total revenues declined from 67% in   
1993 to 16% in 1994 and 12% in 1995, while sales of entertainment systems and   
related software and peripheral products and the receipt of royalties           
represented the balance of revenues in each such year. These actions resulted in
significant restructuring charges for closed operations and write-downs of      
computer and certain video game inventories in 1992 and 1993.                   

While restructuring, Atari developed its 64-bit Jaguar interactive    
multimedia entertainment system, which was introduced in selected markets in the
fourth quarter of 1993. For 1995 and 1994, total sales of Jaguar and related    
products were $9.9 million and $29.3 million, respectively, and represented 68% 
and 76% of Atari's net revenues, respectively. These Jaguar sales were          
substantially below Atari's expectations, and Atari's business and financial    
results were materially adversely affected in 1995 as Atari continued to invest 
heavily in Jaguar game development, entered into arrangements to publish certain
licensed titles and reduced the retail price for its Jaguar console unit. Atari 
attributes the poor performance of Jaguar to a number of factors including (i)  
extensive delays in development of software for the Jaguar which resulted in    
reduced orders due to consumer concern as to when titles for the platform would 
be released and how many titles would ultimately be available, and (ii) the     
introduction of competing products by Sega and Sony in May 1995 and September   
1995, respectively.                                                             

   By late 1995, Atari recognized that despite the significant commitment of
financial resources that were devoted to the Jaguar and related products, it was
unlikely that Jaguar would ever become a broadly accepted video game console or 
that Jaguar technology would be broadly adopted by software title developers. As
a result, Atari decided to significantly downsize its Jaguar operations. This   
downsizing resulted in significant reductions in Atari's workforce, and         
significant curtailment of research and development and sales and marketing     
activities for Jaguar and related products. Accordingly, Atari decided to focus 
its efforts on selling its inventory of Jaguar and related products and to      
emphasize its existing licensing and development activities related to          
multimedia entertainment software for various platforms. Atari presently has a  
substantial unsold inventory of Jaguar and related products and there can be no 
assurance that such inventory can be sold at current prices. Despite the        
introduction of four additional game titles in the first quarter of 1996, sales 
of Jaguar and related software have remained disappointing due to uncertainty   
about Atari's commitment to the Jaguar platform, increased price competition and
pending competitive product introductions. As a result of continued             
disappointing sales, management revised estimates and wrote-down inventory by an
additional $5.0 million in the first quarter of 1996. As of the end of May 1996,
Atari had approximately 90,000 units of Jaguar in inventory.                    

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994           

  Total revenues for 1995 were $14.6 million compared to $38.7 million for
1994. Sales of Jaguar and related products represented 68% and 76% of total     
revenues for 1995 and 1994, respectively, and sales of other products and       
royalties represented the balance of revenues in each such year. The reduction  
in revenues was primarily the result of lower unit volumes of Jaguar products   
and lower average selling prices of Jaguar and certain of its software titles.  
In the first quarter of 1995, Atari reduced the suggested retail price of Jaguar
from its original price of $249.99 to $149.99. The current suggested retail     
price of Jaguar is $99.99. As a result of the Jaguar price reductions, the      
substantial curtailment of sales and marketing activities for Jaguar and the    
substantial curtailment of efforts by Atari and independent software developers 
to develop additional software                                                  

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titles for Jaguar, Atari expects sales of Jaguar and related products to decline
substantially in 1996 and thereafter.*                                          

   Cost of revenues for 1995 was $44.2 million compared to $35.2 million for
1994. Included in cost of revenues for 1995 were accelerated amortization and   
write-offs of capitalized game software development costs of $16.6 million and  
inventory write-downs of $12.6 million primarily relating to Jaguar products. As
a result of these charges and lower selling prices for Jaguar products and      
provisions for returns and allowances and price protection, gross margin for the
year was a loss of $29.6 million. For 1994, gross margin was $3.5 million, or   
9.2% of revenues. Included in cost of revenues for 1994 were write-downs of     
inventory of $3.6 million and amortization and the write-off of capitalized game
software development costs of $1.5 million. As of December 31, 1995, Atari had  
approximately 100,000 units of the Jaguar console in inventory and there can be 
no assurance that substantial additional write-downs will not be necessary.     

  Research and development expenses for 1995 were $5.4 million compared to
$5.8 million for 1994. During 1995 and 1994, a significant number of Atari      
employees and consultants were devoted to developing hardware and software for  
the Jaguar, and Atari contracted with third-party software developers to develop
Jaguar software titles. As a result of Jaguar's poor sales performance, in the  
third and fourth quarters of 1995, Atari accelerated its amortization of        
contracted software development which resulted in charges in those quarters of  
$6.0 million and $10.6 million, respectively. At December 31, 1995 and 1994,    
Atari had capitalized software development costs of $758,000 and $5.1 million,  
respectively. In the fourth quarter of 1995, Atari eliminated its internal      
Jaguar development teams and other development staff as titles for Jaguar were  
completed. As a result, Atari expects research and development expenses will be 
substantially lower for the foreseeable future.*                                

     Marketing and distribution expenses for 1995 were $12.7 million compared to
$14.7 million for 1994. Such costs included television and print media,         
promotions and other activities to promote Jaguar. Due to the substantial       
curtailment of the Jaguar marketing program, Atari expects these expenses will  
be substantially lower for the foreseeable future.*                             

    General and administrative expenses for 1995 were $5.9 million compared to
$7.2 million for 1994. The decrease in such expenses was primarily a result of  
staff reductions, reduced legal fees and other operating costs. Due to the      
substantial reduction in general and administrative personnel in 1995 and the   
first quarter of 1996, Atari expects these expenses will be substantially lower 
for the foreseeable future.*                                                    

   Atari experienced a gain on foreign currency exchange of $13,000 for 1995
compared to a gain of $1.2 million for 1994. These changes were a result of     
lower foreign asset exposure and a greater percentage of sales made in U.S.     
dollars which further reduced exposure to foreign currency transaction          
fluctuations.                                                                   

   In 1994, Atari received $2.2 million in connection with the settlement of
litigation between Atari, Atari Games Corporation and Nintendo. In 1994, Atari  
also reached an agreement with Sega, which resulted in a gain of $29.8 million, 
after contingent legal fees, and the sale of 4,705,883 shares of Atari Common   
Stock to Sega at $8.50 per share for an aggregate of $40.0 million.             

    During 1995, Atari sold a portion of its holdings in Dixon PLC, a retailer
in England, and realized a gain of $2.4 million, of which $1.8 million was      
realized in the fourth quarter of 1995. In the first quarter of 1996, Atari sold
the remaining portion of its holdings and realized a gain of $6.1 million. The  
1995 gain of $2.4 million together with other income items resulted in a total  
other income of $2.7 million compared to $484,000 for 1994.                     

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and      
elsewhere in this Joint Proxy Statement/Prospectus.                         

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    For each of 1995 and 1994, interest expense was approximately $2.3 million
on the Atari Debentures. In 1995, Atari repurchased a portion of the Atari      
Debentures and realized a gain of $582,000. As of December 31, 1995, the        
outstanding balance of these debentures was $42.4 million.                      

Interest income for 1995 and 1994 was $3.1 million and $2.0 million,  
respectively. The increase in interest income was primarily attributable to     
higher average cash balances in 1995.                                           

    As a result of Atari's operating losses, there was no provision for income
taxes in 1995. See Note 11 to the Atari Consolidated Financial Statements.      

   As a result of the factors discussed above, Atari reported a net loss for
1995 of $49.6 million compared to net income of $9.4 million in 1994.           

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993           

  Total revenues for 1994 were $38.7 million compared to $29.1 million for
1993. The increased revenues were primarily a result of Atari's national rollout
of the Jaguar and related products. Sales of Jaguar products represented 76% of 
revenues in 1994 compared to 13% of revenues in 1993. Jaguar was introduced in  
selected markets in late 1993, and approximately 100,000 units were sold by the 
end of 1994 at a suggested retail price of $249.99. Sales of Atari's proprietary
personal computers and certain discontinued video game products represented 24% 
of revenues for 1994 compared to 87% of revenues for 1993.                      

    Gross margin for 1994 was $3.5 million, or 9.2% of revenues, compared to a
gross loss of $13.7 million for 1993. Included in cost of revenues are inventory
write-downs of $3.6 million and $18.1 million for 1994 and 1993, respectively,  
and a write-off of capitalized game software development costs of $804,000 in   
1994. These write-downs of proprietary personal computers and video game        
products to estimated realizable values were made concurrently with the         
introduction and change in marketing focus to Jaguar products.                  

  Research and development expenses for 1994 were $5.8 million compared to
$4.9 million for 1993. The increase resulted from increased expenditures for the
Jaguar product line.                                                            

     Marketing and distribution expenses for 1994 were $14.7 million compared to
$9.0 million for 1993. The increase in expenditures was primarily the result of 
the national rollout in 1994 of the Jaguar. Such costs included television and  
print media promotions and other activities.                                    

    General and administrative expenses for 1994 were $7.2 million compared to
$7.6 million for 1993. The marginally lower general and administrative expenses 
were primarily due to Atari's restructuring program in 1993. During 1993, Atari 
made provisions for restructuring totaling $12.4 million, which included closing
many of Atari's operations in Europe, Asia and Australia, including, but not    
limited to, severance payments, rental commitments and other closure costs.     

 For 1994, Atari experienced a gain on foreign currency exchange of $1.2
million compared to a loss on exchange of $2.2 million in 1993. This change was 
a result of fluctuation in exchange rates, a lower foreign asset exposure and a 
greater percentage of sales made in U.S. dollars, thereby further reducing      
exposure to foreign currency transaction fluctuations.                          

    For each of 1994 and 1993, interest expense was approximately $2.3 million
on the Atari Debentures.                                                        

     Atari utilized net operating loss carryforwards and, as a result, there was
no provision for income taxes in 1994.                                          

   As a result of the factors discussed above, Atari reported net income for
1994 of $9.4 million compared to a net loss of $48.9 million in 1993.           

QUARTER ENDED MARCH 31, 1996 COMPARED TO QUARTER ENDED MARCH 31, 1995           

    Total revenues for the first quarter of 1996 were $1.3 million compared to
$4.9 million for the first quarter 1995, a reduction of $3.6 million. Sales of  
Jaguar and related products represented 41% and 72% of total revenues for the   
first quarter of 1996 and 1995, respectively, and sales of other products and   
royalties represented the balance of revenues in each such year. The reduction  
in revenues was primarily the result of lower unit volumes of Jaguar products   
and lower average selling prices of Jaguar and certain of its software          

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titles. As a result of the Jaguar price reductions and the substantial          
curtailment of sales and marketing activities for Jaguar, Atari expects sales of
Jaguar and related products to decline substantially in 1996 and thereafter.    

     Cost of revenues for the first quarter of 1996 was $1.2 million compared to
$3.8 million for the first quarter of 1995. The reduction in cost of revenues is
consistent with the reduction in revenues.                                      

In the first quarter of 1996, the Company wrote-down inventory by $5.0
million relating to Jaguar products. These write-downs resulted from            
management's revised estimates of sales resulting from continued disappointing  
sales of Jaguar. Despite the introduction of four additional game titles in the 
first quarter of 1996, sales of Jaguar and related products have remained       
disappointing due to uncertainty about Atari's commitment to the Jaguar         
platform, increased price competition and pending competitive product           
introductions. Atari is pursuing alternative sales channels and licensing       
opportunities. Atari expects the market to remain highly competitive throughout 
the year.                                                                       

  Research and development expenses were $200,000 for the first quarter of
1996 compared to $1.8 million for the first quarter of 1995. The substantial    
decline is due to the elimination of the Company's internal Jaguar development  
team and other development staff in the fourth quarter of 1995. As of March 31, 
1996, Atari had capitalized $900,000 of development cost associated with certain
CD titles.                                                                      

    Marketing and distribution expenses were $800,000 for the first quarter of
1996 compared to $2.6 million for the first quarter of 1995. The reduction was  
due to the curtailment of marketing activities for the Jaguar.                  

 General and administrative expenses for the first quarter of 1996, were
$1.3 million compared to $1.8 million for the first quarter of 1995. The        
decrease in such expenses was primarily the result of staff reductions, reduced 
rent and other reductions in operating costs.                                   

Other Income (Expense), net for the first quarter of 1996 was $290,000
compared to $200,000 for the first quarter of 1995. Gains on sales of marketable
securities were $6.3 million for the first quarter of 1996 compared to $107,000 
for the first quarter of 1995. The 1996 gain represented the sale of the        
remaining portion of Atari's holdings in Dixon PLC, a retailer in England.      
During the 1995 quarter Atari repurchased a portion of its 5 1/4% Convertible   
Subordinated Debentures and recorded an extraordinary credit of $47,250.        

     Interest income for the first quarter of 1996 was $300,000 compared to $1.0
million for the first quarter of 1995, reflecting Atari's significantly lower   
cash balances during the first quarter of 1996. Interest expenses for the 1996  
and 1995 quarters were $600,000 which represents interest due on Atari's 5 1/4% 
Convertible Subordinated Debentures. In April 1996, Atari made an annual payment
of interest on its bonds that totaled $2.2 million.                             

LIQUIDITY AND CAPITAL RESOURCES                                                 

  At December 31, 1995, Atari held cash and marketable securities of $50.6
million compared to $81.0 million at December 31, 1994. The decrease in cash and
marketable securities was primarily the result of operating losses incurred     
during 1995.                                                                    

During 1995, Atari sold a portion of its holding in Dixon PLC., a U.K.
retailer, and realized a gain on the sale of these securities in the amount of  
$2.4 million. In the first quarter of 1996, Atari sold its remaining interest in
Dixon PLC. and realized a gain of $6.3 million. As of December 31, 1995, Atari's
balance sheet reflected an unrealized gain on marketable securities of $7.1     
million.                                                                        

   As of March 31, 1996 , Atari held cash and marketable securities of $23.7
million compared to $50.6 million as of December 31, 1995 for a reduction of    
$26.9 million.                                                                  

In connection with the Merger, on February 13, 1996, Atari extended a 
bridge loan to JTS in the amount of $25.0 million. In event the Merger is not   
consummated, the bridge loan can be converted into shares of JTS Series A       
Preferred Stock at the option of Atari or JTS, subject to certain conditions.   
See "The Proposed Merger and Related Transactions -- Related                    
Transactions -- Atari Loan to JTS."                                             

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 As of March 31, 1996, Atari had $42.4 million of its 5 1/4% convertible
subordinated debentures due April 29, 2002 outstanding. The market value of the 
Atari Debentures was approximately $31.0 million at May 29, 1996. The Atari     
Debentures may be redeemed at Atari's option, upon payment of a premium. The    
debentures, at the option of the holders, are convertible into Atari Common     
Stock at $16.3125 per share. A default with respect to other indebtedness of    
Atari in an aggregate amount exceeding $5 million would result in an event of   
default whereby the Atari Debentures would be due and payable immediately.      

Atari believes its existing cash balances are sufficient to meet its  
requirements at least for the next 12 months.*                                  

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
in "Risk Factors -- Risk Factors Related to the Business of Atari" and      
elsewhere in this Joint Proxy Statement/Prospectus.                         

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MANAGEMENT OF ATARI                                                             

EXECUTIVE OFFICERS AND DIRECTORS                                                

     Following the Merger, Atari and JTS have agreed that Jack Tramiel, Chairman
of the Board of Directors of Atari, and Michael Rosenberg, a member of Atari's  
Board of Directors, will serve as members of the Board of Directors of the      
Combined Company. In addition, Atari and JTS have agreed that Jack Tramiel or a 
person designated by him shall serve as a member of each committee of the Board 
of Directors of the Combined Company. None of the executive officers of Atari   
prior to the Merger will serve as executive officers of the Combined Company.   

The following table lists the names, ages and positions held by all   
directors and executive officers of Atari as of March 31, 1996.                 

                                                                [Download Table]

           NAME            AGE               POSITION(S) WITH ATARI            
-------------------------------  ----------------------------------------------
                                                                               
Jack Tramiel                 67  Chairman of the Board                         
Sam Tramiel                  45  Director, President, Chief Executive Officer  
                                 and Chief Financial Officer                   
Leonard I. Schreiber         81  Director                                      
Michael Rosenberg            68  Director                                      
August J. Liguori            44  Director                                      
Laurence M. Scott, Jr.       50  Vice President, Manufacturing and Operations  
Leonard Tramiel              41  Vice President, Advanced Software Development 

     JACK TRAMIEL and a group of associates purchased the assets and liabilities
of Atari from Warner Communications in May 1984 and Mr. Tramiel has served as   
Chairman of Atari's Board of Directors since such time. Mr. Tramiel served as   
Atari's Chief Executive Officer from May 1984 through May 1988.                 

SAM TRAMIEL has served as President and as a member of the Board of   
Directors of Atari since June 1984, as Chief Executive Officer of Atari since   
May 1988 and as Chief Financial Officer of Atari since March 1996.              

  LEONARD I. SCHREIBER has served as a member of the Board of Directors of
Atari since May 1984. Mr. Schreiber was a partner of Schreiber & McBride, a     
private law firm, from 1980 to 1995.                                            

     MICHAEL ROSENBERG has served as a member of the Board of Directors of Atari
since May 1987. Mr. Rosenberg has served as Chief Executive Officer of Ross &   
Roberts, Inc., a plastics company, since September 1987. Mr. Rosenberg is a     
Certified Public Accountant.                                                    

     AUGUST J. LIGUORI has served as a member of the Board of Directors of Atari
since 1992. Since March 1996, Mr. Liguori has served as Vice President, Finance 
of Marvel Entertainment Group, Inc. From October 1986 to February 1996, Mr.     
Liguori served in several positions with Atari, including Vice President and    
General Manager of Atari U.S. Corp., an Atari subsidiary, from October 1986 to  
October 1989, Vice President of Atari Corporation from October 1989 to October  
1990, and Vice President, Finance, Treasurer and Chief Financial Officer from   
October 1990 to February 1996.                                                  

LAURENCE M. SCOTT, JR. has served as Vice President, Manufacturing and
Operations of Atari since 1992. Prior to joining Atari, Mr. Scott served as     
President of Radofin Electronics (FE) Ltd., a contract manufacturing firm, from 
1978 to 1991.                                                                   

     LEONARD TRAMIEL has served Vice President, Advanced Software Development of
Atari since March 1991. Mr. Tramiel served as Vice President, Software          
Development of Atari from July 1984 to March 1991.                              

     All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. Executive officers 
of Atari are appointed by and serve at the discretion of the Atari Board of     
Directors. Jack Tramiel is the father of Sam Tramiel and Leonard Tramiel.       

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COMPENSATION OF DIRECTORS                                                       

Each of the non-employee directors of Atari, including Mr. Rosenberg, 
receives $500 for each meeting of the Atari Board of Directors which such       
individual attends. In 1995, each non-employee director received an option to   
purchase 20,000 shares of Atari Common Stock pursuant to Atari's 1986 Stock     
Option Plan, as amended. Such options have an exercise price of $2.69 and vest  
over a period of five years.                                                    

PRINCIPAL STOCKHOLDERS OF ATARI                                                 

The following table sets forth information, as of June 28, 1996, with 
respect to beneficial ownership of Atari Common Stock owned by (a) each person  
(or group of affiliated persons) known by Atari to be the beneficial owners of  
more than 5% of Atari's Common Stock, (b) each of Atari's directors, (c) each of
Atari's executive officers and (d) all directors and executive officers as a    
group.                                                                          

                                                        [Enlarge/Download Table]

                                           SHARES       PERCENT     NUMBER OF SHARES OF  PERCENT OF SHARES OF
                                        BENEFICIALLY  BENEFICIALLY     THE COMBINED          THE COMBINED    
       NAME OF BENEFICIAL OWNER            OWNED        OWNED(1)          COMPANY             COMPANY(2)     
--------------------------------------  ------------  ------------  -------------------  --------------------
                                                                                                             
Jack Tramiel(3).......................    12,494,616       19.6%         12,494,616              12.2%       
  455 South Mathilda Avenue                                                                                  
  Sunnyvale, California 94086                                                                                
Time Warner, Inc.(4)..................     8,600,000       13.5           8,600,000               8.4        
  75 Rockefeller Plaza                                                                                       
  New York, New York 10019                                                                                   
Sam Tramiel(5)........................     5,662,567        8.8           5,662,567               5.5        
  455 South Mathilda Avenue                                                                                  
  Sunnyvale, California 94086                                                                                
Leonard Tramiel(6)....................     5,263,946        8.2           5,263,946               5.1        
  455 South Mathilda Avenue                                                                                  
  Sunnyvale, California 94086                                                                                
Sega Holdings USA Inc ................     4,705,883        7.4           4,705,883               4.6        
  303 Twin Dolphin Drive, Suite 200                                                                          
  Redwood City, California 94065                                                                             
Garry Tramiel(7)......................     4,055,000        6.3           4,055,000               3.9        
  455 South Mathilda Avenue                                                                                  
  Sunnyvale, California 94086                                                                                
August J. Liguori(8)..................       262,000      *                 262,000                 *        
Michael Rosenberg(9)..................        45,000      *                  45,000                 *        
Leonard I. Schreiber(10)..............       214,000      *                 214,000                 *        
Laurence M. Scott, Jr.(11)............        10,000      *                  10,000                 *        
All directors and executive officers      23,952,129       37.3          23,952,129              23.3        
  as a group (seven persons)(12)......                                                                       

---------------                                                                 
*  Less than 1%                                                             

 (1) Based on 63,854,718 shares of Atari Common Stock outstanding as of June 28,
1996.                                                                           

 (2) Based on (i) 63,854,718 shares of Atari Common Stock outstanding as of June
    28, 1996 (assuming no exercise of outstanding options after such date) and
     (ii) 29,696,370 shares of JTS Series A Preferred Stock and 9,263,866 shares
   of JTS Common Stock outstanding as of June 18, 1996 (assuming no exercise
of outstanding options and warrants after such date).                 

(3) Includes 11,597,315 shares held by Jack Tramiel's wife. Also includes     
155,690 shares held by Mr. Tramiel's wife as trustee of trusts for the
  benefit of Mr. Tramiel's minor grandchildren. Also includes 4,000 shares
subject to options.                                                   

(4) Includes 7,100,000 shares held by Warner Communications Investors, Inc.,  
1,500,000 shares held by Warner Communications, Inc.                  

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(5) Includes 352,062 shares held by Sam Tramiel as custodian on behalf of his 
children, 8,100 shares held by Mr. Tramiel's wife and an aggregate of 
   97,416 shares held by Mr. Tramiel's minor children. Also includes 225,000
shares subject to options.                                            

(6) Includes 40,000 shares held by Leonard Tramiel's wife and 10,000 shares   
   held by Mr. Tramiel's minor children. Also includes 55,000 shares subject
to options.                                                           

(7) Includes 55,000 shares subject to options.                                

(8) Includes 165,000 shares subject to options.                               

(9) Includes 20,000 shares subject to options.                                

(10) Includes 20,000 shares subject to options.                                 

(11) Represents shares subject to options.                                      

(12) Includes 499,000 shares subject to options.                                

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INFORMATION REGARDING JTS CORPORATION 

BUSINESS OF JTS                                                                 

JTS was founded as a Delaware corporation in February 1994 to design, 
manufacture and market hard disk drives for use in notebook computers and       
desktop personal computers. JTS has developed two product families of hard disk 
drives: the Nordic product family for notebook computers, which includes disk   
drives with 3-inch form factors and two or three recording disks; and the       
Palladium product family for desktop personal computers, which includes disk    
drives with 3.5-inch form factors and two or three recording disks. JTS is also 
developing a family of 5.25-inch form factor disk drives for the desktop        
personal computer market. JTS markets and sells its products to original        
equipment manufacturers ("OEMs") for incorporation into their notebook and      
desktop computer systems and subsystems. JTS acquired several technical         
personnel and rights to certain key technology utilized in JTS' disk drives in  
connection with bankruptcy proceedings involving Kalok Corporation in February  
1994. All JTS disk drives are currently manufactured at JTS' subsidiary, Moduler
Electronics, located in Madras, India.                                          

INDUSTRY BACKGROUND                                                             

  The hard disk drive industry is intensely competitive and dominated by a
small number of large companies, including Quantum, Seagate, Western Digital and
Maxtor. In addition, a number of computer companies, such as Hewlett-Packard,   
Toshiba and IBM, have in-house or "captive" disk drive manufacturing operations 
that produce disk drives for incorporation into their own computers as well as  
for sale to other OEMs. In 1995, the top six disk drive vendors accounted for   
approximately 88% of the unit market share.                                     

In 1995, approximately 89 million hard disk drives were shipped,      
representing a 30% increase over the prior year. Approximately 70 million, or   
77%, of the hard disk drives shipped in 1995 were sold as part of desktop       
personal computers, and approximately 11 million, or 12%, were sold as part of  
notebook computers. In 1995, Seagate, Quantum and Western Digital controlled    
approximately 61% of the desktop hard disk drive market share, and IBM and      
Toshiba controlled approximately 70% of the notebook hard disk drive market     
share.                                                                          

All hard disk drives used in notebook and desktop personal computers  
incorporate the same basic technology. One or more rigid disks are attached to a
spin motor assembly which rotates the disks at a constant speed within a sealed,
contamination-free enclosure. Typically, both surfaces of each disk are coated  
with a thin layer of magnetic material. Magnetic heads record and retrieve data 
from discrete magnetic domains located on pre-formatted concentric tracks in the
magnetic layers of the rotating disks. An actuator positions the head over the  
proper track upon instructions from the drive's electronic circuitry. Most disk 
drives are "intelligent" disk drives which incorporate an embedded ASIC         
controller to manage communications with the computer.                          

   The size of a hard disk drive is referred to as the drive's "form factor"
or "footprint." At present, the vast majority of personal desktop and notebook  
computers incorporate disk drives with either 3.5-inch or 2.5-inch form factors.
The size of the form factor determines the size of the recording disk and,      
hence, dictates the recording capacity of the disk drive. Disk drives with      
smaller form factors must incorporate more disks and, as a result, more heads to
offer the same recording capacity as larger form factor drives. Therefore,      
because heads and disks are the most expensive components in the hard disk      
drive, larger form factor disk drives are relatively less expensive to          
manufacture than smaller form factor drives with comparable recording           
capacities. As a result, 3.5-inch drives are better suited for desktop personal 
computers, which are not subject to the size constraints of notebook computers. 
In contrast, 2.5 inch drives, because of their reduced size as well as power    
conservation features and lightweight design, presently dominate the notebook   
computer market.                                                                

In recent years, the computer industry has witnessed the emergence of 
several trends that JTS believes will continue to drive demand for innovative   
disk drive products. First, new data- and image-intensive applications are      
generating increased demand for greater storage capacity and performance at a   
lower cost for both business and home computer users. JTS believes that this    
trend will continue as more applications are developed that enable individuals  
to easily access, store and manipulate digital information and as computers     

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become a more common home appliance. At the same time, a significant percentage 
of personal computing is occurring on mobile devices, such as notebook          
computers, which represented approximately 15% of all personal computers sold in
1995. Third, the personal computer industry is migrating towards lower profile  
computing devices, both in the desktop and notebook arenas. The pressure to     
shrink the dimensions, increase the capacities and lower the costs of personal  
computers has presented manufacturers, especially notebook designers, with a    
substantial and ongoing technical challenge.                                    

JTS STRATEGY                                                                    

   JTS' objective is to become a leading supplier of hard disk drives to the
notebook and desktop computer markets. JTS' strategy to achieve this objective  
includes the following key elements:                                            

         - Establish 3-inch form factor technology for notebook computers. JTS
has developed a family of 3-inch form factor disk drives, the Nordic  
     product family, for use in notebook computers as an alternative to 2.5-inch
   drives, the current industry standard. JTS Nordic disk drives are similar
to 2.5-inch drives in terms of weight and power consumption but have a
  modestly larger footprint, although the low-profile design of the 3-inch
     drive results in its total volume being the same as the 2.5-inch drive. The
  disks used in JTS' 3-inch drives have 82% greater recording surface area
per drive than disks used in 2.5-inch drives, and, therefore, greater 
   storage capacities can be achieved at the same areal densities (megabytes
     per square inch) as 2.5-inch drives. JTS began shipment of Nordic drives in
the second calendar quarter of 1996. Nordic drives are expected to be 
     offered at prices that are competitive with the prices of 2.5-inch drives.*

        - Develop innovative disk drives for desktop personal computers. JTS
   has developed a 3.5-inch family of disk drives, the Palladium family, for
desktop personal computers. Like the Nordic family of disk drives, the
Palladium family is characterized by a low-profile, fully-encapsulated
 design and a simplified, highly-integrated platform approach. JTS began
     volume production and shipment of Palladium drives in September 1995 and is
presently shipping Palladium drives with capacities of 1.0 and 1.6    
  gigabytes. JTS is also developing a family of 5.25-inch form factor disk
     drives for the desktop market with many of the same design features as JTS'
Nordic and Palladium drives, but with significantly greater recording 
capacities.                                                           

   - Achieve low product cost structure. All of JTS' manufacturing
   operations and some of its design operations take place in Madras, India,
which offers a low-cost and well-trained labor force. In order to     
capitalize upon the low-cost labor base in India, JTS has adopted a   
    manufacturing strategy of selective vertical integration. For example, JTS
is presently vertically integrated in the manufacture of particularly 
  labor-intensive components such as head stacks. JTS' disk drive products
 also share a significant amount of common componentry, thereby reducing
manufacturing and development costs.                                  

    - Form strategic alliances with key participants in the computer
industry. JTS has entered into a Development Agreement and Purchase   
Agreement with Compaq pursuant to which Compaq has agreed to design at
least one of JTS' disk drives into Compaq's products and to purchase a
     minimum number of disk drives subject to certain conditions. JTS intends to
    establish similar arrangements with other major computer OEMs and notebook
computer manufacturers. In addition, JTS has entered into a Technology
     Transfer and License Agreement with Western Digital, which provides for the
    cross-licensing of JTS' and Western Digital's 3-inch disk drive technology
    and licenses Western Digital to act as a second source of 3-inch drives to
Compaq.                                                               

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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PRODUCTS                                                                        

JTS' disk drives are characterized by the following design features:  

         - Low Profile Design. JTS' hard disk drives have a lower profile than
competing hard disk drives with comparable form factors and recording 
capacities. The low profile design is accomplished by a high level of 
   electronic integration that allows for the printed circuit board assembly
   ("PCBA") to be placed in a small corner of the drive in the same plane as
 the recording disks (this design is known as "board in the plane of the
 media" packaging). Most competing drives place the PCBA under the drive
mechanics which significantly increases the height of the drive.      

      - Simplified and Highly-Integrated Platform Approach. JTS' product
families share a simplified, highly-integrated platform approach      
characterized by a reduced number of components. JTS believes that its
PCBAs have the fewest components in the industry because of a         
  highly-integrated ASIC controller. JTS believes this simplified platform
approach combined with common technology among its product families   
facilitates the introduction of new technology and utilizes research  
   personnel in a more efficient manner, thereby reducing development costs.

       - Fully-Encapsulated Design. JTS disk drives are fully-encapsulated
     with no exposed PCBA and contain either a standard fixed drive connector or
    optional multi-insertion connector. The encapsulated design eliminates the
possibility of damage to the PCBA due to electrostatic discharge and  
improves the electromagnetic interference immunity of the drive.      

         - Common Componentry. The Nordic and Palladium product families share
     a substantial percentage of common electronic componentry which facilitates
the simultaneous development of products for the notebook and desktop 
    computer markets and reduces time to market for JTS products. For example,
   JTS' product families share spindle motors, certain head stack components
and controller ASICs.                                                 

Nordic Product Family                                                 

JTS' Nordic product family is designed for notebook computers. Nordic 
drives measure 90mm wide, the same width as a floppy diskette, and are          
classified as 3-inch drives. The Nordic drives incorporate low-profile          
architecture, measuring 10.5mm high for the two disk version and 12.5mm for the 
three disk version. Nordic drive capacities presently range from 640 to 810     
megabytes for the two disk version and 1.2 gigabytes for the three disk version.
The 10.5mm and 12.5mm Nordic drives are significantly thinner than the 17mm or  
19mm high 2.5-inch drives, while the surface area of the recording disk in a    
Nordic drive is 82% greater than a 2.5-inch disk. The greater surface area of   
the disk media used in the Nordic drives allows for greater recording capacity  
using the same areal densities. At the same time, the Nordic drives consume     
approximately the same amount of power as 2.5-inch drives, making them well     
suited for battery operated applications.                                       

  The Nordic product family is being developed in conjunction with Western
Digital, which has entered into a Technology Transfer and License Agreement with
JTS obligating Western Digital to make milestone payments and to share          
advancements in 3-inch technology and licensing Western Digital to serve as a   
second source of Nordic products to Compaq. In addition, JTS has entered into a 
Development Agreement with Compaq which committed Compaq to partially fund      
Nordic development costs and obligated Compaq to purchase a minimum number of   
disk drives over a two year period. Shipments to Compaq of Nordic disk drives   
commenced in the second calendar quarter of 1996. Volume shipments of Nordic    
drives to Compaq are expected to commence in the third quarter of fiscal 1997.* 
See "-- Relationship with Compaq" and "-- Western Digital Arrangement."         

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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Palladium Product Family                                              

    Palladium disk drives are 3.5-inch form factor drives designed for desktop
personal computers. The Palladium product family includes two and three disk    
versions with capacities presently ranging from 540 megabytes to 1.6 gigabytes. 
The Palladium drives incorporate low-profile architecture similar to Nordic     
drives, measuring 1/2-inch in height compared to competing drives that typically
measure 1-inch in height. The low profile design allows two disk drives to be   
configured into the same space required for one competing 3.5-inch drive. JTS   
began volume production and shipments of Palladium drives in September 1995.    

5.25-inch Family of Hard Disk Drives                                  

  JTS is developing a family of 5.25-inch form factor hard disk drives for
desktop personal computers. The 5.25-inch drives will initially include three   
disks and have a capacity of 3.5 gigabytes. The 5.25-inch drives are being      
designed to meet the increased data storage demands of advanced multimedia      
applications. Like the Nordic and Palladium drives, the 5.25-inch drives will   
have a low-profile, fully-encapsulated design and a simplified,                 
highly-integrated platform approach. JTS expects to begin volume production and 
shipment of 5.25-inch drives in the fourth quarter of fiscal 1997.*             

RELATIONSHIP WITH COMPAQ                                                        

     In June 1994, JTS entered into a Development Agreement with Compaq pursuant
to which the two companies established a plan for the development of JTS' Nordic
family of disk drives. Pursuant to the terms of the Development Agreement,      
Compaq has paid $500,000 to JTS for product development expenses. In addition,  
JTS has granted to Compaq certain pricing preferences and agreed to pay         
royalties to Compaq on sales of Nordic disk drives to third parties during the  
term of the agreement. Compaq has been granted a license to use the Nordic      
designs to manufacture Nordic drives on a royalty-free basis in the event JTS   
fails to meet the agreed upon production schedule. The Development Agreement    
also restricts JTS' ability to sublicense Nordic technology. The Development    
Agreement has a five year term, which will automatically be renewed under       
certain circumstances and may be terminated by either party only with cause. JTS
and Compaq have also entered into a Purchase Agreement related to future        
purchases by Compaq of Nordic drives. See "-- Patents and Licenses."            

WESTERN DIGITAL ARRANGEMENT                                                     

In February 1995, JTS entered into a Technology Transfer and License  
Agreement with Western Digital. Under the terms of the agreement, Western       
Digital obtained manufacturing and marketing rights to JTS' 3-inch hard disk    
drive products. In return, Western Digital is obligated to make payments to JTS 
totalling $6.0 million upon the achievement of certain development milestones   
and is licensed to act as a second source of Nordic drives to Compaq. As of     
January 28, 1996, Western Digital had made milestone payments to JTS in an      
aggregate amount of $5.3 million. In February 1995, Western Digital also made a 
$4.1 million equity investment in JTS as part of the transaction. The parties   
have reciprocal, royalty-free, cross-license agreements for future 3-inch drive 
developments, and Western Digital has granted to JTS licenses on existing       
patents covering its 3-inch disk drive technology. Under certain circumstances, 
the Technology Transfer and License Agreement restricts JTS from sublicensing   
Nordic technology until 1998. See "-- Patents and Licenses."                    

MANUFACTURING                                                                   

JTS' manufacturing strategy is to be a low-cost producer of hard disk 
drives for the notebook and desktop personal computer markets. All of JTS'      
manufacturing operations are currently conducted at its subsidiary,             

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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Moduler Electronics, located in Madras, India, which JTS acquired in April 1996.
See "JTS' Acquisition of the Disk Drive Division of Moduler Electronics." As of 
April 26, 1996, 1,760 individuals were employed at Moduler Electronics. The     
Madras facility presently occupies 85,000 square feet in a single building,     
4,000 square feet of which are designated a "clean room" environment. At this   
facility, JTS is adding production lines and expanding its clean room           
environment. JTS believes that locating its manufacturing operations in India is
an important element of its low-cost manufacturing strategy due to the          
availability of a high-quality, low-cost technical labor pool. In 1995, JTS was 
granted a five year "tax holiday" with respect to sales of JTS' products in and 
outside of India. In addition, Moduler Electronics is located in the Madras     
export processing zone and, therefore, enjoys a tax exemption with respect to   
profits generated from sales outside of India. Such exemption may be terminated 
at any time, in which event JTS would become subject to significantly greater   
taxes on sales of disk drives outside of India. Other benefits associated with  
conducting business in India, which historically has experienced considerable   
political instability, are subject to the vagaries of the Indian government, and
may be withdrawn at any time.                                                   

 The manufacture of high-capacity hard disk drives is a complex process,
requiring a "clean room" environment, the assembly of precision components      
within narrow tolerances and extensive testing to ensure reliability. JTS'      
manufacturing process is performed in three stages: subassembly, final assembly 
and final test. The subassembly group builds mechanical subassemblies and flex  
cables and modifies PCBAs. Printed circuit board assembly is performed by       
outside vendors. The final assembly group assembles all subassemblies and       
components into the mechanical head/disk assembly ("HDA"), writes servo         
information, and performs preliminary testing. To avoid contamination by dust   
and other particles which may impair the functioning of the disk drive, most    
assembly takes place under controlled "clean room" conditions. The final test   
group connects PCBAs to HDAs, burns-in completed drives and performs final      
tests.                                                                          

The principal components used in JTS' manufacturing process are disks,
heads and PCBAs. JTS has two qualified sources for PCBAs and is in the process  
of qualifying second sources for disks and heads. JTS' Indian subsidiary imports
approximately 85% of the componentry used in the manufacture of its disk drives 
from outside of India. In the past, JTS has experienced delays in obtaining     
certain integrated circuits required in the assembly of PCBAs, and there can be 
no assurance that such delays, or difficulties in obtaining those or other      
components, will not occur in the future. JTS' inability to obtain essential    
components or to qualify additional sources as necessary, if prolonged, could   
have a material adverse effect on JTS' business, operating results and financial
condition. In the second quarter of 1996, JTS was advised that its sole supplier
of certain head stack components intends to decrease production and ultimately  
discontinue manufacturing of such components, and, therefore, JTS will be       
required to secure a new supply arrangement with another manufacturer of such   
components.                                                                     

JTS has developed a comprehensive quality assurance program. All      
significant electrical and mechanical parts received from outside sources are   
inspected or tested, normally on a sample basis, and testing and burn-in of     
certain components and subassemblies occurs during assembly. In addition, JTS   
performs several in-process quality checks and inspections, both in the PCBA and
HDA processes, and a final drive-level quality check prior to packaging.        
Additional performance and reliability testing is done on a sample basis from   
each week's production units in order to monitor quality levels and provide     
corrective action to the factory processes. JTS generally warrants its products 
against defects in design, materials and workmanship for three years. JTS       
maintains in-house service facilities for refurbishment or repair of its        
products in Madras, India.                                                      

    Due to the common componentry of the Nordic and Palladium disk drives, JTS
believes that it enjoys considerable flexibility in managing inventory levels   
and meeting its customers' production requirements. In addition, JTS believes   
that common componentry reduces the amount of scrap materials generated in the  
manufacturing process and facilitates the training of operators in producing new
products, thus reducing production costs.                                       

JTS' longer-term manufacturing strategy calls for selective vertical  
integration to reduce JTS' manufacturing costs. At present, JTS is vertically   
integrated in certain labor intensive components, such as head stacks, thereby  
capitalizing on the low-cost labor base in India. JTS also believes that its    
proprietary controller ASIC is less expensive and more easily upgradeable than  
commercially available integrated circuits.                                     

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RESEARCH AND DEVELOPMENT                                                        

     JTS operates in an industry characterized by rapid technological change and
short product life cycles. As a result, JTS' success will depend upon its       
ability to develop new products, successfully introduce these products to the   
market and ramp up production to meet customer demand. Accordingly, JTS is      
committed to timely development of new products and the continuing evaluation of
new technologies. JTS' research and development efforts are presently           
concentrated on broadening its existing 3.5- and 3-inch product lines and       
introducing new generations of products with increased capacity and improved    
performance at a lower cost. In this regard, JTS is presently designing various 
high performance features, such as MR heads, new ASIC/channel technology and    
advanced head lifters, into each of its hard disk drive product families. In    
June 1996, JTS entered into a Heads of Agreement with Headway Corporation       
("Headway"), a joint venture between Hewlett-Packard and Komag Corporation,     
pursuant to which Headway has agreed to act as the exclusive supplier of MR     
heads for JTS' future products.                                                 

     JTS expects to begin shipment of Palladium drives with recording capacities
of up to 2.5 gigabytes and Nordic drives with recording capacities of up to 2.0 
gigabytes in the fourth quarter of fiscal 1997.* In addition, JTS is developing 
a family of 5.25-inch disk drives for the desktop personal computer market. JTS 
expects to begin shipment of 5.25-inch drives in the fourth quarter of fiscal   
1997.* For the fiscal years ended January 31, 1995 and 1996, JTS' research and  
development expenses totalled approximately $3.7 million and $13.4 million,     
respectively. As of January 28, 1996, JTS employed 137 individuals in           
engineering support and research and development.                               

SALES AND MARKETING                                                             

JTS sells its products through its direct sales force operating in the
United States, Europe and Asia. In addition, JTS' hard disk drives are sold into
the Latin American markets by FutureTech International, Inc. ("Futuretech"), a  
products distributor. JTS presently has a sales office in Taiwan that employs   
three individuals. The Taiwan sales office markets the JTS Nordic disk drives to
local notebook computer manufacturers and works closely with the manufacturers  
to design JTS' disk drives into their products. In addition, JTS has independent
sales representatives located in Japan, Germany and South Africa who market JTS'
Nordic disk drives to notebook computer manufacturers. JTS employs two sales    
representatives in the United States who market JTS' 3.5-inch disk drives to    
OEMs. International sales accounted for 81% of revenues in fiscal 1996. See     
"Notes to JTS Financial Statements."                                            

    A limited number of customers account for a significant percentage of JTS'
total revenue. In fiscal 1996, Olidata S.p.A., Connexe Peripherals, Ltd., Liuski
International, Inc. and Aashima Technology, B.V. accounted for 34%, 12%, 11% and
10%, respectively, of JTS' total revenue. In the quarter ended April 28, 1996,  
Peacock Systems GmbH, Markvision International S.A. and FutureTech accounted for
43%, 18% and 14%, respectively, of JTS' total revenue. JTS expects that sales to
a relatively small number of OEMs will account for a substantial portion of its 
net revenues for the foreseeable future, although the companies that comprise   
JTS' largest customers may change from period to period. In particular, based on
existing contracts with FutureTech and Compaq, JTS expects that revenues from   
these companies will account for a substantial percentage of JTS' revenues in   
the foreseeable future. The loss of, or decline in orders from, one or more of  
JTS' key customers would have a material adverse effect on JTS' business,       
operating results and financial condition.                                      

PATENTS AND LICENSES                                                            

JTS holds no patents and has licensed in a substantial portion of the 
technology used in its hard disk drives pursuant to license agreements with Pont
Peripherals Corporation, formerly DZU Corporation ("Pont"), TEAC Corporation    
("TEAC") and Western Digital. If such license agreements were prematurely       

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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terminated or if JTS were enjoined from relying upon such licenses due to JTS'  
alleged or actual breach of such agreements, JTS would be prevented from        
manufacturing disk drives incorporating technology subject to such licenses. As 
a result, JTS' business, operating results and financial condition would be     
materially adversely affected. JTS has filed three United States patents        
applications. Although JTS believes that patent protection could offer          
significant value, the rapidly changing technology of the computer industry     
makes JTS' future success dependent primarily upon the technical competence and 
creative skills of its personnel rather than on patent protection.              

  A license with respect to certain key technology employed in JTS' Nordic
disk drives was granted to JTS by TEAC pursuant to a license agreement dated    
February 4, 1994 (the "TEAC Agreement"). The TEAC Agreement also includes a     
cross-license with respect to Nordic technology developed jointly by TEAC and   
JTS, which will be owned jointly by the two companies, and granted certain      
rights to TEAC with respect to Nordic technology developed independently by JTS,
which will be owned solely by JTS. Under the TEAC Agreement, JTS is obligated   
under certain circumstances to make royalty payments to TEAC in connection with 
the sale of future generation disk drives incorporating Nordic technology that  
is jointly developed by JTS and TEAC or independently developed by TEAC. JTS is 
not obligated to make royalty payments with respect to developments to Nordic   
technology made independently by JTS, but JTS is obligated to license such      
developments to TEAC on a royalty-free basis. The TEAC Agreement restricts JTS' 
ability to sublicense certain technology licensed to JTS. TEAC originally       
acquired its rights in certain Nordic disk drive technology pursuant to the     
Agreed Order Compromising Controversies dated February 4, 1994 (the "Order")    
governing the distribution of the assets of Kalok Corporation. The Order imposes
certain restrictions on JTS' right to sublicense, manufacture and sell certain  
disk drive technology of Kalok Corporation that was transferred to both TEAC and
Pont pursuant to the Order.                                                     

  In June 1994, JTS entered into a Development Agreement with Compaq which
imposes certain restrictions on JTS' ability to sublicense Nordic technology to 
third parties. In addition, the Development Agreement imposes a royalty         
obligation upon JTS with respect to the sale of Nordic disk drives to third     
parties during the term of the agreement. Moreover, Compaq has a right of first 
refusal with respect to all production of Nordic drives until June 1997 and a   
right of first refusal to license and/or acquire future JTS technologies and    
products during the term of the agreement. JTS has also granted certain         
non-exclusive manufacturing and marketing rights with respect to certain Nordic 
technology and developments thereto within the term of the Development          
Agreement. See "-- Relationship with Compaq."                                   

     In January 1995, JTS and Pont entered into a cross-licensing agreement (the
"Pont Agreement") pursuant to which JTS granted to Pont a royalty-free,         
nonexclusive, perpetual license to use certain JTS and jointly-developed hard   
disk drive technology, to make developments to such technology and to           
manufacture and sell in certain territories hard disk drives incorporating such 
technology. In return, Pont granted to JTS a royalty-free, nonexclusive,        
perpetual license to use certain Pont and jointly-developed hard disk drive     
technology, to make developments to such technology and to manufacture and sell 
in certain territories hard disk drives incorporating such technology. In       
addition, Pont was obligated to make certain royalty payments to JTS for a      
limited period of time with respect to the sale of hard disk drives             
incorporating certain JTS technology.                                           

     In February 1995, the TEAC Agreement, the Order, the Pont Agreement and the
Compaq Development Agreement were each amended to permit the license and        
sublicense by JTS to Western Digital of certain rights in Nordic disk drive     
technology. In addition, the amendment to the TEAC Agreement provides that JTS  
will pay certain royalties to TEAC, under certain circumstances, upon the sale  
of Nordic drives for a limited period of time. The Pont Agreement was also      
amended to expand the territories in which JTS may manufacture and sell hard    
disk drives incorporating technology subject to the agreement. JTS and Western  
Digital concurrently entered into a Technology Transfer and License Agreement   
pursuant to which Western Digital obtained certain manufacturing and marketing  
rights to Nordic disk drive technology. The parties have reciprocal,            
royalty-free, cross-license agreements for future Nordic technology             
developments, and Western Digital has granted to JTS licenses on existing       
patents covering its 3-inch hard disk drive technology. See "-- Western Digital 
Arrangement."                                                                   

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COMPETITION                                                                     

  The hard disk drive industry is intensely competitive and dominated by a
small number of large companies, including Quantum, Seagate, Western Digital and
Maxtor. In addition, a number of computer companies, such as Hewlett-Packard,   
Toshiba and IBM, have in-house or "captive" disk drive manufacturing operations 
that produce disk drives for incorporation into their own computers as well as  
for sale to other OEMs. JTS believes that competition in the disk drive industry
is based primarily upon time to market, product availability, performance,      
product capacity and price. JTS believes that it competes favorably with respect
to each of these factors. Many of JTS' competitors have broader product lines   
than JTS, and all have significantly greater financial, technical and marketing 
resources. There can be no assurance that JTS will be able to develop and       
manufacture products on a timely basis with the quality and features necessary  
in order to be competitive. High volume disk drive users typically utilize from 
two to four suppliers but desire to limit the number of sources. As a result, it
may be necessary for JTS to displace competitors in many circumstances in order 
to increase its net sales. In addition, JTS faces competition from the          
manufacturing operations of its current and potential OEM customers, which could
initiate or increase internal production and reduce or cease purchasing from    
independent disk drive suppliers such as JTS. Moreover, the hard disk drive     
industry is characterized by intense price competition. If other disk           
manufacturers add significant capacity or demand for disk drives decreases, the 
resulting pricing pressures could adversely affect JTS' business, operating     
results and financial condition. JTS has experienced pricing pressures in the   
past, and there can be no assurance that JTS will not experience increased price
competition in the future. Any increase in price competition could have a       
material adverse effect on JTS' business, operating results and financial       
condition. If JTS' current and prospective customers and end users were to adopt
alternative data storage products, including optical storage, flash memory and  
holographic storage, JTS' business, operating results and financial condition   
could be adversely affected.                                                    

BACKLOG                                                                         

    JTS' sales are generally made pursuant to purchase orders that are subject
to cancellation, modification, quantity reductions or rescheduling without      
significant penalties. Changes in forecasts, cancellations, rescheduling and    
quantity reductions may result in excess inventory costs, inventory losses and  
under-utilization of production capacity and may have a material adverse effect 
on JTS' business, operating results and financial condition. As a result of the 
foregoing, JTS' backlog as of any particular date may not be representative of  
actual sales for any succeeding period.                                         

EMPLOYEES                                                                       

   As of April 26, 1996, JTS had 1,936 full-time employees, of whom 158 were
located in San Jose, California, 1,760 were located in Madras, India, 13 were   
located in Singapore and five were located in Taipei, Taiwan. Of the full-time  
employees, 1,490 are engaged in manufacturing, 12 in marketing, sales and       
service, 108 in product development and 18 in administration and finance.       

   The market for well-trained employees with disk drive industry experience
is intensely competitive. JTS believes that its future success will depend on   
its ability to continue to attract and retain a team of highly motivated and    
skilled individuals. None of JTS' employees is represented by a labor           
organization. JTS believes that its employee relations are good.                

PROPERTIES                                                                      

 JTS presently leases facilities in San Jose, California, Madras, India,
Singapore and Taipei, Taiwan. JTS' executive and administrative headquarters are
located in a 52,000 square foot building in San Jose. The lease on this facility
expires in July 2000, and has an option to renew for four years, subject to     
certain restrictions.                                                           

    The Madras facility comprises approximately 85,000 square feet and is used
for all of JTS' manufacturing operations. JTS does not presently lease the      
Madras facility, but rather occupies the facility pursuant to allotment letters 
from the Development Commissioner of the Madras Export Processing Zone. Such    
allotment letters authorize JTS to occupy the premises indefinitely so long as  
the space is used in the                                                        

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reasonable conduct of JTS' business and rents are paid in a timely fashion. JTS 
currently intends to increase the size of the Madras facility by 65,000 square  
feet by the end of fiscal 1997.*                                                

    The Singapore office comprises approximately 1,500 square feet and is used
for JTS' purchasing operations in Southeast Asia. The lease for this facility   
expires in October 1997.                                                        

     The Taiwan sales office has approximately 1,144 square feet and is used for
JTS' marketing and sales operations in Taiwan. The lease for this facility      
expires in July 1997.                                                           

LEGAL PROCEEDINGS                                                               

 JTS has been served with a complaint filed in the Superior Court of the
State of California in and for the County of Santa Clara by Venture Lending &   
Leasing, Inc. ("VLLI") relating to the relocation of certain leased equipment   
from its initial location to Madras, India, in alleged violation of the lease   
agreement. The complaint alleges fraud, possession and breach of the lease      
agreement and seeks damages of approximately $4.6 million.                      

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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JTS AND MODULER ELECTRONICS UNAUDITED SELECTED FINANCIAL DATA 

   The following unaudited selected pro forma combined financial data of JTS
and Moduler Electronics presents the pro forma combined financial position and  
results of operations of JTS and Moduler Electronics as of and for the year     
ended January 28, 1996 and for the three months ended April 28, 1996 and April  
30, 1995. This unaudited selected pro forma financial data combine JTS and      
Moduler Electronics and give effect to the JTS and Moduler Electronics          
combination, which was accounted for as a purchase. The April 28, 1996 balance  
sheet reflects the acquisition of Moduler Electronics which took place on April 
4, 1996. Intercompany balances and transactions have been eliminated in the     
presentation. This data should be read in conjunction with the Unaudited Pro    
Forma Financial Statements and related notes, and the historical financial      
statements and related notes of JTS and Moduler Electronics which are included  
elsewhere herein. All amounts are stated in thousands, except per share amounts.

                                                                [Download Table]
                                                                          
Statement of Operations Data:                                             
Year Ended January 28, 1996 (Pro forma)                                   
  Net revenues................................................ $ 18,777   
  Gross margin (deficit)......................................  (14,849)  
  Research and development....................................   13,375   
  Selling, general and administrative expenses................    5,777   
  Operating loss..............................................  (34,001)  
  Net loss....................................................  (35,170)  
  Loss per common share(1)....................................    (7.63)  

                                                        [Enlarge/Download Table]

                                                                       THREE MONTHS ENDED         
                                                               -----------------------------------
                                                                APRIL 28, 1996      APRIL 30, 1995
                                                               ----------------     --------------
                                                                                                  
Quarter ended April 28, 1996 and April 30, 1995 (Pro forma)                                       
  Total revenues..............................................     $ 17,581            $  2,077   
  Operating loss..............................................      (12,098)             (1,203)  
  Net loss....................................................      (12,820)             (1,143)  
  Net loss per share(1).......................................        (1.47)               (.26)  

                                                        [Enlarge/Download Table]

                                                                                  JANUARY 28,  
                                                                                      1996     
                                                                APRIL 28, 1996   --------------
                                                               ----------------   (PRO FORMA)  
                                                                   (ACTUAL)                    
                                                                                               
Balance Sheet Data:                                                                            
  Current assets..............................................     $ 30,474         $ 12,722   
  Equipment and leasehold improvements, net...................       16,212           14,795   
  Total assets................................................       46,871           28,111   
  Current liabilities.........................................       61,669           30,615   
  Long-term debt..............................................        6,381            6,248   
  Redeemable Series A Preferred Stock.........................       29,697           29,696   
  Stockholders' deficit.......................................      (50,876)         (38,448)  

---------------                                                                 

(1) Excludes JTS Series A Preferred Stock, warrants and options as their effect 
would be antidilutive.                                                  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF JTS 

     JTS was incorporated in February 1994 and remained in the development stage
until October 1995, when it began shipping hard disk drives. From October 1995  
through January 1996, JTS shipped 98,000 Palladium disk drives in 540 megabyte, 
850 megabyte and 1 gigabyte configurations primarily to customers in the United 
States and Europe. During the second quarter of calendar year 1996, JTS began   
shipment of Nordic disk drives to Compaq under a volume purchase agreement.     
There can be no assurance that JTS will be successful in the production and     
shipment of these products.                                                     

Since its inception, JTS has incurred significant losses which have   
resulted from the substantial costs associated with the design, development and 
marketing of new products, the establishment of manufacturing operations and the
development of a supplier base. JTS' ability to achieve successful operations   
will depend upon a number of factors, including market acceptance of JTS'       
products, the introduction of new products in a timely and cost-effective       
manner, and the volume production of disk drives at acceptable manufacturing    
yields. In addition, JTS will need significant additional financing resources   
over the next several years for facilities expansion, capital expenditures,     
working capital, research and development and vendor tooling. There can be no   
assurance that JTS will achieve successful operations.                          

All of JTS' products are manufactured in Madras, India by its Moduler 
Electronics subsidiary. In March 1995, JTS entered into a verbal agreement to   
acquire Moduler Electronics and subsequently assumed operational and management 
control of certain aspects of Moduler Electronics' disk drive business. In April
1996, JTS acquired 90% of Moduler Electronics and, accordingly, the Pro Forma   
Combined Condensed Financial Statements of JTS and Moduler Electronics are the  
bases for the following discussion and analysis.                                

PRO FORMA YEAR ENDED JANUARY 28, 1996 COMPARED TO YEAR ENDED JANUARY 29, 1995   

    For the fiscal year ended January 28, 1996, JTS' pro forma results reflect
a net loss of $35.2 million, compared to a net loss of $4.8 million for JTS in  
fiscal 1995.                                                                    

   Total pro forma revenues for fiscal 1996 were $18.8 million and consisted
of product sales and license revenues. Net product sales for fiscal 1996 were   
$13.5 million as JTS initiated product shipments to customers in October 1995.  
License revenues for fiscal 1996 were $5.3 million as JTS achieved certain      
development milestones under its Technology Transfer and License Agreement with 
Western Digital which was executed in February 1995. Of total revenues, 81% were
derived from European customers and 19% were derived from customers in the      
United States. During fiscal 1996, JTS' product sales were concentrated among   
several key customers with Olidata Spa, Connexe Peripherals, Ltd., Liuski       
International, Inc. and Aashima Technology B.V. accounting for 34%, 12%, 11% and
10% of total product sales, respectively. JTS had no revenues in fiscal 1995.   

    Pro forma gross margin for fiscal 1996 was a deficit of $14.8 million. The
deficit resulted principally from costs and expenses due to low manufacturing   
yields and high per unit costs associated with the start-up of manufacturing    
operations. Cost of product sales for fiscal 1996 also included a $4.3 million  
provision for inventory allowances. The principal reasons for these allowances  
include approximately $3.6 million for obsolete and unsaleable inventory,       
approximately $345,000 for the costs of repairing defective products and a      
reserve of approximately $500,000 for various other allowances. JTS anticipates 
incurring future inventory allowances, the level of which will depend upon a    
number of factors including manufacturing yields, new product introductions,    
maturity or obsolescence of product designs, inventory levels and competitive   
pressures.*                                                                     

    The hard disk drive industry has been characterized by ongoing rapid price
erosion and resulting pressure on gross margins. JTS expects that hard disk     
drive prices will continue to decline in the future and that                    

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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competitors will offer products which meet or exceed the performance            
capabilities of JTS products. Due to such pricing pressures, JTS' future gross  
margin will be substantially dependent upon its ability to control manufacturing
costs, improve manufacturing yields and introduce new products on a timely      
basis.*                                                                         

Research and development expenses for fiscal 1996 were $13.4 million  
compared to $3.7 million for fiscal 1995. The increase is primarily attributable
to salaries and benefits resulting from the significant increase in staffing    
required for product design and the development of manufacturing processes.     
Specifically, during fiscal 1996, the number of employees in research and       
development increased by 112 to a total of 137 employees at the end of fiscal   
1996. In addition, expenses for supplies, materials and other costs associated  
with design and pilot production of new products were approximately $5.0 million
in fiscal 1996 compared to approximately $1.5 million in fiscal 1995. JTS       
expects that research and development expenses will continue to increase        
throughout fiscal 1997 in absolute dollars but that such expenses will decline  
as a percent of sales.*                                                         

Selling, general and administrative expenses for fiscal 1996 were $5.8
million compared to $1.5 million for fiscal 1995. The major components of these 
expenses are salaries and benefits of administrative and marketing and sales    
employees, facility costs and professional fees. The growth in these expenses in
fiscal 1996 was required to support the expansion of JTS' operations and the    
commencement of marketing and sales efforts. Included in 1996 is a non-cash     
charge of $930,000 of amortization of deferred compensation related to the      
issuance of common stock to certain officers (see Note 7 to JTS Financial       
Statements). JTS expects that selling, general and administrative expenses will 
increase throughout fiscal 1997 in absolute dollars but that such expenses will 
decline as a percentage of sales.*                                              

QUARTER ENDED APRIL 28, 1996 COMPARED TO QUARTER ENDED APRIL 30, 1995           

    Revenue for the first quarter of fiscal 1997 was $17.6 million compared to
$2.0 million for the first quarter of fiscal 1996. Revenue for the current      
quarter was comprised primarily of sales of the Company's 850 megabyte and 1    
gigabyte Palladium 3 1/2-inch disk drives. Minimal product revenues were        
recorded in the first quarter of fiscal 1996, as the Company initiated volume   
shipments of disk drives in October 1995. However, JTS earned $2.0 million of   
technology license revenue during the first quarter of fiscal 1997 as a result  
of achieving certain development milestones under the Technology Transfer and   
License Agreement with Western Digital. JTS' management expects revenues from   
its 850 megabyte drives to be nominal for the rest of the fiscal year and sales 
from its 1 gigabyte products to decline in the near future.* JTS recently began 
shipment of its 1.6 gigabyte drives, the sales of which are expected to increase
in the near future.* During the second fiscal quarter, the Company will begin   
shipment of Nordic 3-inch disk drives to Compaq Computer Corporation under a    
volume purchase agreement.* There can be no assurance that product sales will   
materialize as expected.                                                        

     The gross margin for the first quarter of fiscal 1997 was a deficit of $1.8
million compared to a margin of $2.0 million for the first quarter in fiscal    
1996. The $3.8 million increase in the gross margin deficit is attributable to  
high unit costs associated with the ramp-up of volume production of disk drives.
In order for JTS to realize positive gross margins in the future, the Company   
will have to control manufacturing costs, further improve manufacturing yields  
and successfully introduce new products on a timely basis.                      

   Research and development expenses were $7.4 million for the first quarter
of fiscal year 1997 compared to $1.7 million for the first quarter of fiscal    
year 1996 as a result of a significant increase in the number of employees in   
research and development required to meet demand for timely product design. JTS 
expects that research and development expenses will continue to increase        
throughout fiscal 1997 in absolute dollars but that such expenses will decline  
as a percentage of sales.                                                       

Selling, general and administrative expenses for the first quarter of 
fiscal 1997 were $3.1 million compared to $700,000 for the first quarter of     
fiscal 1996. The increase resulted from the expansion of JTS' operations and the
commencement of marketing and sales efforts. Also included is a non-cash charge 
of                                                                              

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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$330,000 related to the amortization of deferred compensation. JTS expects that 
selling, general and administrative expenses will increase throughout fiscal    
1997 in absolute dollars but that such expenses will decline as a percentage of 
sales.                                                                          

LIQUIDITY AND CAPITAL RESOURCES                                                 

    As of January 28, 1996, JTS had cash and cash equivalents of $1.4 million.
Of this amount, $380,000 on deposit in India was restricted for use by JTS for a
90 day period beginning on January 28, 1996. On a pro-forma basis, at January   
28, 1996, JTS had a working capital deficit of $17.9 million, which included    
short term borrowings of $10.4 million. The short term borrowings were used to  
finance working capital requirements, and included $4.3 million outstanding     
under a bank line of credit and $6.1 million outstanding under bank lines of    
credit in India.                                                                

  Since inception, JTS has acquired approximately $11.0 million in capital
equipment, furniture and fixtures and leasehold improvements. Long term debt    
associated with capital acquisitions amounted to approximately $7.9 million at  
January 28, 1996. JTS currently expects that approximately $22 million will be  
required during calendar year 1996 for capital equipment, tooling and leasehold 
improvements, primarily in India.* As of January 28, 1996, JTS had no material  
commitments related to such expenditures.                                       

On February 13, 1996, Atari loaned $25.0 million to JTS pursuant to a 
Subordinated Secured Convertible Promissory Note (the "Note") which is secured  
by substantially all of the assets of JTS. Interest accrues on the unpaid       
principal amount of the Note at the rate of 8.5% per annum. The Note provides   
that JTS shall repay the outstanding principal and interest under the Note on   
September 30, 1996 if the Merger has not occurred prior to such time. In the    
event that the Merger Agreement is terminated, either party may, under certain  
conditions, elect to convert the outstanding indebtedness under the Note into   
shares of JTS Series A Preferred Stock. The Note is expressly subordinated to   
outstanding indebtedness in connection with JTS' primary bank loan agreement, up
to an amount of $5.0 million at any one time. In addition, at January 28, 1996, 
JTS had approximately $400,000 of unused lines of credit and approximately      
$600,000 of letter of credit facilities available from three banks in India. In 
March 1996, Moduler Electronics received approval from another Indian bank for a
$10 million term loan to finance capital equipment purchases. See "The Proposed 
Merger and Related Transactions -- Related Transactions -- Atari Loan to JTS."  

Since its inception, JTS has incurred significant losses which have   
resulted from the substantial costs associated with the design, development and 
marketing of new products, the establishment of manufacturing operations and the
development of a supplier base. At January 28, 1996, JTS had a working capital  
deficit of $17.9 million and a negative net worth of $38.4 million. JTS has yet 
to generate significant revenues and cannot assure that any level of future     
revenues will be attained or that JTS will achieve or maintain successful       
operations in the future. Such factors have raised substantial doubt about the  
ability of JTS to continue its operations without achieving successful future   
operations or obtaining financing to meet its working capital needs, neither of 
which can be assured. The report of independent public accountants on JTS'      
financial statements includes an explanatory paragraph describing uncertainties 
concerning the ability of JTS to continue as a going concern. See "Notes to JTS 
Financial Statements." JTS believes that it will be able to fund operations for 
the next 12 months from a combination of funds made available as a result of the
Merger, funds available under its credit facilities, cash flow from operations  
and existing cash balances.*                                                    

     At April 28, 1996, JTS' consolidated balance sheets reflected cash and cash
equivalents of $5.1 million compared to $1.4 million at January 28, 1996. Of the
$5.1 million, approximately $400,000 on deposit in Indian banks was restricted  
for use by JTS until certain obligations related to letters of credit are       
settled. JTS had a working capital deficit of $31.2 million at quarter end,     
which included short term borrowings from Atari of $25 million and $10.3 million
outstanding under bank lines of credit.                                         

---------------                                                                 

* This statement is a forward-looking statement reflecting current expectations.
Actual results could differ materially from those projected in the          
forward-looking statement due to numerous factors, including those set forth
  in "Risk Factors -- Risk Factors Related to the Business of JTS" and elsewhere
in this Joint Proxy Statement/Prospectus.                                   

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The hard disk drive business is extremely capital intensive, and JTS  
anticipates that it will need significant additional financing resources in the 
near term for facilities expansion, capital expenditures, working capital,      
research and development and vendor tooling. In this regard, JTS has held       
discussions with investment banking firms regarding the possibility of raising  
additional capital through the issuance of debt or equity securities. In June   
1996, JTS retained an investment banking firm to advise JTS with respect to the 
private issuance of between $50-100 million of 10-year debt securities          
convertible into JTS Common Stock, although the terms of such financing have not
been established and the marketing effort for such financing has not yet        
commenced. Recent comparable transactions were priced to yield between 5.5-6.5% 
annually and included conversion premiums over the market prices of the Common  
Stock of between 20-25%. JTS intends for such financing to close as soon as     
practicable after the closing of the Merger and the terms of the debt securities
and the amount of the securities offered will not be determined until the       
closing of the financing, if any. There can be no assurance that JTS will be    
able to consummate such financing on terms acceptable to JTS or at all. As a    
result, the pro forma financial statements included in this Joint Proxy         
Statement/ Prospectus do not reflect such transactions. The issuance of equity  
or convertible debt securities, upon conversion, would result in dilution of the
voting control of existing stockholders, could result in dilution to earnings   
per share and would provide to the holders of convertible debt securities       
seniority over the holders of JTS Common Stock issued in the Merger. There can  
be no assurance that additional funding will be available on terms acceptable to
JTS or at all. The failure to fund its capital requirements with additional     
financing would have a material adverse effect on JTS' business, operating      
results and financial condition. Furthermore, certain equipment and receivables 
financing as well as term loans made to JTS and Moduler Electronics are         
contingent on JTS' ability to comply with stringent financial covenants. In this
regard, Moduler Electronics did not obtain certain debt and equity capital      
required under one of its loan agreements. JTS has informed the lender that it  
intends to provide such capital by August 1996. In addition, certain of Moduler 
Electronics' loan agreements require the lender's consent to mergers and similar
transactions, which could be interpreted to require the consent of the lending  
institution to the acquisition of 90% of the capital stock of Moduler           
Electronics by JTS. Such consents were not obtained, but the lending institution
has continued to transact business with Moduler Electronics and JTS since JTS'  
share acquisition in Moduler Electronics. JTS believes that such matters        
regarding the Moduler Electronics loan agreements will not have a material      
adverse effect on JTS' business, operating results or financial condition. There
can be no assurance that JTS will be able to maintain its current financing     
facilities or obtain additional financing as needed on acceptable terms or at   
all. If JTS is unable to obtain sufficient capital, it would be required to     
curtail its facilities expansion, capital expenditures, working capital,        
research and development and vendor tooling expenditures, which would materially
adversely affect JTS' business, operating results and financial condition.      

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MANAGEMENT OF JTS                                                               

 The following individuals are expected to serve as directors, executive
officers or significant employees of the Combined Company following the Merger. 
Their positions at JTS and their ages as of March 31, 1996 are as follows:      

                                                                [Download Table]

         NAME            AGE                       POSITION(S)                 
-----------------------  ----     ---------------------------------------------
                                                                               
David T. Mitchell         54      Chief Executive Officer, President and       
                                  Director                                     
Sirjang L. Tandon         54      Chairman of the Board of Directors and       
                                  Corporate Technical Strategist               
Kenneth D. Wing           48      Executive Vice President, Research &         
                                  Development Quality/Reliability              
W. Virginia Walker        51      Executive Vice President, Finance and        
                                  Administration, Chief Financial Officer and  
                                  Secretary                                    
Amit Chokshi              41      Executive Vice President, Worldwide          
                                  Operations and Managing Director of India    
                                  Operations                                   
Steven L. Kaczeus         61      Chief Technical Officer                      
Alain L. Azan             47      Director                                     
Jean D. Deleage           55      Director                                     
Roger W. Johnson          61      Director                                     
Lip-Bu Tan                36      Director                                     

     MR. DAVID T. MITCHELL joined JTS in May 1995 as Chief Executive Officer and
President and is a member of the Board of Directors of JTS. Prior to joining    
JTS, he served as President, Chief Operating Officer and a director of Conner   
Peripherals, Inc. commencing in October 1992. Prior to that time, Mr. Mitchell  
co-founded Seagate, where he served as President, Chief Operating Officer and   
director.                                                                       

MR. SIRJANG L. TANDON founded JTS in February 1994 and served as its  
Chairman of the Board of Directors, Chief Executive Officer and President from  
inception until May 1995. Since such time, he has served as Chairman of the     
Board of Directors and Corporate Technical Strategist. Prior to founding JTS,   
Mr. Tandon founded and was Chief Executive Officer of Tandon Corporation, a     
personal computer manufacturing firm. Tandon Corporation filed a petition under 
the Federal bankruptcy laws in 1993.                                            

  MR. KENNETH D. WING joined JTS in July 1995 as Executive Vice President,
Research & Development Quality/Reliability. Prior to joining JTS, Mr. Wing      
worked for 14 years at Seagate. During his tenure at Seagate, Mr. Wing served in
several capacities, including Vice President of Process Engineering, Vice       
President of Quality, Vice President of Manufacturing Operations and Vice       
President of Worldwide Automation. He holds a Bachelor of Science degree in     
Science and Engineering and a Master of Science in Mechanical Engineering from  
the University of Michigan.                                                     

MS. W. VIRGINIA WALKER joined JTS in November 1995 as Executive Vice  
President, Finance and Administration, Chief Financial Officer and Secretary.   
Prior to joining JTS, Ms. Walker served as Vice President of Finance and Chief  
Financial Officer of Scios Inc. from 1985 to 1992 and as Vice President, Finance
and Administration and Chief Financial Officer of Scios Inc. and Scios Nova Inc.
Prior to 1985, Ms. Walker served as Controller for Intersil Inc., a manufacturer
of integrated circuits and at that time a subsidiary of General Electric        
Company.                                                                        

MR. AMIT CHOKSHI joined JTS in June 1995 as Executive Vice President, 
Worldwide Operations and Managing Director of India Operations. Prior to joining
JTS, Mr. Chokshi co-founded Dastek Corporation, a hard disk drive manufacturing 
company, where he served as Vice President of Marketing/Sales and Operations    
until December 1994. Mr. Chokshi has a Bachelor of Science degree in Statistical
Mathematics from Gujarat University, India.                                     

MR. STEVEN L. KACZEUS joined JTS in February 1994 as Chief Technical  
Officer. Prior to joining JTS, he founded Kalok Corporation in 1987 and served  
in various technical and management positions, most recently as Chairman of the 
Board of Directors and Chief Technical Officer. Kalok Corporation filed a       
petition under the Federal bankruptcy laws in 1993. Mr. Kaczeus holds a Master  
of Science and Bachelor of Science                                              

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in Mechanical Engineering from the University of Bridgeport and University of   
Budapest, Hungary, respectively.                                                

    MR. ALAIN L. AZAN became a director of JTS in 1995. In 1985, he joined the
Sofinnova group in France as a charged d'affaires. In 1987, Mr. Azan was        
assigned to Sofinnova's United States subsidiary, Sofinnova Inc. Currently, Mr. 
Azan serves as Managing General Partner for Sofinnova Ventures Funds I, II and  
III. Mr. Azan holds degrees in Sciences Humaines et Economiques from Marseille, 
International Trade from C.E.C.E. and Management from INSEAD.                   

  MR. JEAN D. DELEAGE became a director of JTS in 1995. He has served as a
Managing General Partner of Burr, Egan, Deleage & Co., a venture capital firm,  
since its formation in 1979. In 1976, he formed Sofinnova, Inc. (the U.S.       
subsidiary of Sofinnova). Mr. Deleage holds a Master of Science in Electrical   
Engineering from Ecole Superieure d'Electricite and a Ph.D. in Economics from   
the Sorbonne. In 1993, he was awarded the Legion of Honor from the French       
government in recognition of his career accomplishments. Mr. Deleage is also a  
director of DepoTech Corporation and OraVex, Inc.                               

   MR. ROGER W. JOHNSON became a director of JTS in April 1996. He served as
Administrator of the United States General Services Administration ("GSA") from 
July 1993 to March 1996. From 1984 to 1993, Mr. Johnson served as Chairman of   
the Board and Chief Executive Officer of Western Digital. Mr. Johnson received a
Bachelor of Business Administration from Clarkson University and a Master of    
Business Administration in Industrial Management from the University of         
Massachusetts.                                                                  

   MR. LIP-BU TAN became a director of JTS in 1995. He has served as General
Partner of the Walden Group, a venture capital firm, since 1985. He is also the 
founder and Chairman of Walden International Investment Group in Asia. Mr. Tan  
received a Bachelor of Science degree from Nanyang University, Singapore, a     
Master of Science in Nuclear Engineering from the Massachusetts Institute of    
Technology and a Master of Business Administration from the University of San   
Francisco, where he served on the Advisory Council and the Board of Trustees.   
Mr. Tan is also a director of Creative Technology Ltd. and Premisys             
Communications, Inc.                                                            

    All directors hold office until the next annual meeting of stockholders at
which their term expires and until their successors have been duly elected and  
qualified. Executive officers of JTS are appointed by and serve at the          
discretion of the Board of Directors of JTS. There are no family relationships  
among any of the directors, officers or key employees of JTS.                   

COMMITTEES OF THE BOARD OF DIRECTORS OF THE COMBINED COMPANY                    

    JTS does not presently have an Audit Committee. Effective upon the closing
of the Merger, the Audit Committee of the Combined Company's Board of Directors 
will consist of Messrs. Jack Tramiel, Michael Rosenberg and Alain L. Azan. The  
Audit Committee will make recommendations to the Board regarding the selection  
of independent auditors, review the results and scope of audits and other       
services provided by JTS' independent auditors, and review and evaluate JTS'    
internal audit and control functions.                                           

  JTS does not presently have a Compensation Committee. Effective upon the
closing of the Merger, the Compensation Committee of the Combined Company's     
Board of Directors will consist of Messrs. Jack Tramiel, Lip-Bu Tan and Jean D. 
Deleage. The Compensation Committee will make recommendations concerning        
salaries and incentive compensation, award stock options to employees and       
consultants under the Combined Company's stock option plans and otherwise       
determine compensation levels and perform such other functions regarding        
compensation as the Board may delegate.                                         

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

    During fiscal 1996, JTS had no Compensation Committee. Each of the members
of the JTS Board of Directors during fiscal 1996 participated in deliberations  
concerning executive officer compensation. David T. Mitchell, a member of JTS'  
Board of Directors, has served as Chief Executive Officer and President of JTS  
since May 1995. Mr. Sirjang L. Tandon, Chairman of JTS' Board of Directors,     
served as Chief Executive Officer and President of JTS from February 1994 to May
1995.                                                                           

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DIRECTOR COMPENSATION                                                           

  The members of JTS' Board of Directors do not currently receive any cash
compensation from JTS for their services as members of the Board of Directors or
any committee thereof. Roger W. Johnson, a director of JTS, provides consulting 
services to JTS pursuant to a two-year agreement which compensates Mr. Johnson  
in the amount of $2,000 per month. Mr. Johnson's consulting agreement expires in
April 1998.                                                                     

     In March 1996, the JTS Board adopted the 1996 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of       
options to purchase shares of JTS Common Stock to non-employee directors of JTS 
("Non-Employee Directors"). The maximum number of shares of JTS Common Stock    
that may be issued pursuant to options granted under the Directors' Plan is     
500,000. Pursuant to the terms of the Directors' Plan, each Non-Employee        
Director (other than a compensated Chairman of the Board and any former Atari   
director appointed to the JTS Board of Directors in connection with the Merger) 
who is elected to the JTS Board for the first time after adoption of the        
Directors' Plan and each other Non-Employee Director (other than a compensated  
Chairman of the Board) who is reelected to the JTS Board at or after the 1998   
stockholders' meeting will automatically be granted an option to purchase 50,000
shares of Common Stock on the date of his or her election or reelection to the  
Board. Thereafter, each Non-Employee Director (other than a compensated Chairman
of the Board) will automatically be granted an option to purchase an additional 
50,000 shares of Common Stock under the Directors' Plan on the date any and all 
previous options or stock purchases by such person either under the Directors'  
Plan or otherwise become fully vested, as discussed below. Neither directors of 
JTS serving on the date the Directors' Plan was adopted nor former directors of 
Atari appointed to the JTS Board in connection with the Merger have received    
option grants under the Directors' Plan or will receive any such grants in      
connection with the Merger, and such individuals are not eligible to receive    
such grants until the 1998 stockholders' meeting.                               

     Outstanding options under the Directors' Plan will vest in two equal annual
installments measured from the date of grant. The exercise price of options     
granted under the Directors' Plan shall equal the fair market value of the      
Common Stock on the date of grant. No option granted under the Directors' Plan  
may be exercised after the expiration of ten years from the date of grant.      
Options granted under the Directors' Plan are generally non-transferable. The   
Directors' Plan will terminate in March 2006, unless earlier terminated by the  
Board.                                                                          

   In the event of the dissolution, liquidation or sale of substantially all
of the assets of JTS, a specified form of merger, consolidation or              
reorganization involving JTS or an acquisition transaction resulting in the     
change of control of the voting power of JTS' voting securities, options        
outstanding under the Plan will automatically become fully vested and will      
terminate if not exercised prior to such event.                                 

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EXECUTIVE COMPENSATION                                                          

   The following table sets forth the compensation paid to or earned by JTS'
Chief Executive Officer and JTS' four other most highly compensated executive   
officers (together, the "JTS Named Executive Officers") for services rendered to
JTS during the fiscal year ended January 28, 1996 ("fiscal 1996"):              

SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                                                   LONG-TERM           
                                                              COMPENSATION AWARDS      
                                                         ------------------------------
                                                                            SECURITIES 
                                                         RESTRICTED STOCK   UNDERLYING 
   NAME AND PRINCIPAL POSITION      SALARY($)  BONUS($)   AWARDS($) (1)     OPTIONS(#) 
----------------------------------  --------   --------  ----------------   -----------
                                                                                       
David T. Mitchell (2).............  $168,427        --             --              --  
  President and Chief Executive                                                        
  Officer                                                                              
Sirjang L. Tandon (3).............   184,615        --             --              --  
  Chairman of the Board of                                                             
  Directors                                                                            
  and Corporate Technical                                                              
  Strategist                                                                           
Kenneth D. Wing (4)...............   126,752   $82,625             --         100,000  
  Executive Vice President,                                                            
  Research & Development                                                               
  Quality/Reliability                                                                  
Amit Chokshi (5)..................   104,327        --             --              --  
  Executive Vice President,                                                            
  Worldwide                                                                            
  Operations and Managing                                                              
  Director of India Operations                                                         
Steven L. Kaczeus.................   192,308        --             --         242,500  
  Chief Technical Officer                                                              
David B. Pearce (6)...............   206,192        --             --           8,750  
  Former executive officer                                                             

---------------                                                                 
(1) Mr. Mitchell, Mr. Wing and Mr. Pearce purchased 2,000,000, 300,000 and      
450,000 shares of restricted Common Stock of JTS, respectively, during  
fiscal 1996 at a per share price of $0.25. The dollar value to the      
purchasers of each such purchase, net of the consideration paid by the  
 purchasers, was zero on the date of each such purchase. No dividends have
 been paid or are expected to be paid with respect to the JTS Common Stock
purchased by such individuals.                                          

(2) Mr. Mitchell became Chief Executive Officer of JTS in May 1995. Mr. Mitchell
   purchased 2,000,000 shares of restricted JTS Common Stock in fiscal 1996 at
    a price of $0.25 per share, 250,000 shares of which were immediately vested.
  The remaining 1,750,000 shares are subject to a right of repurchase by JTS
which began lapsing as to 1/48th of such shares monthly commencing on   
January 5, 1996.                                                        

(3) Mr. Tandon served as Chief Executive Officer of JTS from February 1994 to   
May 1995.                                                               

(4) Mr. Wing became Executive Vice President, Research & Development            
  Quality/Reliability of JTS in July 1995. Mr. Wing purchased 300,000 shares
of JTS Common Stock in fiscal 1996 at a price of $0.25 per share. Such  
    shares are subject to a right of repurchase by JTS which began lapsing as to
 one-eighth of such shares in January 1996 and as to 1/48th of such shares
 monthly thereafter. Includes forgiveness of $80,000 of loan principal and
accrued interest as specified in Mr. Wing's employment agreement. See   
"Employment Agreement."                                                 

(5) Mr. Chokshi became Executive Vice President, World of JTS in June 1995.     

(6) Mr. Pearce purchased 450,000 shares of restricted JTS Common Stock in fiscal
    1996 at a price of $0.25 per share, 253,125 shares of which were immediately
  vested. The remaining 196,875 shares were subject to a right of repurchase
    by JTS which began lapsing as to 1/42nd of such shares monthly commencing on
    January 15, 1996. Mr. Pearce's employment with JTS terminated in March 1996,
at which time an aggregate of 257,873 shares of his JTS Common Stock had
vested.                                                                 

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EMPLOYMENT AGREEMENT                                                            

In June 1995, Kenneth D. Wing, Executive Vice President, Research &   
Development Quality/Reliability of JTS, entered into an employment agreement    
with JTS which provides for an annual base salary of $225,000, eligibility for  
annual bonuses and a severance package that, under certain circumstances,       
provides that Mr. Wing will continue to receive his base salary until June 1997 
in the event he is terminated prior to such time. In addition, the employment   
agreement provides for a $160,000 loan which was forgiven as to 50% of principal
and interest accrued thereon in January 1996 and shall be forgiven as to the    
remainder in January 1997, provided Mr. Wing's employment with JTS continues    
through such time.                                                              

STOCK OPTION PLAN                                                               

 In April 1996, JTS amended and restated its 1995 Stock Option Plan (the
"1995 Plan"), which was adopted in March 1995. Under the 1995 Plan, as amended  
and restated (the "Restated Plan"), an aggregate of 9,000,000 shares of JTS     
Common Stock have been reserved for issuance upon exercise of options granted to
employees, officers and directors of and consultants to JTS. As of June 18,     
1996, options to purchase 3,937,313 shares of JTS Common Stock had been granted 
under the Restated Plan. The Restated Plan will terminate in February 2006,     
unless sooner terminated by the Board of Directors of JTS.                      

  The Restated Plan provides for the grant of both incentive stock options
intended to qualify as such under Section 422 of the Code and nonstatutory stock
options. The Board of Directors has determined that, following the Merger, the  
Compensation Committee will administer the Restated Plan. The Board of Directors
has also established a Non-Officer Stock Option Committee, consisting of David  
T. Mitchell, JTS' President, Chief Executive Officer and a director, with       
authority to grant stock options to persons who are not at the time of the grant
of the options subject to Section 16 of the Exchange Act. As used herein with   
respect to the Restated Plan, the JTS Board refers to the Compensation          
Committee, the Non-Officer Stock Option Committee as well as to the Board of    
Directors of JTS. The JTS Board has the authority to select the persons to whom 
grants are to be made, to designate the number of shares to be covered by each  
option, to establish vesting schedules, to specify the type of consideration to 
be paid upon exercise and, subject to certain restrictions, to specify other    
terms of the options. The maximum term of options granted under the Restated    
Plan is ten years. Options granted under the Restated Plan generally are        
nontransferable and generally expire three months after the termination of an   
optionee's employment, directorship or consulting relationship with JTS. In     
general, if an optionee becomes permanently disabled or dies while employed or  
retained by JTS, such person's options generally may be exercised up to 12      
months after his or her disability and generally up to 18 months after his or   
her death.                                                                      

  The exercise price of incentive stock options granted under the Restated
Plan must equal at least the fair market value of JTS' Common Stock on the date 
of grant. The exercise price of nonstatutory stock options granted under the    
Restated Plan must equal at least 85% of the fair market value of JTS' Common   
Stock on the date of grant. The exercise price of incentive stock options       
granted to any person who at the time of grant owns stock possessing more than  
10% of the total combined voting power of all classes of stock must be at least 
110% of the fair market value of such stock on the date of grant and the terms  
of these options cannot exceed five years. Options under the Restated Plan      
typically become exercisable over four years, as to one-eighth of the shares    
subject to such options six months after the date of grant and as to 1/48th of  
such shares each month thereafter.                                              

    The Restated Plan and options outstanding thereunder will be appropriately
adjusted as to the class and the maximum number of shares subject to the        
Restated Plan and the class, number of shares and price per share of stock      
subject to such outstanding options in the event of stock splits, stock         
dividends, recapitalizations and similar events. Under the Restated Plan, the   
JTS Board of Directors has discretion in connection with a merger, consolidation
or liquidation involving JTS to provide that outstanding options shall be       
terminated or shall be assumed or otherwise continued or to provide for the     
accelerated vesting of outstanding options.                                     

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401(K) PLAN                                                                     

     In January 22, 1996, JTS adopted the JTS Corporation Employee 401(k) Saving
Plan ("the 401(k) Plan") covering all of JTS' employees, except collectively    
bargained employees and employees who are nonresident aliens with no United     
States source income. Pursuant to the 401(k) Plan, employees may elect to reduce
their current compensation by up to the lesser of 15% of eligible compensation  
or the statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) plan permits, but does not require,  
matching contributions and profit sharing contributions to the Plan by JTS on   
behalf of all participants. JTS has not made any such contributions to date. The
401(k) Plan is intended to qualify under Section 401 of the Code so that        
contributions by employees or by JTS to the 401(k) Plan, and income earned on   
plan contributions, are not taxable to employees until withdrawn, and           
contributions by JTS, if any, are deductible by JTS.                            

OPTION GRANTS IN LAST FISCAL YEAR 

The following table contains information concerning the grant of stock
options under the 1995 Plan to each JTS Named Executive Officer during fiscal   
1996:                                                                           

                                                        [Enlarge/Download Table]

                                              INDIVIDUAL GRANTS                                           
                         ------------------------------------------------------------      POTENTIALLY    
                                            PERCENTAGE                                 REALIZABLE VALUE AT
                                             OF TOTAL                                    ASSUMED ANNUAL   
                           NUMBER OF         OPTIONS                                     RATES OF STOCK   
                           SECURITIES       GRANTED TO                                 PRICE APPRECIATION 
                           UNDERLYING       EMPLOYEES      EXERCISE OR                 FOR OPTION TERM(3) 
                            OPTIONS         IN FISCAL       BASE PRICE     EXPIRATION  -------------------
          NAME           GRANTED(#)(1)      YEAR(%)(2)        ($/SH)          DATE      5%($)      10%($) 
---------------------------------------    ------------    ------------    ----------  -------     -------
                                                                                                          
David T. Mitchell            --               --              --               --        --          --   
Sirjang L. Tandon            --               --              --               --        --          --   
Kenneth D. Wing              100,000           2.5%           $ 0.25       11/29/2005  $15,750     $39,750
Amit Chokshi                 --               --              --               --        --          --   
Steven L. Kaczeus            242,500            6.1             0.25         2/7/2004   38,194      96,394
David B. Pearce                8,750           0.02             0.25         6/7/2005    1,378       3,478

---------------                                                                 
(1) Under the 1995 Plan, options granted to employees vest at the rate of       
  one-eighth at the end of six months and an additional 1/48 per month until
all options have become vested at the end of four years' service. In the
 event an option was granted to an existing employee of JTS (rather than a
 newly-hired employee), such option shall vest at the rate described above
based on the grant date of such option.                                 

(2) Based on total grants of options to purchase 3,996,674 shares of JTS Common 
Stock.                                                                  

(3) The potential realizable value is calculated based on the term of the option
    at its time of grant (10 years). It is calculated by assuming that the stock
price on the date of grant appreciates at the indicated annual rate     
compounded annually for the entire term of the option and the option is 
exercised and sold on the last day of its term for the appreciated stock
   price. No gain to the optionee is possible unless the stock price increases
over the option term.                                                   

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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR 
AND FISCAL YEAR-END OPTION VALUES 

    The following table sets forth information with respect to the exercise of
stock options by the Named Executive Officers during the fiscal year ended      
January 28, 1996 and the number and value of securities underlying unexercised  
options held by the Named Executive Officers as of January 28, 1996:            

                                                        [Enlarge/Download Table]

                                                             NUMBER OF                    
                                                            SECURITIES         VALUE OF   
                                                            UNDERLYING       UNEXERCISED  
                                                            UNEXERCISED      IN-THE-MONEY 
                                                            OPTIONS AT        OPTIONS AT  
                                 SHARES                       FISCAL            FISCAL    
                                ACQUIRED                  YEAR-END(#)(1)    YEAR-END($)(1)
                                   ON          VALUE       EXERCISABLE/      EXERCISABLE/ 
            NAME               EXERCISE(#)  REALIZED($)    UNEXERCISABLE    UNEXERCISABLE 
-----------------------------  -----------  -----------  -----------------  --------------
                                                                                          
David T. Mitchell                  --           --              --                --      
Sirjang L. Tandon                  --           --              --                --      
Kenneth D. Wing                    --           --           0/100,000           0/0      
Amit Chokshi                       --           --              --                --      
Steven L. Kaczeus                  --           --        125,313/117,187        0/0      
David B. Pearce                    --           --            8,750/0            0/0      

---------------                                                                 

(1) Fair market value of JTS' Common Stock at January 28, 1996 ($0.25), minus   
the exercise price of the options ($0.25), multiplied by the number of  
shares underlying the options.                                          

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS                             

   As permitted by the DGCL, JTS' Certificate of Incorporation provides that
no director of JTS will be personally liable to JTS or its stockholders for     
monetary damages for breach of fiduciary duty as a director, except for         
liability (i) for any breach of the director's duty of loyalty to JTS or to its 
stockholders, (ii) for acts or omissions not made in good faith or which        
involved intentional misconduct or a knowing violation of law, (iii) under      
Section 174 of the DGCL, relating to prohibited dividends or distributions or   
the repurchase or redemption of stock, or (iv) for any transaction from which   
the director derives an improper personal benefit. In addition, JTS' Bylaws     
provide that any director or executive officer who was or is a party or is      
threatened to be made a party to any action or proceeding by reason of his or   
her services to JTS will be indemnified to the fullest extent permitted by the  
DGCL.                                                                           

    JTS has entered into indemnification agreements with each of its directors
and executive officers under which JTS has agreed to indemnify each of them     
against expenses and losses incurred for claims brought against them by reason  
of their being a director or officer of JTS, and JTS maintains directors' and   
officers' liability insurance.                                                  

There is no pending litigation or proceeding involving a director or  
officer of JTS as to which indemnification is being sought, nor is JTS aware of 
any pending or threatened litigation that may result in claims for              
indemnification by any director or officer.                                     

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CERTAIN TRANSACTIONS                                                            

Since JTS' inception in February 1994, JTS has maintained significant 
business relationships with Moduler Electronics, Tantec Magnetics, Inc., a      
California corporation ("Tantec"), and Maazda Travel, Inc. ("Maazda"). Mr.      
Sirjang L. Tandon, JTS' Chairman and Corporate Technical Strategist, or members 
of his immediate family, directly or indirectly own controlling equity interests
in each of Moduler Electronics, Tantec and Maazda. In fiscal 1996, Moduler      
Electronics provided subassembly and final assembly manufacturing services to   
JTS for which JTS had made aggregate payments to Moduler Electronics of         
approximately $13.0 million, and JTS has provided certain equipment on          
consignment to Moduler Electronics with an aggregate value of approximately $4.4
million. Tantec has provided certain hard disk drive component parts, test      
equipment and services to JTS for which JTS had made aggregate payments to      
Tantec of approximately $366,000 and $295,000 in fiscal 1995 and 1996,          
respectively, and JTS sold certain hard disk drives to Tantec with an aggregate 
value of approximately $653,000 in fiscal 1996. During fiscal 1996, JTS made    
aggregate payments to Maazda, JTS' principal travel agent, of approximately     
$100,000.                                                                       

    From February 1994 to February 1995, JTS received bridge loans aggregating
approximately $2.9 million from certain significant JTS stockholders evidenced  
by secured convertible notes (the "First Financing Notes"). The First Financing 
Notes accrued interest at a rate of 8.5% per annum. All of the First Financing  
Notes were canceled and the principal outstanding thereunder was converted into 
shares of JTS Series A Preferred Stock in connection with the JTS Series A      
Preferred Stock financing in February 1995 (the "First Series A Financing"). JTS
sold an aggregate of 16,200,000 shares of JTS Series A Preferred Stock in the   
First Series A Financing for a purchase price of $1.00 per share in exchange for
cash and cancellation of indebtedness. Purchasers of JTS Series A Preferred in  
the First Series A Financing included the following:                            

                                                                [Download Table]

                                    SHARES OF JTS                        AMOUNT OF  
                                  SERIES A PREFERRED        CASH        INDEBTEDNESS
          PURCHASER(S)               PURCHASED(#)     CONSIDERATION($)  CANCELED($) 
--------------------------------  ------------------  ----------------  ------------
                                                                                    
Entities affiliated with Burr,                                                      
  Egan, Deleage & Co.(1)........       2,500,000         $1,673,374       $826,626  
Entities affiliated with                                                            
  Sofinnova Management,                                                             
  L.P.(2) ......................       1,000,000            709,349        290,651  
Advanced Technology Ventures                                                        
  III(3)........................       1,000,000            709,350        290,650  
Brentwood Associates VI,                                                            
  L.P.(4).......................       1,650,000          1,170,427        479,573  
Western Digital(5)..............       4,100,000          3,300,000        800,000  
Steven L. Kaczeus(6)............         223,511                 --        223,511  

---------------                                                                 
(1) Jean D. Deleage, a director of JTS, is Managing General Partner of Burr,    
Egan, Deleage & Co. ("Burr Egan").                                      

(2) Alain L. Azan, a director of JTS, is a Managing General Partner of three    
funds affiliated with Sofinova Management, L.P. ("Sofinnova").          

(3) Entities affiliated with Advanced Technology Ventures III own more than 5%  
of the outstanding shares of JTS Series A Preferred Stock.              

(4) Brentwood Associates VI, L.P. owns more than 5% of the outstanding shares of
JTS Series A Preferred Stock.                                           

(5) Western Digital, a second source manufacturer for JTS, owns more than 5% of 
the outstanding shares of JTS Series A Preferred Stock.                 

(6) Steven L. Kaczeus is the Chief Technical Officer of JTS.                    

In connection with the First Series A Financing and pursuant to that  
certain Debt Cancellation Agreement, dated as of February 3, 1995, by and among 
JTS, Tantec and Mr. Tandon, JTS issued 2,202,227 shares of JTS Series A         
Preferred Stock to Tantec in exchange for the cancellation of $2,202,227 of     
indebtedness owed by JTS to Tantec.                                             

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 In June 1995, JTS received bridge loans aggregating approximately $2.75
million from certain significant JTS stockholders, evidenced by secured         
convertible notes (the "Second Financing Notes"). The Second Financing Notes    
accrued interest at a rate of 8% per annum. All of the Second Financing Notes   
were canceled and the principal amount outstanding thereunder was converted into
shares of JTS Series A Preferred Stock in connection with a JTS Series A        
Preferred Stock financing in August 1995 (the "Second Series A Financing"). JTS 
sold an aggregate of 12,496,370 shares of JTS Series A Preferred Stock in the   
Second Series A Financing for a purchase price of $1.00 per share in exchange   
for cash and cancellation of indebtedness. Purchasers of JTS Series A Preferred 
in the Second Series A Financing included the following:                        

                                                                [Download Table]

                                    SHARES OF JTS                        AMOUNT OF  
                                  SERIES A PREFERRED        CASH        INDEBTEDNESS
          PURCHASER(S)               PURCHASED(#)     CONSIDERATION($)  CANCELED($) 
--------------------------------  ------------------  ----------------  ------------
                                                                                    
Entities affiliated with the                                                        
  Walden Group of Venture                                                           
  Capital Funds(1)..............       3,000,000         $3,000,000               --
Entities affiliated with                                                            
  Advanced Technology                                                               
  Ventures......................       2,826,424          2,576,424      $   250,000
Entities affiliated with Burr                                                       
  Egan..........................       1,437,500            437,500        1,000,000
David T. Mitchell(2)............       1,010,196                 --        1,010,196
Brentwood Associates VI, L.P....         952,083            448,750          503,333
Entities affiliated with                                                            
  Sofinnova.....................         500,000            500,000               --
Steven L. Kaczeus...............          37,000             37,000               --

---------------                                                                 
(1) Lip-Bu Tan, a director of JTS, is a General Partner of the Walden Group.    

(2) David T. Mitchell is the President, Chief Executive Officer and a member of 
the Board of Directors of JTS.                                          

In July 1995, JTS loaned $160,000 to Kenneth D. Wing, Executive Vice  
President, Research & Development Quality/Reliability, pursuant to the terms of 
Mr. Wing's employment agreement. Of such loan amount, $80,000 of principal (and 
interest accrued thereon) were forgiven on January 1, 1996, and, subject to Mr. 
Wing's continued employment with JTS, any remaining amounts owed under such loan
will be forgiven on January 1, 1997. See "Management of JTS -- Employment       
Agreement."                                                                     

During fiscal 1996, in connection with the Technology Transfer and    
Licensing Agreement between JTS and Western Digital, JTS provided certain hard  
disk drive components to Western Digital, a principal stockholder of JTS, with  
an aggregate value of approximately $358,000. In addition, JTS received         
aggregate milestone payments of approximately $5.3 million from Western Digital 
in fiscal 1996. See "Business of JTS -- Western Digital Arrangement."           

  In January 1996, JTS made loans to each of David T. Mitchell, Kenneth D.
Wing, Virginia Walker, JTS' Executive Vice President, Finance and Administration
and Chief Financial Officer, and David B. Pearce in connection with the purchase
by such individuals of 2,000,000 shares, 300,000 shares, 250,000 shares and     
450,000 shares of JTS Common Stock, respectively, at a purchase price of $0.25  
per share. Each purchaser executed a restricted stock purchase agreement (each, 
a "Restricted Stock Purchase Agreement") granting JTS a right of repurchase as  
to such shares in the event the purchasers' employment with JTS terminates. With
respect to Mr. Mitchell, 250,000 shares of the JTS Common Stock purchased were  
immediately vested, and JTS' repurchase right lapses monthly with respect to the
remainder of such shares at the rate of 1/48th per month. With respect to the   
shares purchased by Mr. Wing, JTS' repurchase right lapsed as to one-eighth of  
such shares in January 1996 and as to 1/48th of such shares monthly thereafter. 
With respect to the shares purchased by Ms. Walker, JTS' repurchase right lapsed
as to one-eighth of such shares in May 1996 and as to 1/48th of such shares     
monthly thereafter. With respect to the shares purchased by Mr. Pearce, 253,125 
shares of the JTS Common Stock purchased were immediately vested and 14,063     
additional shares had vested at the time Mr. Pearce's employment with JTS       
terminated. In March 1996, JTS repurchased 182,812 shares of JTS Common Stock   
from Mr. Pearce. In addition, the Restricted Stock Purchase Agreements provide  
that JTS' repurchase right shall lapse entirely upon certain events following a 
change in control of JTS. See "The                                              

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Proposed Merger and Related Transactions -- Certain Other Items Related to the  
Merger -- Interests of Certain Persons in the Merger."                          

     From January 1996 to April 1996, JTS received an aggregate of approximately
$2.0 million in bridge loans evidenced by promissory notes (the "Bridge Notes"),
from certain significant stockholders of JTS. The Bridge Notes are due and      
payable on July 15, 1996 and accrue interest at a rate of 10% per annum.        
Individuals and entities to whom Bridge Notes were issued include the following:

                                                                [Download Table]

                                                               PRINCIPAL AMOUNT 
                       STOCKHOLDER(S)                         OF BRIDGE NOTE($) 
------------------------------------------------------------  ------------------
                                                                                
Tantec......................................................          $1,000,000
Entities affiliated with Burr Egan..........................             260,000
Entities affiliated with Advanced Technology Ventures.......             260,000
Entities affiliated with the Walden Group of Venture Capital             200,000
  Funds.....................................................                    
Brentwood Associates VI, L.P. ..............................             185,000
Entities affiliated with Sofinnova..........................              99,900

In April 1996, JTS acquired a 90% interest in Moduler Electronics in  
exchange for issuing 1,911,673 shares of JTS Series A Preferred Stock and a     
warrant to purchase 750,000 shares of JTS Common Stock at an exercise price of  
$0.25 per share to Lunenburg S.A., an affiliate of Sirjang L. Tandon. Such      
warrant is immediately exercisable as to 500,000 shares and becomes exercisable 
as to 250,000 shares when certain credit facilities in India are made available 
to Moduler Electronics in the amount of at least $29 million. See "JTS          
Acquisition of Disk Drive Division of Moduler Electronics."                     

A family member of Sirjang Lal Tandon, JTS' Chairman and Corporate    
Technical Strategist, has guaranteed the secured short term borrowings and      
secured long term loans of Modular Electronics furnished by certain Indian      
banks. See Notes 4 and 5 to the Financial Statements to the Hard Disk Drive     
Division of Modular Electronics (India) Private Ltd.                            

JTS believes that all of the transactions set forth above were made on
terms no less favorable to JTS than could have been obtained from unaffiliated  
third parties. All future transactions, including loans, between JTS and its    
officers, directors and principal stockholders and their affiliates will be     
approved by a majority of the JTS Board of Directors, including a majority of   
the independent and disinterested outside directors on the Board of Directors,  
and have been and will be on terms no less favorable to JTS than could be       
obtained from unaffiliated third parties.                                       

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PRINCIPAL STOCKHOLDERS OF JTS                                                   

 The following table sets forth certain information regarding beneficial
ownership of JTS Common Stock and JTS Series A Preferred Stock as of June 18,   
1996 by (a) each person (or group of affiliated persons) known to JTS to        
beneficially own more than 5% of the outstanding shares of JTS Common Stock or  
more than 5% of the outstanding shares of JTS Series A Preferred Stock, (b) each
of the directors and executive officers of JTS who will be a director or        
executive officer of the Combined Company, and (c) all of JTS directors and     
executive officers who will be directors and executive officers of the Combined 
Company as a group.                                                             

                                                        [Enlarge/Download Table]

                                                                                                               PERCENT OF 
                                                                                                   NUMBER OF   ALL SHARES 
                                       COMMON STOCK(2)         PREFERRED STOCK(2)       PERCENT    SHARES OF     OF THE   
                                   -----------------------  ------------------------    OF ALL        THE       COMBINED  
                                    NUMBER     PERCENT OF     NUMBER     PERCENT OF   JTS CAPITAL   COMBINED     COMPANY  
       BENEFICIAL OWNER(1)         OF SHARES   CLASS(%)(3)  OF SHARES    CLASS(%)(3)   STOCK(%)     COMPANY      (%)(3)   
---------------------------------  ---------   -----------  ----------   -----------  -----------  ----------  -----------
                                                                                                                          
Entities affiliated with                                                                                                  
  Tantec Magnetics, Lunenburg                                                                                             
  S.A. and the Tandon Family                                                                                              
  Partnership(4).................  5,350,000       57.6%     4,613,900       15.5%        25.6%    9,963,900        9.7%  
  Sirjang L. Tandon                                                                                                       
  c/o JTS Corporation                                                                                                     
  166 Baypointe Parkway                                                                                                   
  San Jose, CA 95134                                                                                                      

                                                        [Enlarge/Download Table]
                                                                                           
Western Digital Corporation......       --     --   4,100,000  13.8  10.5  4,100,000    4.0
  8105 Irving Center Drive                                                                 
  Irvine, CA 92718                                                                         
David T. Mitchell................ 3,000,000  32.3   1,010,196   3.4  10.3  4,010,196    3.9
  c/o JTS Corporation                                                                      
  166 Baypointe Parkway                                                                    
  San Jose, CA 95134                                                                       
Entities affiliated with                                                                   
  Burr, Egan, Deleage & Co.(5)...       --     --   3,937,500  13.3  10.1  3,937,500    3.8
  Jean D. Deleage                                                                          
  One Embarcadero Center                                                                   
  Suite 4050                                                                               
  San Francisco, CA 94111                                                                  
Entities affiliated with                                                                   
  Advanced Technology                                                                      
  Ventures(6)....................       --     --   3,826,424  12.9   9.8  3,826,424    3.7
  485 Ramona Street, Suite 200                                                             
  Palo Alto, CA 94301                                                                      
Entities Affiliated with                                                                   
  the Walden Group of Venture                                                              
  Capital Funds(7)...............       --     --   3,000,000  10.1   7.7  3,000,000    2.9
  Lip-Bu Tan                                                                               
  750 Battery Street, Suite 700                                                            
  San Francisco, CA 94111                                                                  
Brentwood Associates VI, L.P.....       --     --   2,602,083   8.8   6.7  2,602,083    2.5
  11150 Santa Monica Blvd.                                                                 
  #1200                                                                                    
  Los Angeles, CA 90025                                                                    
Entities Affiliated with                                                                   
  Sofinnova Management,                                                                    
  L.P.(8)........................       --     --   1,500,000   5.1   3.9  1,500,000    1.5
  Alain L. Azan                                                                            
  One Market Plaza                                                                         
  Stewart Tower, Suite 2630                                                                
  San Francisco, CA 94105                                                                  
Steven L. Kaczeus(9).............  158,125    1.7     260,511     *   1.1    409,261      *
Kenneth D. Wing(10)..............  316,666    3.4          --    --     *    316,666      *
David B. Pearce..................  275,937    3.0          --    --     *    275,937      *
Amit Chokshi.....................       --     --          --    --    --         --     --
Roger W. Johnson.................       --     --          --    --    --         --     --
All current directors and                                                                  
  executive                       9,074,791  96.1  14,122,107  47.6  59.3  23,196,898  22.5
officers as a group (10                                                                    
  persons)(11)                                                                             

---------------                                                                 
* Less than 1%                                                                  

(1) Except as indicated by footnote, and subject to community property laws   
     where applicable, the persons named in the table above have sole voting and
 investment power with respect to all shares of JTS Common Stock and JTS
Series A Preferred Stock shown as beneficially owned by them.         

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(2) Beneficial ownership is determined in accordance with the rules of the    
    Securities Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to   
options, warrants and convertible notes currently exercisable or      
convertible, or exercisable or convertible within 60 days, are deemed 
outstanding, including for purposes of computing the percentage of the
person holding such option, but not for purposes of computing the     
percentage of any other holder.                                       

 (3) Based on (i) 63,854,718 shares of Atari Common Stock outstanding as of June
    28, 1996 (assuming no exercise of outstanding options after such date) and
     (ii) 29,696,370 shares of JTS Series A Preferred Stock and 9,263,866 shares
   of JTS Common Stock outstanding as of June 18, 1996 (assuming no exercise
of outstanding options and warrants after such date).                 

(4) Preferred Stock includes 2,702,227 shares and 1,911,673 shares of JTS     
     Series A Preferred Stock held by Tantec Magnetics, Inc. and Lunenburg S.A.,
     respectively. Sirjang L. Tandon, a director of JTS, is an executive officer
    of Tantec Magnetics, Inc. and may have shared voting power over the shares
     held by Lunenburg S.A. Common Stock includes 4,350,000 shares of JTS Common
Stock held by the Tandon Family Partnership. Mr. Tandon is a general  
    partner of the Tandon Family Partnership. Includes 1,000,000 shares of JTS
    Common Stock over which Mr. Tandon has voting power, but which are subject
  to a right of repurchase by JTS until fully vested. Mr. Tandon disclaims
     beneficial ownership of the shares held by Tantec Magnetics, Lunenburg S.A.
     and the Tandon Family Partnership except to the extent of his proportionate
partnership and shareholder interests therein.                        

 (5) Preferred Stock includes 3,896,550 shares and 40,950 shares of JTS Series A
Preferred Stock held by Alta V Limited Partnership and Customs House  
    Partners, respectively. Jean Deleage, a director of JTS, is Vice President
of Burr, Egan, Deleage & Co. which is a general partner of Alta V     
     Management Partners, L.P., a general partner of Alta V Limited Partnership,
     and Customs House Partners. He has voting and investment power with respect
   to such shares. Mr. Deleage disclaims beneficial ownership of such shares
  except to the extent of his proportionate partnership interests therein.

(6) Preferred Stock includes 2,250,000 shares and 1,576,424 shares of JTS     
Series A Preferred Stock held by Advanced Technology Ventures IV and  
Advanced Technology Ventures III, respectively.                       

(7) Preferred Stock includes 700,000; 600,000; 500,000; 300,000; 200,000;     
200,000; 200,000; 200,000 and 100,000 shares of JTS Series A Preferred
Stock held by Walden Capital Partners II, L.P.; International Venture 
    Capital Investment Corporation; Walden Investors; BI Walden Ventures Kedua
Sdn Bhd; Seed Ventures II Limited; OWW Pacrim Investments Ltd.; OCBC, 
   Wearnes & Walden Investments (Singapore) Ltd.; Walden Ventures and Walden
    Technology Ventures II, L.P., respectively. Lip-Bu Tan, a director of JTS,
  has voting power and investment power with respect to the shares held by
 each of the foregoing investment funds, except Walden Ventures. Mr. Tan
   disclaims beneficial ownership of such shares except to the extent of his
proportionate interests in such entities.                             

(8) Preferred Stock includes 800,000 shares and 700,000 shares of JTS Series A
Preferred Stock held by C.V. Sofinnova Ventures Partners III and C.V. 
 Sofinnova Ventures Partners II, respectively. Alain Azan, a director of
JTS, is a general partner of Sofinnova Management, L.P., the general  
    partner of C.V. Sofinnova Ventures Partners II and C.V. Sofinnova Ventures
Partners III and has voting and investment power with respect to such 
  shares. Mr. Azan disclaims beneficial ownership of such shares except to
the extent of his proportionate partnership interest therein.         

(9) Includes options to purchase 158,125 shares of JTS Common Stock that are  
exercisable within 60 days of June 18, 1996.                          

(10) Includes options to purchase 16,666 shares of JTS Common Stock that are    
exercisable within 60 days of June 18, 1996.                          

(11) Includes 8,900,000 shares of JTS Common Stock and 14,122,107 shares of JTS 
 Preferred Stock held by executive officers and entities affiliated with
  certain directors and includes options to purchase 174,791 shares of JTS
   Common Stock by executive officers that are exercisable within 60 days of
June 18, 1996. See footnotes (4)-(10).                                

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DESCRIPTION OF CAPITAL STOCK OF ATARI AND JTS 

The following descriptions of the capital stock of Atari and JTS are  
qualified by reference to Atari's Articles of Incorporation and JTS' Certificate
of Incorporation and any amendments thereto. Copies of these are included as    
exhibits to the Registration Statement of which this Joint Proxy                
Statement/Prospectus is a part.                                                 

ATARI CAPITAL STOCK                                                             

General. The authorized capital stock of Atari consists of 100,000,000
shares of Common Stock, $.01 par value per share, and 10,000,000 of undesignated
Preferred Stock, $.01 par value per share. As of close of business on June 28,  
1996, 63,854,718 shares of Atari Common Stock were issued and outstanding and no
shares of Preferred Stock were issued and outstanding.                          

At the Effective Time of the Merger, each share of Atari Common Stock 
issued and outstanding immediately prior to the Effective Time will be canceled 
and extinguished and be converted automatically into the right to receive one   
share of JTS Common Stock.                                                      

  Common Stock. Holders of Atari Common Stock are entitled to one vote per
share on matters to be voted upon by the stockholders and are not entitled to   
cumulative voting in the election of directors. Subject to any preferences      
granted to holders of Atari Preferred Stock or of any other senior equity,      
holders of Atari Common Stock are entitled to receive dividends when, as and if 
declared by the Atari Board of Directors, and to share ratably in the assets of 
Atari legally available for distribution to its stockholders in the event of    
liquidation, dissolution and winding up of Atari. Holders of Atari Common Stock 
have no preemptive, subscription, redemption or conversion rights with respect  
to Atari Common Stock. All outstanding shares of Atari Common Stock are validly 
issued, fully paid and nonassessable.                                           

Preferred Stock. Atari has 10,000,000 shares of undesignated preferred
stock authorized, none of which are issued and outstanding. The Atari Board of  
Directors has the authority to issue the undesignated preferred stock in one or 
more series and to fix the rights, preferences, privileges and restrictions     
granted to or imposed upon any wholly unissued shares of undesignated preferred 
stock and to fix the number of shares constituting any series and the           
designations of such series, without any further vote or action by the          
stockholders.                                                                   

    Convertible Subordinated Debentures. As of March 31, 1996, Atari had $42.4
million of 5 1/4% convertible subordinated debentures due April 29, 2002        
outstanding. The market value of these debentures was approximately $29.3       
million at June 18, 1996. The debentures may be redeemed at Atari's option, upon
payment of a premium. The debentures, at the option of the holders, are         
convertible into common stock at $16.3125 per share. At March 31, 1996,         
2,596,414 shares of Atari Common Stock were reserved for issuance upon          
conversion of the outstanding debentures. A default with respect to other       
indebtedness of Atari in an aggregate amount exceeding $5 million would result  
in an event of default whereby the outstanding debentures would be due and      
payable immediately.                                                            

  Registrar and Transfer Agent. The registrar and transfer agent for Atari
Common Stock is the Registrar and Transfer Company.                             

JTS CAPITAL STOCK                                                               

Prior to the Merger, the authorized capital stock of JTS consists of  
90,000,000 shares of JTS Common Stock, $.000001 par value per share, and        
70,000,000 shares of Preferred Stock, $.000001 par value per share, all of which
is designated Series A Preferred Stock.                                         

    JTS is a privately held company; there is no public trading market for its
stock. As of the close of business on June 18, 1996, 9,263,866 shares of JTS    
Common Stock and 29,696,370 shares of JTS Series A Preferred Stock were issued  
and outstanding. There are a total of 54 holders of record of JTS Series A      
Preferred Stock and 20 holders of record of JTS Common Stock.                   

   Preferred Stock Rights.  The principal rights, privileges and preferences
of the issued and outstanding shares of JTS Series A Preferred Stock are as set 
forth below.                                                                    

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Dividends.  Holders of JTS Series A Preferred Stock are entitled to   
dividend preferences when, as and if declared by the JTS Board, at an annual    
rate of $.09 per share. All dividends are cumulative. JTS may not pay cash      
dividends on JTS Common Stock while there are any declared but unpaid cash      
dividends on any shares of JTS Series A Preferred Stock.                        

     Liquidation.  In the event of any liquidation, dissolution or winding up of
JTS (which, upon the election of the holders of a majority of the Series A      
Preferred Stock, would include the Merger), holders of the JTS Series A         
Preferred Stock are entitled to receive, prior and in preference to any         
distribution of any assets of JTS to the holders of JTS Common Stock, $1.00 per 
share plus all accrued and unpaid dividends. After the holders of JTS Series A  
Preferred Stock have received the full amount of their liquidation preference,  
the holders of JTS Common Stock and JTS Series A Preferred Stock (on an         
as-converted basis) are entitled to receive all remaining assets of JTS         
available for distribution pro rata based on the number of shares of JTS Common 
Stock held or, after conversion of JTS Series A Preferred Stock, that would be  
held by each such holder; provided, however, if the holders of JTS Series A     
Preferred Stock, exclusive of any unpaid cumulative dividends, would receive at 
least an aggregate of $5.00 per share of Series A Preferred Stock, then the     
holders of Series A Preferred Stock shall not be entitled to the $1.00 per share
preference over the holders of JTS Common Stock.                                

Redemption.  Holders of JTS Series A Preferred Stock are entitled to  
certain mandatory redemption rights. Upon the election of a majority of the     
holders of JTS Series A Preferred Stock and provided JTS has funds legally      
available to do so, JTS shall redeem one-third, one-half and the remainder of   
all of the outstanding shares of Series A Preferred Stock on February 7, 2000,  
February 7, 2001 and February 7, 2002, respectively.                            

  Voting Rights.  Subject to the protective provisions described above and
except as otherwise required by law, the holders of JTS Common Stock and JTS    
Series A Preferred Stock are entitled to notice of any stockholders' meeting and
to vote together as a single class upon any matter submitted to the stockholders
for a vote on the following basis:                                              

     (a) Common Vote.  Each share of Common Stock issued and outstanding has one
vote.                                                                           

(b) Preferred Vote.  Each holder of JTS Series A Preferred Stock has a
number of votes equal to the number of full shares of JTS Common Stock into     
which such JTS Preferred Stock is then convertible. Each share of JTS Series A  
Preferred Stock is presently convertible into one share of JTS Common Stock.    

     Protective Provisions.  JTS must obtain the approval of at least two-thirds
of the outstanding shares of JTS Series A Preferred Stock to (i) create a new   
class of stock with rights equal to or superior to the rights of Series A       
Preferred Stock; (ii) sell, lease or convey all or substantially all of JTS'    
property or business; (iii) amend JTS' Certificate of Incorporation if such     
alters the rights of the Series A Preferred Stock; (iv) increase the authorized 
number of shares of JTS Preferred or Common Stock; (v) undertake a              
reorganization, merger, or consolidation in which the holders of JTS voting     
stock will hold less than 50% of the voting stock of the successor entity; (vi) 
pay or declare a dividend other than in Common Stock to the holders of Common   
Stock; or (vii) repurchase JTS securities other than from employees or          
consultants of JTS when their employment ends.                                  

All of the outstanding shares of JTS Common Stock and JTS Series A    
Preferred Stock are validly issued, fully paid and nonassessable.               

Upon consummation of the Merger, the holders of JTS Series A Preferred
Stock will become holders of JTS Common Stock and, consequently, will no longer 
be entitled to certain rights and privileges described above. In addition,      
certain other rights and privileges of JTS stockholders will change as a result 
of the Merger. Upon completion of the Merger, the percentage ownership of the   
Combined Company by each former JTS stockholder will be significantly less than 
his, her or its current percentage ownership of JTS. Accordingly, former JTS    
stockholders will have a significantly smaller voting influence over the affairs
of the Combined Company than they currently enjoy over the affairs of JTS. "See 
Risk Factors -- Risk Factors Related to the Business of JTS -- Reduction in     
Voting Control." Moreover, certain contractual rights presently possessed by    
holders of JTS Series A Preferred Stock will cease to exist after the Merger.   
Finally,                                                                        

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the statutory protections available to JTS stockholders under Section 2115 of   
the CGCL will no longer exist. See "Comparison of Rights of Stockholders of     
Atari and JTS -- Application of the General Corporation Law of California to    
Delaware Corporations."                                                         

CERTIFICATE OF INCORPORATION AND BYLAWS OF THE COMBINED COMPANY                 

The authorized capital stock of the Combined Company shall consist of 
150,000,000 shares of common stock, $.001 par value per share, and 10,000,000   
shares of undesignated, "blank check" preferred stock, $.001 par value per      
share. The Board of Directors of the Combined Company will have the authority to
issue the undesignated preferred stock in one or more series and to fix the     
rights, preferences, privileges and restrictions granted to or imposed upon any 
wholly unissued shares of undesignated preferred stock and to fix the number of 
shares constituting any series and the designations of such series, without any 
further vote or action by the stockholders.                                     

   The Combined Company's Certificate of Incorporation will provide that all
stockholder actions must be effected at a duly called meeting and may not be    
effected by written consent. In addition, the Combined Company's Certificate of 
Incorporation and Bylaws will provide that only the Chairman of the Board of    
Directors, the Chief Executive Officer or the Board of Directors pursuant to a  
resolution adopted by at least two directors will be permitted to call a special
meeting of stockholders. These and other provisions, including the creation of  
"blank check" preferred stock, could discourage potential acquisition proposals 
and could delay or prevent a change in control of the Combined Company. These   
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors and in the policies formulated by the 
Board of Directors and to discourage certain types of transactions that may     
involve an actual or threatened change of control of the Combined Company. These
provisions are designed to reduce the vulnerability of the Combined Company to  
an unsolicited acquisition proposal. The provisions also are intended to        
discourage certain tactics that may be used in proxy fights. However, such      
provisions could have the effect of discouraging others from making tender      
offers for the Combined Company's shares and, as a consequence, they also may   
inhibit fluctuations in the market price of the Combined Company's shares that  
could result from actual or rumored takeover attempts. Such provisions also may 
have the effect of preventing changes in the management of the Company. See     
"Risk Factors -- Other Risk Factors Related to the Merger -- Control by         
Affiliates; Anti-takeover Effects."                                             

DELAWARE TAKEOVER STATUTE                                                       

     The Combined Company will be subject to Section 203 of the Delaware General
Corporation Law ("DGCL"), which, subject to certain exceptions, prohibits a     
Delaware corporation from engaging in any business combination with any         
interested stockholder for a period of three years following the time that such 
stockholder became an interested stockholder, unless: (i) prior to such time,   
the board of directors of the corporation approved either the business          
combination or the transaction that resulted in the stockholder becoming an     
interested stockholder; (ii) upon consummation of the transaction that resulted 
in the stockholder becoming an interested stockholder, the interested           
stockholder owned at least 85% of the voting stock of the corporation           
outstanding at the time the transaction commenced, excluding for purposes of    
determining the number of shares outstanding those shares owned (a) by persons  
who are directors and also officers and (b) by employee stock plans in which    
employee participants do not have the right to determine confidentially whether 
shares held subject to the plan will be tendered in a tender or exchange offer; 
or (iii) at or subsequent to such time, the business combination is approved by 
the board of directors and authorized at an annual or special meeting of        
stockholders, and not by written consent, by the affirmative vote of at least   
66 2/3% of the outstanding voting stock that is not owned by the interested     
stockholder.                                                                    

Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the 
corporation involving the interested stockholder; (iii) subject to certain      
exceptions, any transaction that results in the issuance or transfer by the     
corporation of any stock of the corporation to the interested stockholder; (iv) 
any transaction involving the corporation that has the effect of increasing the 
proportionate share of the stock of any class or series of the corporation by   
the interested stockholder; or                                                  

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(v) the receipt by the interested stockholder of the benefit of any loans,      
advances, guarantees, pledges or other financial benefits provided by or through
the corporation. In general, Section 203 defines an interested stockholder as   
any entity or person owning 15% or more of the outstanding voting stock of the  
corporation and any entity or person affiliated with or controlling or          
controlled by such entity or person.                                            

COMPARISON OF RIGHTS OF STOCKHOLDERS
OF ATARI AND JTS AND THE COMBINED COMPANY 

The rights of Atari stockholders are governed by its Articles of      
Incorporation and any amendments thereto (the "Atari Articles"), Atari's Bylaws 
and any amendments thereto (the "Atari Bylaws") and the laws of the State of    
Nevada. The rights of JTS stockholders are governed by its Certificate of       
Incorporation and any amendments thereto (the "JTS Certificate"), JTS' Bylaws   
and any amendments thereto (the "JTS Bylaws") and the DGCL. After the Effective 
Time, the rights of Atari and JTS stockholders who become stockholders of the   
Combined Company will be governed by the Certificate and Bylaws of the Combined 
Company and the DGCL.                                                           

APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA TO DELAWARE            
CORPORATIONS                                                                    

   The discussion below primarily addresses the differences between the DGCL
and general corporation law of Nevada. However, Section 2115 of the CGCL makes  
substantial portions of the CGCL applicable, with limited exceptions, to a      
foreign corporation with ("Section 2115") more than half of its outstanding     
stock held of record by persons having addresses in California and more than    
half of its business conducted in the state (as measured by factors based on a  
corporation's levels of property, payroll and sales determined for California   
franchise tax purposes), irrespective of the corporation's state of             
incorporation. Although JTS is incorporated in Delaware, it is subject to       
Section 2115. The statutory provisions of the CGCL to which JTS is subject      
include but are not limited to provisions governing a director's standard of    
care in performing the duties of a director, a stockholder's right to vote      
cumulatively in any election of directors, a director's or stockholder's right  
to inspect corporate records, indemnification requirements concerning directors,
officers and others and the corporate requirements to effectuate corporate      
reorganizations (including mergers and acquisitions). Section 2115 also invokes 
the application of Chapter 13 of the CGCL to the Merger with respect to JTS     
stockholders who elect to exercise dissenters' rights. Upon completion of the   
Merger, the statutory protections available to JTS stockholders pursuant to     
Section 2115 will no longer apply.                                              

COMPARISON OF THE RIGHTS OF ATARI AND JTS STOCKHOLDERS AND STOCKHOLDERS OF THE  
COMBINED COMPANY                                                                

  The following is a summary of material differences between the rights of
Atari and JTS stockholders under their respective charter documents, the        
Combined Company's charter documents and applicable state laws.                 

    Cumulative Voting. Under Delaware and Nevada law, cumulative voting in the
election of directors is not mandatory. Elimination of cumulative voting limits 
the ability of minority stockholders to obtain representation on the board of   
directors. The JTS Certificate provides for cumulative voting in elections of   
Directors. The Atari Articles and Bylaws do not provide for cumulative voting in
elections of Directors. The Certificate and Bylaws of the Combined Company do   
not provide for cumulative voting in elections of Directors. To the extent that 
Section 2115 would render California law applicable to JTS, cumulative voting in
the election of directors would be required.                                    

     Power to Call Special Stockholders' Meetings; Advance Notice of Stockholder
Business and Nominees. The Atari Bylaws provide that special meetings of        
stockholders may be called by the Board of Directors, the Chairman of the Board 
or the President. The JTS Bylaws provide that special meetings of stockholders  
may be called by the Board of Directors or a committee of the Board. The Bylaws 
of the Combined Company provide that special meetings of stockholders may be    
called by the Chairman of the Board of Directors, the Chief Executive Officer or
the Board of Directors pursuant to a resolution adopted by at least two         
directors.                                                                      

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 Under Delaware and Nevada law, a special meeting of stockholders may be
called by the board of directors or by any other person authorized to do so in  
the certificate of incorporation or the bylaws.                                 

  Any limitation on the ability to call special stockholder meetings could
make it more difficult for stockholders to initiate action that is opposed by   
the board of directors. Such action on the part of stockholders could include   
the removal of an incumbent director, the election of a stockholder nominee as a
director or the implementation of a rule requiring stockholder ratification of  
specific defensive strategies that have been adopted by the board of directors  
with respect to unsolicited takeover bids.                                      

 Size of the Board of Directors. Delaware and Nevada law each permit the
board of directors alone to change the authorized number, or the range, of      
directors by amendment to the bylaws, unless the directors are not authorized to
amend the bylaws or the number of directors is fixed in the certificate of      
incorporation (in which case a change in the number of directors may be made    
only by amendment to the certificate of incorporation following approval of such
change by the stockholders). The Atari Bylaws provide for a range of directors  
between five and seven, until changed by an amendment to the Atari Articles or  
by stockholder vote. However, the number of directors cannot be less than five  
if the votes against the action or the votes not consenting to the action are   
equal or are greater than 16 2/3% of the outstanding shares. The exact number of
directors shall be fixed by the Board or by stockholder resolution. The current 
number of directors on the Atari Board is six. The JTS Certificate and Bylaws   
authorize the JTS Board of Directors to determine the number of directors on the
JTS Board of Directors. The current number of directors on the JTS Board is six.
The Certificate of the Combined Company provides that number of directors on the
Board of Directors of the Combined Company shall be determined exclusively by   
resolutions of the Board of the Combined Company.                               

     Classified Board of Directors. A classified board is one to which a certain
number, but not all, of the directors are elected on a rotating basis each year.
Delaware and Nevada law permit, but do not require, a classified board of       
directors, with staggered terms under which one-half or one-third of the        
directors are elected for terms of two or three years, respectively. This method
of electing directors may make changes in the composition of the board of       
directors, and thus a potential change in control of a corporation, a lengthier 
and more difficult process. The charter documents of Atari, JTS and the Combined
Company do not provide for a classified board of directors. The establishment of
a classified board following the Merger would require the approval of the       
stockholders of the Combined Company. To the extent that Section 2115 would     
render California law applicable to JTS, directors must be elected annually,    
unless the corporation is listed on the Nasdaq National Market and has at least 
800 stockholders or is listed on certain public exchanges.                      

Removal of Directors. Under Nevada law, unless the articles of        
incorporation provide for cumulative voting or a larger percentage of voting    
stock required to do so, any director may be removed from office by the vote of 
stockholders representing not less than two-thirds of the voting power of the   
class or series of stock of the corporation entitled to elect such director. The
Atari Bylaws do not provide for cumulative voting. The Atari Bylaws allow the   
Board to remove any director declared of unsound mind by court order or         
convicted of a felony. Otherwise, a two-thirds vote of outstanding shares is    
needed to remove a director.                                                    

Under Delaware law, a director of a corporation that does not have a  
classified board of directors or cumulative voting may be removed with or       
without cause with the approval of a majority of the outstanding shares entitled
to vote. In the case of a Delaware corporation having cumulative voting, if less
than the entire board is to be removed, a director may not be removed without   
cause if the number of votes cast against such removal would be sufficient to   
elect the director under cumulative voting. A director of a corporation with a  
classified board of directors may be removed only for cause, unless the         
certificate of incorporation otherwise provides. To the extent that Section 2115
would render California law applicable to JTS, any directors or the entire board
of directors may be removed, with or without cause, with the approval of a      
majority of the outstanding shares entitled to vote; provided, however, no      
director may be removed (unless the entire board is removed) if the number of   
shares voted against removal would be sufficient to elect the director under    
applicable cumulative voting rules. The JTS Certificate provides for cumulative 
voting. The Certificate of the Combined Company does not provide for cumulative 
voting. The Certificate and Bylaws of the Combined Company allow removal of a   
director, subject to the rights of preferred stock holders, (i) with cause by a 
majority of the outstanding shares or (ii) without cause by two-thirds of the   
outstanding shares.                                                             

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 Filling Vacancies on the Board of Directors. Under Nevada law, unless a
Corporation's articles of incorporation provide otherwise, any vacancy on the   
board of directors, including one created by removal of a director or an        
increase in the number of authorized directors, may be filled by the majority of
the remaining directors, even if such number constitutes less than a quorum. The
Atari Articles so provide. The Atari Bylaws also provide for vacancies filled by
directors. Stockholders may fill the vacancy if the directors fail to do so.    
Under Delaware law, vacancies and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
otherwise provided in the certificate of incorporation or bylaws (and unless the
certificate of incorporation directs that a particular class is to elect such   
director, in which case any other directors elected by such class, or a sole    
remaining director, shall fill such vacancy). In addition Delaware law permits a
ten percent (10%) stockholder to order an election to fill a director vacancy.  
The JTS Bylaws allow a vacancy to be filled by a majority of the remaining      
members of the Board of Directors, although the majority is less than a quorum  
or by a plurality of stockholder votes. The Bylaws of the Combined Company      
provide that a director vacancy shall only be filled by a majority of the       
remaining directors, even though less than a quorum.                            

Interested Director Transactions. Under both Nevada and Delaware law, 
certain contracts or transactions in which one or more of a corporation's       
directors has an interest are not void or voidable because of such interest     
provided that certain conditions, such as obtaining the required approval and   
fulfilling the requirements of good faith and full disclosure, are met. With    
certain exceptions, the conditions are similar under Nevada and Delaware law.   
Under Nevada and Delaware law, either the stockholders or the disinterested     
members of the board of directors must approve any such contract or transaction 
after full disclosure of the material facts, and in the case of board approval  
the contract or transaction must also be fair to the corporation, or the        
contract or transaction must have been just and reasonable or fair as to the    
corporation at the time it was authorized or approved. If board approval is     
sought, the contract or transaction must be approved by a majority vote of a    
quorum of the directors, without counting the vote of any interested directors  
(except that interested directors may be counted for purposes of establishing a 
quorum). The JTS Bylaws reiterate Delaware corporate law regarding interested   
director transactions. The Articles and Bylaws of Atari and the Certificate and 
Bylaws of the Combined Company contain no special provision regarding such      
transactions.                                                                   

Loans to Officers and Employees. Under Nevada law, any transaction    
(including any loan or guaranty) to or for the benefit of a director or officer 
of the corporation or its parent is permitted (unless otherwise provided for in 
the corporation's articles of incorporation) provided a disinterested majority  
of the board of directors or stockholders, after full and fair disclosure of the
material terms of such transaction, approve such transaction, or if such        
transaction is fair to the corporation at the time it is authorized or approved.
Under Delaware law, a corporation may make loans to, guarantee the obligations  
of or otherwise assist its officers or other employees and those of its         
subsidiaries (including directors who are also officers or employees) when such 
action, in the judgment of the directors, may reasonably be expected to benefit 
the corporation. Pursuant to the Bylaws of the Combined Company and in          
accordance with Delaware law, the Combined Company may make loans to, guarantee 
the obligations of or otherwise assist its officers or other employees and those
of its subsidiaries (including directors who are also officers or employees)    
when such action, in the judgment of the Board of the Combined Company, may     
reasonably be expected to benefit the corporation. The Articles and Bylaws of   
Atari and the Certificate and Bylaws of JTS contain no special provision        
regarding such transactions.                                                    

Indemnification and Limitation of Liability. Nevada and Delaware have 
similar laws respecting indemnification by a corporation of its officers,       
directors, employees and other agents. The laws of both states also permit      
corporations to adopt a provision in their charters eliminating the liability of
a director to the corporation or its stockholders for monetary damages for      
breach of the director's fiduciary duty of care. There are nonetheless certain  
differences between the laws of the two states with respect to indemnification  
and limitation of liability.                                                    

Atari's Articles indemnify directors to the fullest extent permissible
under Nevada law. Atari's Bylaws further provide for indemnification for Atari's
agents and authorize the Board of Directors to purchase and maintain insurance. 
Similar to Delaware law, Nevada law does not permit the elimination of monetary 
liability                                                                       

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where such liability is based on intentional misconduct, fraud, knowing         
violation of law or payments or distributions in violation of law. In addition, 
Nevada law departs from Delaware law insofar as Nevada law (i) permits a broader
array of insurance or other financial arrangements between a company and its    
directors, and (ii) allows a provision in the corporation's bylaws or articles  
of incorporation which mandates indemnification rather than leaving that        
decision to the board of directors.                                             

     The Certificates of JTS and the Combined Company eliminate the liability of
directors and officers to the fullest extent permissible under Delaware law, as 
such law exists currently or as it may be amended in the future. Under Delaware 
law, such provision may not eliminate or limit director monetary liability for  
(a) breaches of the director's duty of loyalty to the corporation or its        
stockholders; (b) acts or omissions not in good faith or involving intentional  
misconduct or knowing violations of law; (c) the payment of unlawful dividends  
or unlawful stock repurchases or redemptions under DGCL Section 174; or (d)     
transactions in which the director received an improper personal benefit. Such  
limitation of liability provisions also may not limit a director's liability for
violation of, or otherwise relieve JTS, the Combined Company or the directors of
either of them from the necessity of complying with, federal or state securities
laws, or affect the availability of non-monetary remedies such as injunctive    
relief or rescission.                                                           

   The Bylaws of JTS and the Combined Company state that indemnification for
JTS' or the Combined Company's agents will be as set forth in the DGCL. However,
JTS may modify the extent of such indemnification by individual contracts with  
its directors and executive officers. In addition, the DGCL provides that the   
indemnification provided by statute shall not be deemed exclusive of any other  
rights under any bylaw, agreement, vote of stockholders or disinterested        
directors or otherwise. The Bylaws of JTS and the Combined Company track this   
provision of Delaware law.                                                      

JTS has entered into indemnification agreements with its officers and 
directors. Upon consummation of the Merger, such agreements will become binding 
on the Combined Company. It is expected that the Combined Company will enter in 
similar agreements with Jack Tramiel and Michael Rosenberg.                     

    Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal  
counsel or by a majority vote of a quorum of the stockholders that the person   
seeking indemnification acted in good faith and in a manner reasonably believed 
to be in or (in contrast to Nevada law) not opposed to the best interests of the
corporation (or in the case of a criminal proceeding, if the accused had no     
reasonable cause to believe the conduct was unlawful). Without court approval,  
however, no indemnification may be made in respect of any derivative action in  
which such person is adjudged liable for negligence or misconduct in the        
performance of his duty to the corporation.                                     

  The Certificate of the Combined Company limits director liability to the
Combined Company or its stockholders for monetary damages arising out of a      
director's breach of his duty of care. The duty of care refers to the fiduciary 
duty of a director to exercise sufficient diligence and care in considering a   
transaction or causing the corporation to take or refuse to take corporate      
action. The Certificate of the Combined Company, however, does not eliminate the
duty of care; it only eliminates monetary damage awards occasioned by a breach  
of such duty. Thus, after the Merger, a breach of the duty of care would remain 
a valid basis for a suit seeking to prevent a proposed transaction from         
occurring. After the transaction has occurred, however, the stockholders would  
not have a claim against directors for monetary damages based on the breach of  
the duty of care, even if that breach involved gross negligence on the part of  
the directors.                                                                  

Reorganizations, Asset Sales and Mergers. Both Nevada and Delaware law
generally require that a majority of the stockholders of the acquiring and      
target corporations approve statutory mergers. Delaware law does not require a  
stockholder vote of the surviving corporation in a merger (unless the           
corporation provides otherwise in its certificate of incorporation) if (a) the  
merger agreement does not amend the existing certificate of incorporation, (b)  
each share of the surviving corporation outstanding before the merger is an     
identical out standing or treasury share after the merger, and (c) the number of
shares to be issued by the surviving corporation in the merger does not exceed  
20% of the shares outstanding immediately prior to the merger. Nevada law       
contains a substantially similar exception to its voting requirements for the   
surviving corporation in a reorganization. To the extent Section 2115 would     
render California law applicable to JTS,                                        

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stockholder approval of each constituent corporation in a statutory merger and  
any parent corporation is required, except (i) corporations which will own (or  
where stockholders will own), equity securities (other than warrants) possessing
more than 5/6 of the voting power of the surviving corporation or (ii) parent   
corporations, not subject to Section 2115, incorporated under the laws of other 
states not requiring such approval.                                             

Both Nevada and Delaware law also require that a sale of all or       
substantially all of the assets of a corporation be approved by the board of    
directors and a majority of the voting shares of the corporation transferring   
such assets.                                                                    

If required by the articles of incorporation, Nevada law requires that
mergers, reorganizations, certain sales of assets and similar transactions be   
approved by a majority vote of each class of shares outstanding and/or a larger 
percentage vote than a simple majority of the voting shares. The Atari Articles 
do not require such approval. By contrast, Delaware law generally does not      
require class voting, except in certain transactions involving an amendment to  
the certificate of incorporation which adversely affects a specific class of    
shares. To the extent Section 2115 would render California law applicable to    
JTS, a majority vote of each class of shares outstanding and/or a larger        
percentage vote than a simple majority would be required to approve certain     
mergers, reorganizations, sales of assets or similar transactions. JTS'         
Certificate provides for special voting rights of JTS' Series A Preferred Stock.
The following actions must be approved by at least 2/3 of holders of outstanding
JTS Series A Preferred Stock: (1) creation of a new class of stock on par or    
superior in rights to the Series A Preferred Stock; (2) selling, leasing or     
otherwise disposing of all or most of JTS's property; (3) an amendment of the   
JTS Certificate if such amendment would alter the rights of the JTS Series A    
Preferred Stock; (4) increasing the authorized number of shares of JTS Series A 
Preferred or JTS Common Stock; (5) a transaction involving a reorganization,    
consolidation or merger in which the holders of JTS voting stock hold less than 
50% of the voting stock of the successor entity; (6) payment or declaration by  
any dividend other than in Common Stock to the holders of Common Stock; or (7)  
repurchase of securities other than from employees or consultants terminating   
their employment or consulting relationship with JTS.                           

    Should JTS authorize and issue shares of a new class of capital stock, the
holders thereof would vote with the holders of the previously outstanding       
capital stock on proposals not adversely affecting a particular class. In such  
event the holders of the previously outstanding capital stock, if in the        
minority, would be unable to control the outcome of a vote, and, if in the      
majority, would be able to control the outcome of such a vote.                  

     Elimination of Actions by Written Consent of Stockholders. Under Nevada and
Delaware law, stockholders may execute an action by written consent in lieu of a
stockholder meeting. Nevada and Delaware law permit a corporation to eliminate  
such actions by written consent in its charter or bylaws. The Bylaws of Atari   
and JTS provide for action of the stockholders without a meeting including      
written consent. The Certificate of the Combined Company does not permit action 
by written consent of stockholders.                                             

     Dividends and Repurchases of Shares. Nevada law dispenses with the concepts
of par value of shares as well as statutory definitions of capital, surplus and 
the like. The concepts of par value, capital and surplus are retained under     
Delaware law.                                                                   

Nevada law prohibits a distribution (including dividends, purchases,  
redemptions or other acquisition of shares, distributions of indebtedness or    
otherwise) if, after giving effect to the distribution, (1) the corporation     
would not be able to pay its debts as they become due in the usual course of    
business or (2) except as provided in the articles of incorporation, the        
corporation's total assets would be less than the sum of its total liabilities  
plus the amount that would be needed, if the corporation were to be dissolved at
the time of distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the      
distribution.                                                                   

Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in   
which the dividend is declared and/or for the preceding fiscal year as long as  
the amount of capital of the corporation following the declaration and payment  
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the 
distribution of assets. In addition, Delaware law generally provides that a     
corporation may redeem or repurchase its shares only if such redemption or      
repurchase would not impair the capital of the corporation. To the extent that  
Section 2115 would render California law applicable to JTS,                     

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distributions (including dividends and redemptions of shares) are permitted if  
the corporation's assets-to-liabilities ratios are sufficient under CGCL Section
500.                                                                            

Appraisal or Dissenters' Rights. Under both Nevada and Delaware law, a
stockholder of a corporation participating in certain major corporate           
transactions may, under varying circumstances, be entitled to appraisal or      
dissenters' rights pursuant to which such stockholder may receive cash in the   
amount of the fair market value of his or her shares in lieu of the             
consideration he or she would otherwise receive in the transaction. Under       
Delaware law, such dissenters' rights are not available (a) with respect to the 
sale, lease or exchange of all or substantially all of the assets of a          
corporation, (b) with respect to a merger or consolidation by a corporation     
whose shares are either listed on a national securities exchange or are held of 
record by more than 2,000 holders if such stockholders receive only shares of   
the surviving corporation or shares of any other corporation which are either   
listed on a national securities exchange or held of record by more than 2,000   
holders, plus cash in lieu of fractional shares, or (c) to stockholders of a    
corporation surviving a merger if no vote of the stockholders of the surviving  
corporation is required to approve the merger because the merger agreement does 
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or      
treasury share after the merger, and the number of shares to be issued in the   
merger does not exceed 20% of the shares of the surviving corporation           
outstanding immediately prior to the merger and if certain other conditions are 
met. See "The Proposed Merger and Related Transactions -- Appraisal and         
Dissenters' Rights -- Delaware Appraisal Rights."                               

     Under Nevada law, dissenters' rights are not available in a merger or share
exchange if the shares held by the stockholders prior to the share exchange or  
merger were either listed on a national securities exchange or held by at least 
2,000 stockholders of record unless the articles of incorporation of the        
corporation provide otherwise or the stockholders are required to accept under  
the plan of merger share exchange anything other than cash or shares of the     
surviving corporation or shares that are listed on a national securities        
exchange, or a combination of these. Because Atari Common Stock is listed on a  
national securities exchange and because the Atari Articles do not provide      
otherwise, Atari stockholders may not exercise dissenters' rights with respect  
to the Merger.                                                                  

   To the extent that Section 2115 would render California law applicable to
JTS, stockholders who dissent from a merger may also be entitled to dissenters' 
rights under the CGCL. See "The Proposed Merger and Related                     
Transactions -- Appraisal and Dissenters' Rights -- California Dissenters'      
Rights."                                                                        

The foregoing discussion of material differences between the rights of
Atari and JTS stockholders under their respective charter documents and         
applicable state laws is only a summary of certain provisions and does not      
purport to be a complete description of such differences. The discussion is     
qualified in its entirety by reference to the Nevada, Delaware and California   
General Corporation Laws, the respective common law in Nevada, Delaware and     
California and the full text of the Certificate of Incorporation and any        
amendments thereto and the Bylaws and any amendment thereto of Atari and JTS.   

LEGAL MATTERS 

  The validity of the JTS Common Stock issuable in the Merger, the federal
income tax consequences in connection with the Merger and certain other matters 
relating to the Merger will be passed upon for JTS by Cooley Godward Castro     
Huddleson & Tatum. The federal income tax consequences in connection with the   
Merger and certain other matters relating to the Merger will be passed upon for 
Atari by Wilson Sonsini Goodrich & Rosati, P.C. As of June 18, 1996, one member 
of Wilson Sonsini Goodrich & Rosati, P.C., investment partnerships of which such
individual is a partner and a trust for which such individual serves as trustee,
beneficially owned 84,000 shares of JTS Series A Preferred Stock.               

EXPERTS 

   The consolidated financial statements of Atari Corporation as of December
31, 1995 and 1994 and for each of the three years in the period ended December  
31, 1995 included in this Joint Proxy Statement/Prospectus have been audited by 
Deloitte & Touche LLP, independent auditors, as stated in their report          

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appearing herein, and are included in reliance upon the report of such firm     
given upon their authority as experts in accounting and auditing.               

  The financial statements of JTS Corporation, Inc and The Hard Disk Drive
Division of Moduler Electronics (India) Private Limited included in this Joint  
Proxy Statement/Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, to the extent and for the periods indicated in their        
reports, and are included herein in reliance upon the authority of said firm as 
experts in giving said reports. Reference is made to said reports which include 
an explanatory paragraph describing uncertainties concerning the ability of the 
Company to continue as a going concern discussed in Note 1 to the financial     
statements.                                                                     

STOCKHOLDER PROPOSALS 

     In the event the Merger is not consummated for any reason, Atari expects to
hold an annual meeting in 1997. To be eligible for inclusion in Atari's proxy   
solicitation materials for its annual stockholder meeting to be held in 1997,   
any stockholder proposal to be considered at such meeting must have been        
received at Atari's principal executive offices, 455 South Mathilda Avenue,     
Sunnyvale, California 94086, no later than January 20, 1997. Any such proposal  
is subject to the requirements of the proxy rules adopted under the Exchange    
Act.                                                                            

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ATARI CORPORATION, JTS CORPORATION AND
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                        PAGE
                                                                                        ----
                                                                                            
ATARI CORPORATION                                                                           
Report of Deloitte & Touche LLP.......................................................   F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994..........................   F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and       
  1993................................................................................   F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995,      
  1994, and 1993......................................................................   F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and       
  1993................................................................................   F-6
Notes to Consolidated Financial Statements............................................   F-7
Unaudited Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995......  F-15
Unaudited Consolidated Statements of Operations for the Quarters Ended March 31, 1996       
  and March 31, 1995..................................................................  F-16
Unaudited Consolidated Statements of Cash Flows for the Quarters Ended March 31, 1996       
  and March 31, 1995..................................................................  F-17
Unaudited Notes to Consolidated Financial Statements..................................  F-18
JTS CORPORATION                                                                             
Report of Arthur Andersen LLP.........................................................  F-19
Balance Sheets as of January 28, 1996 and January 29, 1995............................  F-20
Statements of Operations for the 52 weeks ended January 28, 1996 and for the period         
  from inception (February 3, 1994) to January 29, 1995...............................  F-21
Statements of Stockholders' Deficit from inception (February 3, 1994) to                    
  January 28, 1995....................................................................  F-22
Statements of Cash Flows for the 52 weeks ended January 28, 1996 and for the period         
  from inception (February 3, 1994) to January 29, 1995...............................  F-23
Notes to Financial Statements.........................................................  F-24
Unaudited Condensed Consolidated Balance Sheets as of April 28, 1996 and January 28,        
  1996................................................................................  F-33
Unaudited Condensed Consolidated Statements of Operations for the Quarters Ended April      
  28, 1996 and April 30, 1995.........................................................  F-34
Unaudited Consolidated Statements of Cash Flows for the Quarters Ended April 28, 1996       
  and April 30, 1995..................................................................  F-35
Unaudited Notes to Consolidated Financial Statements..................................  F-36
THE HARD DISK DRIVE DIVISION OF MODULER ELECTRONICS (INDIA) PRIVATE LIMITED                 
Report of Arthur Andersen LLP.........................................................  F-37
Statements of Assets and Liabilities as of January 28, 1996 and January 31, 1995......  F-38
Statement of Revenues and Expenses for the period from February 1, 1995 to January 28,      
  1996................................................................................  F-39
Statement of Cash Flows for the period from February 1, 1995 to January 28, 1996......  F-40
Notes to Financial Statements.........................................................  F-41

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REPORT OF DELOITTE & TOUCHE LLP 

To the Shareholders and Board of Directors                                      
of Atari Corporation:                                                       

We have audited the accompanying consolidated balance sheets of Atari 
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related  
consolidated statements of operations, shareholders' equity, and cash flows for 
each of the three years in the period ended December 31, 1995. These financial  
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on the financial statements based on our
audits.                                                                         

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

   In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Atari Corporation and          
subsidiaries at December 31, 1995 and 1994, and the results of their operations 
and their cash flows for each of the three years in the period ended December   
31, 1995 in conformity with generally accepted accounting principles.           

DELOITTE & TOUCHE LLP                                                           

San Jose, California                                                            
March 1, 1996                                                                   
(April 8, 1996 as to Note 16)                                                   

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ATARI CORPORATION 

CONSOLIDATED BALANCE SHEETS 
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                           DECEMBER 31,      
                                                                      -----------------------
                                                                        1995          1994   
                                                                      ---------     ---------
                                                                                             
                                            ASSETS                                           
CURRENT ASSETS:                                                                              
  Cash and equivalents (including $700 and $4,450 held as restricted                         
     balances in 1995 and 1994)...................................... $  28,941     $  22,592
  Marketable securities..............................................    21,649        58,432
  Accounts receivable (less allowances for returns and doubtful                              
     accounts:                                                                               
     1995, $4,221; 1994, $1,957).....................................     2,468         9,262
  Inventories........................................................    10,934        18,185
  Other current assets...............................................     1,134         4,717
                                                                      ---------     ---------
          Total current assets.......................................    65,126       113,188
GAME SOFTWARE DEVELOPMENT COSTS -- Net...............................       758         5,145
EQUIPMENT AND TOOLING -- Net.........................................       671         1,315
REAL ESTATE HELD FOR SALE............................................    10,468        10,741
OTHER ASSETS.........................................................       546           653
                                                                      ---------     ---------
          TOTAL...................................................... $  77,569     $ 131,042
                                                                      =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY

                                                        [Enlarge/Download Table]
                                                                                            
CURRENT LIABILITIES:                                                                        
  Accounts payable................................................... $   4,954   $  15,341 
  Accrued liabilities................................................     5,088       5,177 
                                                                      ---------   --------- 
          Total current liabilities..................................    10,042      20,518 
                                                                      ---------   --------- 
LONG-TERM OBLIGATIONS................................................    42,354      43,454 
                                                                      ---------   --------- 
COMMITMENTS AND CONTINGENT LIABILITIES (Note 14)                                            
SHAREHOLDERS' EQUITY:                                                                       
  Preferred stock, $.01 par value -- authorized, 10,000,000 shares;                         
     none outstanding................................................        --          -- 
  Common stock, $.01 par value -- authorized, 100,000,000 shares;                           
     outstanding: 1995, 63,687,118 shares; 1994, 63,648,535 shares...       637         636 
  Additional paid-in capital.........................................   196,209     196,138 
  Unrealized net gain on marketable securities.......................     7,088         542 
  Accumulated translation adjustments................................      (663)     (1,724)
  Accumulated deficit................................................  (178,098)   (128,522)
                                                                      ---------   --------- 
     Total shareholders' equity......................................    25,173      67,070 
                                                                      ---------   --------- 
          TOTAL...................................................... $  77,569   $ 131,042 
                                                                      =========   ========= 

See notes to consolidated financial statements. 

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ATARI CORPORATION 

CONSOLIDATED STATEMENTS OF OPERATIONS 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                 YEARS ENDED DECEMBER 31,      
                                                            ---------------------------------- 
                                                              1995         1994         1993   
                                                            --------     --------     -------- 
                                                                                               
REVENUES................................................... $ 14,626     $ 38,748     $ 29,108 
COST AND EXPENSES:                                                                             
  Cost of revenues.........................................   44,234       35,200       42,768 
  Research and development.................................    5,410        5,775        4,876 
  Marketing and distribution...............................   12,726       14,651        8,980 
  General and administrative...............................    5,921        7,169        7,558 
  Restructuring charges....................................       --           --       12,425 
                                                            --------     --------     -------- 
          Total operating expenses.........................   68,291       62,795       76,607 
                                                            --------     --------     -------- 
OPERATING LOSS.............................................  (53,665)     (24,047)     (47,499)
Settlements of patent litigation...........................       --       32,062           -- 
Exchange gain (loss).......................................       13        1,184       (2,234)
Other income...............................................    2,670          484          854 
Interest income............................................    3,133        2,015        2,039 
Interest expense...........................................   (2,309)      (2,304)      (2,290)
                                                            --------     --------     -------- 
          Income (loss) before income taxes................  (50,158)       9,394      (49,130)
Income tax credit..........................................       --           --          264 
                                                            --------     --------     -------- 
INCOME (LOSS) BEFORE EXTRAORDINARY CREDIT..................  (50,158)       9,394      (48,866)
Extraordinary credit -- gain on extinguishment of 5 1/4%                                       
  convertible subordinated debentures......................      582           --           -- 
                                                            --------     --------     -------- 
NET INCOME (LOSS).......................................... $(49,576)    $  9,394     $(48,866)
                                                            ========     ========     ======== 
EARNINGS (LOSS) PER COMMON SHARE:                                                              
  Income (loss) before extraordinary credit................ $  (0.79)    $   0.16     $  (0.85)
  Net income (loss)........................................ $  (0.78)    $   0.16     $  (0.85)
  Number of shares used in computations....................   63,697       58,962       57,148 

See notes to consolidated financial statements. 

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ATARI CORPORATION 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                      NOTES                                                    
                                                    RECEIVABLE               UNREALIZED                        
                                                       FROM                   NET GAIN                         
                       COMMON STOCK     ADDITIONAL   SALE OF    ACCUMULATED      ON                            
                     -----------------   PAID-IN      COMMON    TRANSLATION  MARKETABLE  ACCUMULATED           
                     SHARES     AMOUNT   CAPITAL      STOCK     ADJUSTMENTS  SECURITIES    DEFICIT     TOTAL   
                     ------     ------  ----------  ----------  -----------  ----------  -----------  -------- 
                                                                                                               
BALANCES, JANUARY                                                                                              
  1, 1993..........  57,137      $571    $142,315      $(19)      $(3,234)     $   --     $ (89,050)  $ 50,583 
Stock options                                                                                                  
  exercised........      89         1         191                                                          192 
Common stock                                                                                                   
  repurchased......     (11)                   (9)        9                                                 -- 
Collection of notes                                                                                            
  receivable.......                                       7                                                  7 
Translation                                                                                                    
  adjustments......                                                 2,438                                2,438 
Net loss...........                                                                         (48,866)   (48,866)
                     ------      ----    --------      ----       -------      ------        ------   ---------
BALANCES, DECEMBER                                                                                             
  31, 1993.........  57,215       572     142,497        (3)         (796)         --      (137,916)     4,354 
Sale of common                                                                                                 
  stock............   6,277        63      53,270                                                       53,333 
Stock options                                                                                                  
  exercised........     157         1         371                                                          372 
Collection of notes                                                                                            
  receivable.......                                       3                                                  3 
Translation                                                                                                    
  adjustments......                                                  (928)                                (928)
Unrealized net gain                                                                                            
  on marketable                                                                                                
  securities.......                                                               542                      542 
Net income.........                                                                           9,394      9,394 
                     ------      ----    --------      ----       -------      ------        ------   ---------
BALANCES, DECEMBER                                                                                             
  31, 1994.........  63,649       636     196,138        --        (1,724)        542      (128,522)    67,070 
Stock options                                                                                                  
  exercised........      82         1         109                                                          110 
Stock                                                                                                          
  repurchased......     (44)                  (38)                                                         (38)
Translation                                                                                                    
  adjustments......                                                 1,061                                1,061 
Unrealized net gain                                                                                            
  on marketable                                                                                                
  securities.......                                                             6,546                    6,546 
Net loss...........                                                                         (49,576)   (49,576)
                     ------      ----    --------      ----       -------      ------        ------   ---------
BALANCES, DECEMBER                                                                                             
  31, 1995.........  63,687      $637    $196,209      $ --       $  (663)     $7,088     $(178,098)  $ 25,173 
                     ======      ====    ========      ====       =======      ======        ======   =========

See notes to consolidated financial statements. 

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ATARI CORPORATION 

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                                   YEARS ENDED DECEMBER 31,      
                                                                                              ---------------------------------- 
                                                                                                1995         1994         1993   
                                                                                              --------     --------     -------- 
                                                                                                                                 
OPERATING ACTIVITIES:                                                                                                            
  Net income (loss).......................................................................... $(49,576)    $  9,394     $(48,866)
  Adjustments to reconcile net income (loss) to net cash provided (used) by operating                                            
    activities:                                                                                                                  
  Gain from extinguishment of 5 1/4% convertible subordinated debentures.....................     (582)          --           -- 
  Depreciation and amortization..............................................................    1,970        2,619          361 
  Provision for production tooling...........................................................      300           --           -- 
  Provision for doubtful accounts............................................................       50          194          232 
  Provision for sales returns and allowances.................................................    5,028        1,563          457 
  Provision for restructuring................................................................       --           --       12,425 
  Gain on sale of marketable securities......................................................   (2,377)          --         (324)
  Provision for inventory valuation..........................................................   12,640        5,362       18,100 
  Utilization of advertising barter credits..................................................    3,179           --           -- 
  Write-off of game software development costs...............................................   16,578          804           -- 
  Changes in operating assets and liabilities:                                                                                   
    Accounts receivable......................................................................    1,637       (5,383)      16,863 
    Inventories..............................................................................   (5,389)     (14,177)         951 
    Other assets.............................................................................      395         (336)       3,178 
    Accounts payable.........................................................................  (10,372)       3,763       (4,925)
    Accrued liabilities......................................................................      (42)        (660)     (15,881)
                                                                                              --------     --------     -------- 
  Net cash provided (used) by operations.....................................................  (26,561)       3,143      (17,429)
                                                                                              --------     --------     -------- 
INVESTING ACTIVITIES:                                                                                                            
  Sales and maturities of marketable securities..............................................   55,703           --        2,525 
  Purchase of marketable securities..........................................................   (9,997)     (50,000)          -- 
  Purchases of property, equipment and tooling...............................................     (782)      (1,207)        (663)
  Sale of property...........................................................................       29        7,543           -- 
  Game software development costs............................................................  (12,791)      (5,810)        (789)
  Other assets...............................................................................      107          482          541 
                                                                                              --------     --------     -------- 
  Net cash provided (used) by investing activities...........................................   32,269      (48,992)       1,614 
                                                                                              --------     --------     -------- 
FINANCING ACTIVITIES:                                                                                                            
  5 1/4% convertible subordinated debentures extinguished....................................     (518)          --           -- 
  Repayments of borrowings...................................................................       --       (7,642)        (259)
  Issuance of common stock, net..............................................................       72       53,708          199 
                                                                                              --------     --------     -------- 
  Net cash provided (used) by financing activities...........................................     (446)      46,066          (60)
                                                                                              --------     --------     -------- 
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS......................................    1,087         (684)        (356)
                                                                                              --------     --------     -------- 
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS..............................................    6,349         (467)     (16,231)
CASH AND EQUIVALENTS:                                                                                                            
  Beginning of year..........................................................................   22,592       23,059       39,290 
                                                                                              --------     --------     -------- 
  End of year................................................................................ $ 28,941     $ 22,592     $ 23,059 
                                                                                              ========     ========     ======== 
OTHER CASH FLOW INFORMATION:                                                                                                     
  Interest paid.............................................................................. $  2,309     $  2,303     $  3,023 
                                                                                              ========     ========     ======== 
  Income taxes refunded...................................................................... $     --     $   (426)    $   (225)
                                                                                              ========     ========     ======== 
NONCASH INVESTING AND FINANCING ACTIVITIES:                                                                                      
  Exchange of inventory for advertising services............................................. $     --     $  3,179     $     -- 
                                                                                              ========     ========     ======== 
  Exchange of property for retirement of debt................................................ $     --     $  1,891     $     -- 
                                                                                              ========     ========     ======== 

See notes to consolidated financial statements. 

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. COMPANY                                                                      

Nature of Operations -- The Company designs and markets interactive   
multimedia entertainment systems and related software and peripheral products.  
Manufacture of these products is performed by third parties. The principal      
methods of distribution are through mass market retailers, consumer electronic  
specialty stores and distributors of electronic products.                       

Product Focus -- Since 1992, the Company has focused its research and 
development effort on its 64-bit Jaguar interactive multimedia entertainment    
system. This product was introduced in 1993 and, in 1995 and 1994, 68% and 76%  
of revenues, respectively, were associated with this product. Sales of the      
Jaguar in 1995 were disappointing and the Company is currently test marketing   
different price points and software bundles for the Jaguar in an attempt to sell
its substantial inventory of such products.                                     

   In December 1994, the Company planned price reductions beginning in early
1995 and recognized the impact of this decision on finished and in-process      
inventory through a write-down of inventory of $3.6 million, which is included  
in cost of sales in the fourth quarter of 1994. In December 1995, the Company   
planned further price reductions beginning in early 1996 and recognized the     
impact of this decision through a $10.9 million write-down of inventory, which  
is included in cost of sales in the fourth quarter of 1995.                     

  The Company continues to carry limited quantities of its older 8-bit and
16-bit video games and computer product lines. As a result of rapid             
technological change and intense competition, the Company wrote down inventories
of these products by $18.1 million in 1993 which was included in cost of sales. 

 Estimates -- The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates  
and assumptions that affect recorded amounts of assets, liabilities, revenues   
and expenses as of the dates and for the periods presented. In connection with  
the change of the Company's focus, measurement of assets and liabilities is     
dependent upon management's ability to accurately predict future operating      
results. Actual results could differ from these estimates.                      

     Restructuring -- The Company has active operations in the United States and
the United Kingdom. During 1993 and 1992, the Company significantly restructured
its operations around the world, closing operations in Australia and the Far    
East, in several European countries and in Canada and Mexico. These operational 
closures resulted in the bankruptcy of subsidiaries in Australia and Germany and
may result in the voluntary or involuntary liquidation or bankruptcy of other   
subsidiary companies. Charges for restructuring have been separately reported in
the consolidated statements of operations for 1993. The remaining accruals of   
$351,000 at December 31, 1995 relate to employee benefits in Italy and lease    
obligations in the Netherlands.                                                 

2. SIGNIFICANT ACCOUNTING POLICIES                                              

Principles of Consolidation -- The consolidated financial statements  
include the Company and its subsidiaries. All transactions and balances between 
the companies are eliminated.                                                   

Cash and Equivalents -- Cash equivalents are stated at cost, which    
approximates market value, have maturities not exceeding ninety days upon       
acquisition and generally consist of certificates of deposit, time deposits,    
treasury notes and commercial paper.                                            

 Marketable Securities -- Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for     
Certain Investments in Debt and Equity Securities." Marketable securities are   
carried as available-for-sale securities and reported at the fair market value. 
The cumulative effect of adoption of SFAS 115 as of January 1, 1994 was not     
material. Unrealized gains and losses are reported as a separate component of   
shareholders' equity. Realized gains and losses are recorded in the statements  
of operations and realized gains were $2.4 million in 1995. The cost of         
securities sold is based on average cost.                                       

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

    Inventories -- Inventories are stated at the lower of cost or market. Cost
is computed using standard costs which approximate actual cost on a first-in,   
first-out basis. Market for each of the Company's product lines is determined by
reference to expected sales prices less direct selling expenses.                

 Prepaid Advertising -- Included in other current assets at December 31,
1994 is $3.2 million of prepaid advertising resulting from a barter transaction.
The amount recorded as prepaid advertising equals the carrying value of certain 
inventory exchanged for advertising credits. The Company expensed the prepaid   
advertising as utilized during 1995.                                            

Equipment and Tooling -- Equipment and tooling are stated at cost.    
Depreciation on equipment is computed using the straight-line method based on   
estimated useful lives of the assets of two to five years. Tooling is           
depreciated on a units of production basis. Leasehold improvements are amortized
over the estimated useful life or lease term, as appropriate. Fully depreciated 
assets, and related depreciation, are excluded from the consolidated financial  
statements.                                                                     

Real Estate Held for Sale -- Real property associated with closed     
operations in the U.S. is stated at estimated market value as determined by     
recent valuations, appraisals or pending sales offers.                          

Revenue Recognition -- Sale of consoles, software game cartridges and 
related products are recorded as revenue at the time of shipment to customers.  
Concurrently, the Company establishes reserves for estimated returns, which are 
recorded as a reduction of sales, and for cooperative advertising allowances,   
which are recorded as marketing and distribution expense. Royalty revenues are  
recognized when earned and collection is probable.                              

 Income Taxes -- The Company adopted SFAS No. 109 "Accounting for Income
Taxes" in the first quarter of 1993 which requires an asset and liability method
for financial accounting and reporting of income taxes. The impact of the       
adoption of SFAS 109 was not material.                                          

Foreign Currency Translation -- Assets and liabilities of operations  
outside the United States are translated into United States dollars using       
current exchange rates, and the effects of foreign currency translation         
adjustments are deferred and included as a component of shareholders' equity.   

   Income (Loss) per Common Share -- Per share amounts are computed based on
the weighted average number of common and dilutive common equivalent shares     
(stock options) outstanding during each period. The effect of the assumed       
conversion of the 5 1/4% convertible subordinated debentures was antidilutive   
for all periods presented and excluded from the computation.                    

    Fiscal Year -- The Company uses a 52/53 week fiscal year which ends on the
Saturday closest to December 31. All fiscal years presented contain 52 weeks.   
For simplicity of presentation, the date December 31 is used to represent the   
fiscal year end.                                                                

   Reclassifications -- Certain items have been reclassified in the 1994 and
1993 financial statements to conform to the 1995 presentation and had no effect 
on operating results or shareholders' equity.                                   

     Recently Issued Pronouncements -- In October 1995, the Financial Accounting
Standards Board issued FASB No. 123, "Accounting for Stock-Based Compensation." 
The new standard defines a fair value method of accounting for stock options and
other equity instruments, such as stock purchase plans. Under this method,      
compensation cost is measured based on the fair value of the stock award when   
granted and is recognized as an expense over the service period, which is       
usually the vesting period. This standard will be effective for the Company     
beginning in 1996, and requires measurement of awards made beginning in 1995.   
The new standard permits companies to continue to account for equity            
transactions with employees under existing accounting rules, but requires       
disclosure in a note to the financial statements of the pro forma net income and
earnings per share as if the Company had applied the new method of accounting.  
The Company intends to follow these                                             

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

disclosure requirements for its employee stock plans. As a result, adoption of  
the new standard will not impact reported earnings or earnings per share, and   
will have no effect on the Company's cash flows.                                

3. FINANCIAL INSTRUMENTS                                                        

   Marketable Securities -- Marketable securities available for sale consist
of (in thousands):                                                              

                                                        [Enlarge/Download Table]

                                                  DECEMBER 31, 1995                   DECEMBER 31, 1994         
                                          ----------------------------------  ----------------------------------
                                                                    GROSS                               GROSS   
                                          AMORTIZED    MARKET     UNREALIZED  AMORTIZED    MARKET     UNREALIZED
                 ISSUE                      COST        VALUE       GAINS       COST        VALUE       GAINS   
----------------------------------------  ---------    -------    ----------  ---------    -------    ----------
                                                                                                                
Equity securities --                                                                                            
  Dixon common stock....................   $ 4,565     $11,606      $7,041     $ 7,890     $ 8,432     $    542 
Government securities --                                                                                        
  Federal Home Loan Bank................     4,993       5,026          33          --          --           -- 
  Federal Home Loan Mortgage Corp.......     5,003       5,017          14          --          --           -- 
Foreign government debt securities --                                                                           
  Eurodollar notes......................        --          --          --      50,000      50,000           -- 
                                             -----     -------     -------      ------                          
    Total marketable securities.........   $14,561     $21,649      $7,088     $57,890     $58,432     $    542 
                                             =====     =======     =======      ======                          

   The contractual maturities of the government securities range from two to
four years. The Eurodollar notes matured during 1995.                           

     Concentration of Credit Risk -- The Company sells to mass market retailers,
consumer electronic specialty stores and to distributors of electronic products 
throughout the United States and Europe. The Company makes ongoing credit       
evaluations of customers and, at times, requires letters of credit from some    
foreign customers. Sales to foreign customers are generally stated in the       
currency of the customer. To date, the Company has not entered into hedges of   
these foreign currency exposures.                                               

     Fair Value of Financial Instruments -- In accordance with the provisions of
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," which     
requires the disclosure of fair value information about both on and off balance 
sheet financial instruments where it is practicable to estimate the value, the  
Company has estimated the fair value of its financial instruments. The estimated
fair value of the 5 1/4% convertible subordinated debentures at December 31,    
1995 was approximately $20 million based primarily on quoted market prices. The 
carrying amounts of the remainder of the Company's financial instruments,       
including cash and equivalents, marketable securities, accounts receivable and  
accounts payable, approximate fair values due to their short maturities.        

4. INVENTORIES                                                                  

Inventories at December 31 consist of the following (in thousands):   

                                                                [Download Table]

                                                                   1995     1994  
                                                                  -------  -------
                                                                                  
Finished goods................................................... $ 9,927  $15,799
Raw materials and work-in-process................................   1,007    2,386
                                                                  -------  -------
     Total....................................................... $10,934  $18,185
                                                                  =======  =======

5. GAME SOFTWARE DEVELOPMENT COSTS                                              

    Internal game software development costs are expensed as incurred as these
costs relate primarily to development tools. External development costs are     
capitalized once technological feasibility has been determined. During 1995 and 
1994, the Company capitalized $12.8 million and $5.8 million, respectively, of  

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

amounts paid to third parties, primarily as prepaid licenses, in connection with
game development for the Jaguar. The Company amortizes such costs over the      
shorter of 12 months from game introduction or the estimated unit sales of the  
game title. The Company assesses the recoverability of capitalized games        
software development costs in light of many factors, including, but not limited 
to, anticipated future revenues, estimated economic useful lives and changes in 
software and hardware technologies. Amortization expense and adjustments for    
management's assessment of recoverability were $17.1 million (including a       
write-off of $16.6 million) and $1.5 million (including a write-off of $804,000)
for the years ended December 31, 1995 and 1994, respectively.                   

6. EQUIPMENT AND TOOLING                                                        

Equipment and tooling at December 31 consists of the following (in    
thousands):                                                                     

                                                                [Download Table]

                                                                    1995     1994   
                                                                   ------   ------- 
                                                                                    
Equipment and tooling............................................. $1,526   $ 1,874 
Furniture and fixtures............................................    198       708 
Leasehold improvements............................................     --        43 
                                                                   ------   ------- 
Total.............................................................  1,724     2,625 
Accumulated depreciation and amortization.........................   (753)   (1,310)
Reserve for production tooling....................................   (300)       -- 
                                                                   ------   ------- 
Equipment and tooling -- net...................................... $  671   $ 1,315 
                                                                   ======   ======= 

7. REAL ESTATE HELD FOR SALE                                                    

    Property held for sale at December 31, 1995 consists of nine properties in
California and Texas, from the discontinued consumer electronics and home       
entertainment products operation. Certain of the properties have rental tenants,
although all properties are available for sale. Rental income, net of rental    
expense and depreciation, is included in other income (expense) and was not     
material. Disposals in 1994 represented the Company's building in Germany and   
land and building in France, which were disposed of with no significant gain or 
loss.                                                                           

8. ACCRUED LIABILITIES                                                          

     Accrued liabilities at December 31 consist of the following (in thousands):

                                                                [Download Table]

                                                              1995       1994 
                                                             ------     ------
                                                                              
Accrued interest...........................................  $1,483     $1,513
Accrued game software development costs....................   1,525         --
Accrued restructuring charge...............................     351        719
Accrued royalties..........................................      28        320
Other......................................................   1,701      2,625
                                                             ------     ------
Total......................................................  $5,088     $5,177
                                                             ======     ======

9. LETTERS OF CREDIT AND RESTRICTED CASH                                        

At December 31, 1995, cash balances of $700,000 were collateral for   
outstanding commercial letters of credit associated with inventory components   
and software development. At December 31, 1994, cash balances of $4.5 million   
were collateral for outstanding letters of credit.                              

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

10. LONG-TERM DEBT OBLIGATIONS                                                  

 Convertible Subordinated Debentures -- The Company has $42.4 million of
5 1/4% convertible subordinated debentures due April 29, 2002. The debentures   
may be redeemed at the Company's option, upon payment of a premium. The         
debentures, at the option of the holders, are convertible into common stock at  
$16.3125 per share. At December 31, 1995, 2,596,414 shares of common stock were 
reserved for issuance upon conversion. Default with respect to other            
indebtedness of Atari Corporation in an aggregate amount exceeding $5 million   
would result in an event of default whereby the outstanding debentures would be 
due and payable immediately.                                                    

  In 1995, the Company reacquired in the open market and extinguished $1.1
million face value of these debentures for $500,000, resulting in an            
extraordinary credit of $582,000.                                               

  Term Loans on Real Estate in Europe -- At December 31, 1993, the Company
had two secured term loans outstanding totaling $7.5 million for its building in
Germany and a term loan of $2.0 million for its land and building in France.    
These loans were repaid or exchanged in 1994 from the sale or transfer of the   
properties.                                                                     

11. SETTLEMENTS OF PATENT LITIGATION                                            

  During the first quarter of 1994, the Company received $2.2 million with
respect to the settlement of litigation between the Company, Atari Games        
Corporation and Nintendo. Although not part of the litigation, the Company sold 
1,500,000 shares of its common stock to Time Warner (parent company of Atari    
Games Corporation), Inc. for $12.8 million.                                     

  During the fourth quarter of 1994, the Company completed a comprehensive
agreement ("Agreement") with Sega Enterprises, Ltd. ("Sega") concerning         
resolution of disputes, equity investment and patent and product licensing      
agreements. The results of the Agreement were as follows: (i) Sega acquired     
4,705,883 shares of the Company's common stock for $40.0 million; (ii) the      
Company received a payment of $29.8 million ($50.0 million from Sega, net of    
$20.2 million of legal fees and associated costs) in exchange for a license from
Atari covering the use of a library of Atari patents issued between 1977 through
1984 (excluding patents which exclusively claim elements of the Company's JAGUAR
and LYNX products) through the year 2001; and (iii) the Company and Sega agreed 
to cross-license up to five software game titles each year through the year     
2001.                                                                           

12. INCOME TAXES                                                                

The credit for income taxes consists of the following (in thousands): 

                                                                [Download Table]

                                                        1995     1994     1993  
                                                        ----     ----     ----- 
                                                                                
Current:                                                                        
  Federal.............................................   $--      $--     $  -- 
  Foreign.............................................   --       --       (264)
  State...............................................   --       --         -- 
                                                         --       --            
                                                                          ----- 
Income tax credit.....................................   $--      $--     $(264)
                                                         ==       ==      ===== 

At December 31, 1995, the Company has a U.S. income tax operating loss
carryforward of $165 million which expires in 2006 through 2010, a research and 
development tax credit carryforward of $1.8 million which expires in 2002       
through 2010, and a California income tax operating loss carryforward of $60    
million which expires as follows: $16.4 million in 1997, $16.7 million in 1998, 
$1.6 million in 1999 and $21.8 million in 2000.                                 

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

 The effective income tax rates for 1995, 1994 and 1993 were 0%, 0%, and
(1)%, respectively, and differ from the federal statutory rate of 35% as follows
(in thousands):                                                                 

                                                                [Download Table]

                                                        1995      1994       1993   
                                                      --------   -------   -------- 
                                                                                    
Computed at federal statutory rates.................  $(17,402)  $ 3,288   $(17,103)
Valuation allowance.................................    18,604    (3,288)    16,821 
Effect of foreign tax rates different than statutory                                
  rates and utilization of foreign loss                                             
  carrybacks........................................        --        --         16 
Other...............................................    (1,202)       --          2 
                                                      --------   -------   -------- 
Income tax credit...................................  $     --   $    --   $   (264)
                                                      ========   =======   ======== 

    The components of the net deferred tax asset at December 31 consist of (in
thousands):                                                                     

                                                                [Download Table]

                                                           1995         1994   
                                                         --------     -------- 
                                                                               
Deferred tax assets:                                                           
U.S. operating loss carryforwards......................  $ 57,706     $ 42,149 
State operating loss carryforwards.....................     3,820        2,321 
Capital loss carryforwards.............................     1,035        1,804 
Research and development tax credit carryforwards......     1,813        1,370 
Inventory reserves.....................................     3,237        2,781 
Restructuring charges..................................        50          239 
Capitalized game software development costs............     3,022           -- 
Other items............................................     4,411        5,826 
                                                         --------     -------- 
Subtotal...............................................    75,094       56,490 
Valuation allowance....................................   (75,094)     (56,490)
                                                         --------     -------- 
Net deferred tax asset.................................  $     --     $     -- 
                                                         ========     ======== 

Due to the uncertainty surrounding the timing and realization of the  
benefits of its favorable tax attributes in future years, the Company has       
established a valuation allowance to offset its net deferred tax assets.        

    Current federal and state tax law includes certain provisions limiting the
use of net operating loss carryforwards in the event of certain defined changes 
in stock ownership. The annual use of the Company's net operating loss          
carryforwards could be limited according to these provisions, and there can be  
no assurance that such limitations will not result in the loss of carryforward  
benefits during the carryforward period.                                        

13. STOCK OPTIONS                                                               

   The Company's stock option plan and restricted stock plan provide for the
issuance of up to 3,000,000 shares of common stock through the issuance of      
incentive stock options to employees and nonqualified stock options and         
restricted stock to employees, directors and consultants. Under the plans, stock
options or restricted stock may be granted at not less than fair market value as
determined by the Board of Directors. Stock options become exercisable as       
established by the Board (generally ratably over five years) and expire up to   
ten years from date of grant. The Company's right to repurchase restricted stock
lapses over a maximum period of five years. At December 31, 1995, options for   
551,925 shares were exercisable and options for 602,310 shares were available   
for future grant. At December 31, 1995, no restricted stock under the restricted
stock plan had been issued.                                                     

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

     Additional information with respect to the stock option plan is as follows:

                                                        [Enlarge/Download Table]

                                                           OPTION PRICE                 
                                                         RANGE PER SHARE                
                                            NUMBER OF   ------------------              
                                             OPTIONS     LOW         HIGH      TOTAL    
                                            ---------   ------       -----  ----------- 
                                                                                        
Outstanding, January 1, 1993...............   970,400   $1.500    -  $7.50  $ 3,131,450 
Granted....................................   535,583    0.875    -   4.75    1,045,093 
Exercised..................................   (89,300)   0.875    -   3.00     (195,463)
Cancelled..................................  (222,500)   0.875    -   6.00     (831,625)
                                            ---------                                   
Outstanding, December 31, 1993............. 1,194,183    0.875    -   7.50    3,149,455 
Granted....................................   289,500    2.250    -   7.00    1,467,750 
Exercised..................................  (157,065)   0.875    -   6.25     (372,403)
Cancelled..................................   (18,160)   1.675    -   7.50      (93,980)
                                            ---------                                   
Outstanding, December 31, 1994............. 1,308,458    0.875    -   7.00    4,150,822 
Granted.................................... 1,487,000    1.438    -   3.81    3,970,814 
Exercised..................................   (82,333)   0.875    -   2.00     (110,250)
Cancelled..................................  (615,600)   0.875    -   7.00   (2,135,175)
                                            ---------                                   
Outstanding, December 31, 1995............. 2,097,525   $0.875    -  $5.25  $ 5,876,211 
                                            =========                                   

14. SEGMENT INFORMATION                                                         

The Company operates in one industry segment -- the design and sale of
consumer electronic products.                                                   

    The Company's foreign operations at December 31, 1995 consist of sales and
distribution facilities in Europe. Transfers between geographic areas are       
accounted for at amounts generally above cost and in accordance with the rules  
and regulations of the respective governing tax authorities. Corporate assets   
are primarily cash and equivalents, marketable securities and real estate held  
for sale.                                                                       

   The following tables present a summary of operations by geographic region
(in thousands):                                                                 

                                                                [Download Table]

                                                  YEARS ENDED DECEMBER 31,     
                                             ----------------------------------
                                               1995         1994         1993  
                                             --------     --------     --------
                                                                               
Revenues from unaffiliated customers:                                          
North America..............................  $  8,163     $ 23,158     $  7,390
Export sales from North America............     1,868        8,538           --
Europe.....................................     4,595        7,052       18,548
Other......................................        --           --        3,170
                                              -------      -------      -------
          Total............................  $ 14,626     $ 38,748     $ 29,108
                                              =======      =======      =======
Transfer between geographic areas                                              
  (eliminated in consolidation):                                               
North America..............................  $  4,041     $  1,046     $ 17,781
Europe.....................................        68        1,895       25,284
Other......................................        --           --          102
                                              -------      -------      -------
          Total............................  $  4,109     $  2,941     $ 43,167
                                              =======      =======      =======

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

                                                                [Download Table]

                                                  YEARS ENDED DECEMBER 31,      
                                               1995         1994         1993   
                                             -------      -------      -------  
                                                                                
Operating loss:                                                                 
North America..............................  $(51,036)    $(21,600)    $(14,025)
Europe.....................................    (2,629)      (2,447)     (19,741)
Other......................................        --           --      (13,733)
                                              -------      -------      ------- 
          Total............................  $(53,665)    $(24,047)    $(47,499)
                                              =======      =======      ======= 
Identifiable assets at December 31:                                             
North America..............................  $ 14,588     $ 37,627     $ 17,369 
Europe.....................................     1,856        1,650        5,801 
Corporate assets...........................    61,125       91,765       51,663 
                                              -------      -------      ------- 
          Total............................  $ 77,569     $131,042     $ 74,833 
                                              =======      =======      ======= 

  No single customer accounted for more than 10% of total revenues for the
years ended December 31, 1995, 1994 or 1993.                                    

15. COMMITMENTS AND CONTINGENT LIABILITIES                                      

  The Company leases various facilities and equipment under noncancellable
operating lease arrangements. These leases generally provide renewal options of 
five additional years. Minimum future lease payments under noncancellable       
operating leases as of December 31, 1995 are as follows (in thousands):         

                                                                [Download Table]
                                                            
1996................................................  $  670
1997................................................     460
1998................................................     183
1999................................................      85
2000................................................      74
                                                      ------
          Total minimum lease payments..............  $1,472
                                                      ======

     Rent expense for operating leases was $1,193,000, $1,218,000 and $1,251,000
for the years 1995, 1994 and 1993, respectively.                                

  Certain claims and suits arising in the ordinary course of business have
been filed or are pending against the Company. The number of such claims has    
increased as the Company significantly downsized its development operations. In 
the opinion of management, all such matters have been adequately provided for,  
are without merit, or are such that if settled unfavorably would not have a     
material adverse effect on the Company's consolidated financial position and    
results of operations.                                                          

16. SUBSEQUENT EVENT                                                            

   On February 12, 1996, the Company entered into a merger agreement with JT
Storage, Inc. (JTS) providing for the merger of the Company and JTS. On April 8,
1996, the merger agreement was amended and restated. JTS was incorporated on    
February 3, 1994 to develop, market and manufacture hard disk drives. The merger
requires shareholder approval and is expected to be consummated in the second   
quarter of 1996. In connection with the merger, the Company extended a bridge   
loan to JTS in the amount of $25.0 million maturing on September 30, 1996 with a
stated interest rate of 8 1/2% per annum. If the merger is not consummated, the 
bridge loan is convertible at the option of Atari or JTS into shares of JTS     
Series A Preferred Stock and warrants to acquire JTS Series A Preferred Stock,  
subject to certain conditions.                                                  

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ATARI CORPORATION 

CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                       MARCH 31,   DECEMBER 31,
                                                                         1996          1995    
                                                                       ---------   ------------
                                                                                               
                                                                       (UNAUDITED)             
ASSETS                                                                                         
CURRENT ASSETS:                                                                                
  Cash and equivalents (including $441 and $700 held as restricted                             
     balances at March 31, 1996 and December 31, 1995)................ $  23,748    $   28,941 
  Marketable securities...............................................        --        21,649 
  Accounts receivable (less allowances for returns and doubtful                                
     accounts:                                                                                 
     March 31, 1996 $4,006; December 31, 1995 $4,221).................       601         2,468 
  Inventories (See Note 2)............................................     5,526        10,934 
  Subordinated secured convertible note with JT Storage, Inc.                                  
     (see Note 4).....................................................    25,000            -- 
  Other current assets................................................     1,101         1,134 
                                                                       ---------     --------- 
          Total current assets........................................    55,976        65,126 
GAME SOFTWARE DEVELOPMENT COSTS -- Net................................       861           758 
EQUIPMENT AND TOOLING -- Net..........................................       577           671 
REAL ESTATE HELD FOR SALE.............................................    10,468        10,468 
OTHER ASSETS..........................................................       524           546 
                                                                       ---------     --------- 
TOTAL................................................................. $  68,406    $   77,569 
                                                                       =========     ========= 
LIABILITIES AND SHAREHOLDERS' EQUITY                                                           
CURRENT LIABILITIES:                                                                           
  Accounts payable.................................................... $   3,295    $    4,954 
  Accrued Liabilities.................................................     5,481         5,088 
                                                                       ---------     --------- 
TOTAL CURRENT LIABILITIES.............................................     8,776        10,042 
                                                                       ---------     --------- 
LONG-TERM OBLIGATIONS.................................................    42,354        42,354 
                                                                       ---------     --------- 
SHAREHOLDERS' EQUITY:                                                                          
  Preferred stock, $.01 par value -- authorized, 10,000,000 shares;                            
     none outstanding.................................................        --            -- 
  Common stock, $.01 par value -- authorized, 100,000,000 shares;                              
     (outstanding: March 1996, 63,710,318;                                                     
     December 1995, 63,687,118).......................................       637           637 
  Additional paid-in capital..........................................   196,272       196,209 
  Unrealized gain on marketable securities............................        --         7,088 
  Accumulated translation adjustments.................................      (730)         (663)
  Accumulated deficit.................................................  (178,903)     (178,098)
                                                                       ---------     --------- 
     Total shareholders' equity.......................................    17,276        25,173 
                                                                       ---------     --------- 
          TOTAL....................................................... $  68,406    $   77,569 
                                                                       =========     ========= 

See notes to consolidated financial statements. 

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ATARI CORPORATION 

CONSOLIDATED STATEMENTS OF OPERATIONS 
MARCH 31, 1996 AND MARCH 31, 1995 
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                             QUARTER ENDED     
                                                                        -----------------------
                                                                        MARCH 31,     MARCH 31,
                                                                          1996          1995   
                                                                        ---------     ---------
                                                                                               
NET REVENUE............................................................  $ 1,272       $ 4,874 
COST AND EXPENSES:                                                                             
  Cost of revenues.....................................................    1,211         3,846 
  Write-down of inventory..............................................    5,000            -- 
  Research and development.............................................      201         1,815 
  Marketing and distribution...........................................      758         2,576 
  General and administrative...........................................    1,251         1,795 
                                                                         -------       ------- 
          Total operating expenses.....................................    8,421        10,032 
                                                                         -------       ------- 
OPERATING LOSS.........................................................   (7,149)       (5,158)
Gain on sale of marketable securities..................................    6,347           107 
Exchange (loss) gain...................................................      (60)            5 
Other income(expense), net.............................................      293           201 
Interest income........................................................      332           953 
Interest expense.......................................................     (569)         (581)
                                                                         -------       ------- 
Loss before income taxes and extraordinary credit......................     (806)       (4,473)
                                                                         -------       ------- 
Provision for income taxes.............................................       --            -- 
                                                                         -------       ------- 
Loss before extraordinary credit.......................................     (806)       (4,473)
                                                                         -------       ------- 
Extraordinary credit -- gain on extinguishment of 5 1/4% convertible                           
  subordinated debentures (see Note 3).................................       --            47 
                                                                         -------       ------- 
NET LOSS...............................................................  $  (806)      $(4,426)
                                                                         =======       ======= 
LOSS PER COMMON SHARE:.................................................  $ (0.01)      $ (0.07)
                                                                         =======       ======= 
  Number of shares used in computations................................   63,701        63,701 

See notes to consolidated financial statements. 

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ATARI CORPORATION 

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                              QUARTER ENDED     
                                                                          --------------------- 
                                                                          MARCH 31,   MARCH 31, 
                                                                            1996        1995    
                                                                          ---------   --------- 
                                                                               (UNAUDITED)      
                                                                                                
OPERATING ACTIVITIES:                                                                           
Net (loss)............................................................... $    (805)  $  (4,426)
Adjustments to reconcile net (loss) to net cash provided (used) by                              
  operating activities:                                                                         
Gain from extinguishment of 5 1/4% convertible subordinated debentures...        --         (47)
Depreciation and amortization............................................       136         672 
Gain on sale of marketable securities....................................    (6,347)       (107)
Provision for inventory valuation........................................     5,000          -- 
Changes in operating assets and liabilities:                                                    
  Accounts receivable....................................................     1,895       5,035 
  Inventories............................................................       408      (4,051)
  Other assets...........................................................        44         243 
  Accounts payable.......................................................    (1,664)     (8,983)
  Accrued liabilities....................................................       386         851 
                                                                           --------    -------- 
Net cash (used) by operations............................................      (947)    (10,813)
INVESTING ACTIVITIES:                                                                           
Sale of marketable securities............................................    20,908         492 
Proceeds from property sales.............................................        33          -- 
Property purchases.......................................................        --         (51)
Borrowing by JTS.........................................................   (25,000)         -- 
Stock dividend received on investment....................................        --          82 
Decrease in other assets.................................................        22          99 
Increase in software development costs...................................      (103)     (2,864)
                                                                           --------    -------- 
Net cash (used) by investing activities..................................    (4,140)     (2,242)
FINANCING ACTIVITIES:                                                                           
Repayments of borrowings.................................................        --        (100)
Extinguishment of debt...................................................       (75)        (46)
Issuance of common stock.................................................        63          84 
                                                                           --------    -------- 
Net cash (used) by financing activities..................................       (12)        (62)
                                                                           --------    -------- 
EFFECT OF EXCHANGE RATE CHANGES ON                                                              
  CASH & EQUIVALENTS.....................................................       (94)         47 
                                                                           --------    -------- 
NET DECREASE IN CASH & EQUIVALENTS.......................................    (5,193)    (13,070)
CASH & EQUIVALENTS:                                                                             
Beginning of period......................................................    28,941      22,592 
                                                                           --------    -------- 
End of period............................................................ $  23,748   $   9,522 
                                                                           ========    ======== 
NON CASH INVESTING ACTIVITIES:                                                                  
Unrealized gain on marketable securities................................. $      --   $   1,836 

See notes to consolidated financial statements. 

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ATARI CORPORATION 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION                                                  

     The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and      
Exchange Commission. Certain information and footnote disclosures normally      
included in financial statements prepared in accordance with generally accepted 
accounting principles have been condensed or omitted pursuant to such rules and 
regulations. However, the Company believes that the disclosures are adequate to 
make the information presented not misleading. It is suggested that these       
financial statements be read in conjunction with the financial statements and   
notes thereto included in the Company's 1995 Annual Report on Form 10-K, filed  
with the Securities and Exchange Commission.                                    

    The unaudited financial statements included herein reflect all adjustments
(which include only normal, recurring adjustments), which are, in the opinion of
management, necessary to state fairly the results for the periods presented. The
results for such periods are not necessarily indicative of the results to be    
expected for the full fiscal year.                                              

The Company operates with a 52/53 week fiscal calendar. Both quarters 
covered by this report have 13 weeks and for simplicity of presentation, the    
calendar quarter date is used to represent the quarter end. The actual fiscal   
closing dates for the first quarter of 1996 and 1995 were March 30, and April 1,
respectively.                                                                   

NOTE 2.  INVENTORIES                                                            

In the first quarter of 1996, the Company wrote-down inventory by $5.0
million relating to Jaguar products. These write-downs resulted from            
management's revised estimates of sales resulting from continued disappointing  
sales of Jaguar.                                                                

Inventories consist of the following (in thousands):                  

                                                                [Download Table]

                                                      MARCH 31,  DECEMBER 31,
                                                        1996         1995    
                                                      ---------  ------------
                                                                             
Finished goods.......................................  $ 5,049     $  9,927  
Raw materials and work-in-process....................      477        1,007  
                                                        ------      -------  
          Total......................................  $ 5,526     $ 10,934  
                                                        ======      =======  

NOTE 3.  REPURCHASE OF 5 1/4% SUBORDINATED CONVERTIBLE DEBENTURES               

In the first quarter of 1995, the Company repurchased a portion of its
5 1/4% subordinated convertible debentures. The Company repurchased 100 bonds at
face value of $1,000 each, and recorded an extraordinary credit of $47,250.     

NOTE 4.  MERGER JT STORAGE, INC.                                                

   On February 12, 1996, the Company entered into a merger agreement with JT
Storage, Inc. (JTS) providing for the merger of the Company and JTS. On April 8,
1996, the merger agreement was amended and restated. JTS was incorporated on    
February 3, 1994 to develop, market and manufacture hard disk drives. The merger
requires shareholder approval and is expected to be consummated in the second   
quarter of 1996. In connection with the merger, the Company extended a bridge   
loan to JTS in the amount of $25.0 million maturing on September 30, 1996 with a
stated interest rate of 8 1/2% per annum. If the merger is not consummated, the 
bridge loan is convertible at the option of Atari or JTS into shares of JTS     
Series A Preferred Stock and warrants to acquire JTS Series A Preferred Stock,  
subject to certain conditions.                                                  

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REPORT OF ARTHUR ANDERSEN LLP 

To the Board of Directors of                                                    
JTS Corporation:                                                            

We have audited the accompanying balance sheets of JTS Corporation (a 
Delaware corporation), formerly JT Storage, Inc., as of January 28, 1996 and    
January 29, 1995, and the related statements of operations, stockholders'       
deficit and cash flows for the year ended January 28, 1996 and the period from  
inception (February 3, 1994) to January 29, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.                   

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of JTS Corporation as of       
January 28, 1996 and January 29, 1995, and the results of its operations and its
cash flows for the year ended January 28, 1996 and the period from inception    
(February 3, 1994) to January 29, 1995, in conformity with generally accepted   
accounting principles.                                                          

    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the         
financial statements, the Company has suffered recurring losses from operations 
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters   
are also described in Note 1. The financial statements do not include any       
adjustments that might result from the outcome of this uncertainty.             

ARTHUR ANDERSEN, LLP                                                            
San Jose, California                                                            
April 4, 1996                                                                   

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JTS CORPORATION 

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                        JANUARY 28,  JANUARY 29,
                                                                           1996         1995    
                                                                        -----------  -----------
                                                                                                
ASSETS                                                                                          
CURRENT ASSETS:                                                                                 
  Cash and cash equivalents...........................................   $     547     $    --  
  Trade accounts receivable, less allowance for doubtful accounts of                            
     $730 and $4, respectively........................................       1,286          13  
  Receivable from Moduler Electronics.................................       6,892       1,033  
  Other receivables...................................................         812          28  
  Inventories.........................................................       2,093         358  
  Prepaid and other current assets....................................         240         154  
                                                                           -------      ------  
          Total current assets........................................      11,870       1,586  
                                                                           -------      ------  
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:                                                  
  Machinery and equipment.............................................       9,231       2,254  
  Leasehold improvements..............................................         398          --  
  Furniture and fixtures..............................................       1,145          92  
  Less -- Accumulated depreciation and amortization...................      (2,831)       (335) 
                                                                           -------      ------  
                                                                             7,943       2,011  
                                                                           -------      ------  
                                                                         $  19,813     $ 3,597  
                                                                           =======      ======  
LIABILITIES AND STOCKHOLDERS' DEFICIT                                                           
CURRENT LIABILITIES:                                                                            
  Bank line of credit.................................................   $   4,323     $   743  
  Note payable to stockholder.........................................       1,000          --  
  Accounts payable --                                                                           
     Trade............................................................       7,226       1,780  
     Moduler Electronics..............................................       9,546         366  
  Accrued payroll and bonus...........................................         978         249  
  Other accrued liabilities...........................................       2,523         540  
  Current portion of capitalized lease obligations and long-term                                
     debt.............................................................       1,520         146  
                                                                           -------      ------  
          Total current liabilities...................................      27,116       3,824  
LONG-TERM LIABILITIES:                                                                          
  Capitalized lease obligations and long-term debt, net of current                              
     portion..........................................................       3,485          61  
  Convertible notes payable to related parties........................          --       1,902  
  Convertible notes payable...........................................          --       3,219  
                                                                           -------      ------  
          Total liabilities...........................................      30,601       9,006  
                                                                           -------      ------  
COMMITMENTS AND CONTINGENCIES (NOTE 6)                                                          
REDEEMABLE SERIES A PREFERRED STOCK:                                                            
  $.000001 par value; 31,200 shares authorized (increased to 70,000                             
     shares in February 1996); 27,785 shares issued and outstanding in                          
     1996, liquidation value of $29,716...............................      27,785          --  
                                                                           -------      ------  
STOCKHOLDERS' DEFICIT:                                                                          
  Common stock, $.000001 par value; 60,000 shares authorized                                    
     (increased to 90,000 shares in February 1996); 7,367 and 4,833                             
     shares issued and outstanding in 1996 and 1995, respectively.....          --          --  
  Additional paid-in capital..........................................       6,004          --  
  Deferred compensation...............................................      (4,320)         --  
  Notes receivable from stockholders..................................        (623)         --  
  Accumulated deficit.................................................     (39,634)     (5,409) 
                                                                           -------      ------  
          Total stockholders' deficit.................................     (38,573)     (5,409) 
                                                                           -------      ------  
                                                                         $  19,813     $ 3,597  
                                                                           =======      ======  

The accompanying notes to financial statements are
an integral part of these balance sheets. 

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JTS CORPORATION 

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                                  FOR THE PERIOD  
                                                                52 WEEKS ENDED   FROM INCEPTION TO
                                                               JANUARY 28, 1996  JANUARY 29, 1995 
                                                               ----------------  -----------------
                                                                                                  
REVENUES:                                                                                         
  Product sales...............................................     $ 13,502           $    --     
  Technology license revenue..................................        5,275                --     
                                                                   --------           -------     
                                                                     18,777                --     
COST OF PRODUCT SALES.........................................       28,548                --     
                                                                   --------           -------     
GROSS MARGIN (DEFICIT)........................................       (9,771)               --     
                                                                   --------           -------     
OPERATING EXPENSES:                                                                               
  Research and development....................................       13,375             3,740     
  Selling, general and administrative.........................        5,579             1,495     
  Manufacturing start-up costs................................        3,812                --     
                                                                   --------           -------     
          Total operating expenses............................       22,766             5,235     
                                                                   --------           -------     
OPERATING LOSS................................................      (32,537)           (5,235)    
OTHER INCOME (EXPENSE):                                                                           
  Interest income.............................................          108                --     
  Interest expense............................................         (589)             (144)    
  Other, net..................................................          (32)              (30)    
                                                                   --------           -------     
NET LOSS......................................................     $(33,050)          $(5,409)    
                                                                   ========           =======     
NET LOSS PER COMMON SHARE.....................................     $  (7.17)          $ (1.12)    
                                                                   ========           =======     
SHARES USED IN COMPUTING NET LOSS PER SHARE...................        4,611             4,833     
                                                                   ========           =======     

The accompanying notes to financial statements are
an integral part of these statements. 

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JTS CORPORATION 

STATEMENTS OF STOCKHOLDERS' DEFICIT 
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                          NOTES                            
                             COMMON STOCK    ADDITIONAL                 RECEIVABLE                         
                            ---------------   PAID-IN      DEFERRED        FROM      ACCUMULATED           
                            SHARES   AMOUNT   CAPITAL    COMPENSATION  STOCKHOLDERS    DEFICIT     TOTAL   
                            ------   ------  ----------  ------------  ------------  -----------  -------- 
                                                                                                           
BALANCE AT INCEPTION,                                                                                      
  FEBRUARY 3, 1994........     --     $ --     $   --      $     --       $   --      $      --   $     -- 
  Issuance of common stock                                                                                 
     to founders at                                                                                        
     $.000001 per share...  4,350       --         --            --           --             --         -- 
  Issuance of common stock                                                                                 
     at $.000001 in                                                                                        
     exchange for                                                                                          
     technology license...    483       --         --            --           --             --         -- 
  Net loss for the                                                                                         
     period...............     --       --         --            --           --         (5,409)    (5,409)
                            -----      ---     ------       -------        -----       --------   -------- 
BALANCE, JANUARY 29,                                                                                       
  1995....................  4,833       --         --            --           --         (5,409)    (5,409)
  Exchange of common stock                                                                                 
     for Redeemable Series                                                                                 
     A preferred stock....   (483 )     --         --            --           --         (1,000)    (1,000)
  Issuance costs of                                                                                        
     Redeemable Series A                                                                                   
     preferred stock......     --       --         --            --           --           (175)      (175)
  Shares issued under the                                                                                  
     stock option plan....     17       --          4            --           --             --          4 
  Shares issued under                                                                                      
     restricted stock                                                                                      
     purchase                                                                                              
     agreements...........  3,000       --      6,000        (5,250)        (623)            --        127 
  Amortization of deferred                                                                                 
     compensation.........     --       --         --           930           --             --        930 
  Net loss................     --       --         --            --           --        (33,050)   (33,050)
                            -----      ---     ------       -------        -----       --------   -------- 
BALANCE, JANUARY 28,                                                                                       
  1996....................  7,367     $ --     $6,004      $ (4,320)      $ (623)     $ (39,634)  $(38,573)
                            =====      ===     ======       =======        =====       ========   ======== 

The accompanying notes to financial statements are
an integral part of these statements. 

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JTS CORPORATION 

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                    FOR THE PERIOD  
                                                                  52 WEEKS ENDED   FROM INCEPTION TO
                                                                 JANUARY 28, 1996  JANUARY 29, 1995 
                                                                 ----------------  -----------------
                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:                                                               
  Net loss......................................................     $(33,050)          $(5,409)    
  Adjustments to reconcile net loss to net cash used in                                             
     operating activities --                                                                        
     Receivable from Moduler Electronics........................       (5,859)           (1,033)    
     Payable to Moduler Electronics for finished goods                                              
       inventory................................................        9,180               366     
     Depreciation and amortization expense......................        2,496               551     
     Reserve for bad debts......................................          726                 4     
     Issuance of preferred stock for services rendered..........           30                --     
     Payables converted to note payable and subsequently to                                         
       preferred stock..........................................          300             1,902     
     Amortization of deferred compensation......................          930                --     
     Changes in assets and liabilities:                                                             
       Trade receivables........................................       (1,999)              (17)    
       Other receivables........................................         (757)              (28)    
       Inventories..............................................       (1,735)             (312)    
       Prepaid and other current assets.........................          (86)             (154)    
       Accounts payable.........................................        5,446             1,780     
       Accrued liabilities......................................        2,712               686     
                                                                     --------           -------     
          Net cash used in operating activities.................      (21,666)           (1,664)    
                                                                     --------           -------     
CASH FLOWS FROM INVESTING ACTIVITIES:                                                               
  Purchase of property and equipment............................       (3,132)           (1,984)    
                                                                     --------           -------     
CASH FLOWS FROM FINANCING ACTIVITIES:                                                               
  Proceeds from bank line of credit.............................        3,580               743     
  Proceeds from issuance of common stock........................          104                --     
  Proceeds from issuance of preferred stock.....................       18,556                --     
  Preferred stock issuance costs................................         (175)               --     
  Payments on capital lease obligations.........................         (408)              (10)    
  Payments on long-term debt....................................          (90)              (90)    
  Proceeds from notes payable...................................        3,778             3,005     
                                                                     --------           -------     
          Net cash provided by financing activities.............       25,345             3,648     
                                                                     --------           -------     
NET CHANGE IN CASH AND CASH EQUIVALENTS.........................          547                --     
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD............           --                --     
                                                                     --------           -------     
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD..................     $    547           $    --     
                                                                     ========           =======     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                    
  Cash paid for interest........................................     $    449           $    --     
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING                                           
  ACTIVITIES:                                                                                       
  Sale of common stock for notes................................     $    750           $    --     
  Equipment purchased under capital leases......................        5,296                82     
  Conversion of notes payable to preferred stock................        9,199                --     
  Issuance of convertible debt upon Kalok acquisition...........           --               214     
  Equipment ($280) and inventory ($49) acquired net of related                                      
     accrued liabilities of $104 from Kalok.....................           --               225     
  Issuance of debt upon acquisition of Kalok....................           --               225     
  Exchange of TEAC common stock to preferred stock..............        1,000                --     

The accompanying notes to financial statements are
an integral part of these statements. 

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS 

1.  ORGANIZATION AND OPERATIONS:                                                

JTS Corporation (the "Company"), a Delaware corporation, formerly JT  
Storage, Inc. (Note 12), was incorporated on February 3, 1994 to develop, market
and manufacture hard disk drives. The Company was a development stage company   
prior to the commencement of production shipments in October 1995. Accordingly, 
the Company ceased to be in the development stage at that time. Moduler         
Electronics (India) Private Limited ("Moduler Electronics"), a company owned by 
the family of a major stockholder manufactured, on a contract basis, all of the 
Company's products. In April 1996, the Company acquired 90% of Moduler          
Electronics (Note 10).                                                          

  On February 4, 1994, as part of a settlement in United States Bankruptcy
Court, the Company acquired certain assets and assumed certain liabilities of   
Kalok Corporation ("Kalok") in exchange for a note payable to the Kalok         
Bankruptcy estate (Note 5) and a warrant to Kalok's unsecured creditors (Note   
7). Liabilities assumed of $543,172 exceeded the fair market value of assets    
acquired by approximately $215,000 which, due to uncertainties regarding its    
realization, was expensed in the accompanying 1995 statement of operations. In  
connection with the settlement agreement, the Company acquired certain          
proprietary disk drive technology from TEAC Corporation ("TEAC") in exchange for
482,850 shares of common stock, which represented 10% of the outstanding Common 
Stock of the Company. No value was assigned to the acquired technology as it had
no cost basis to TEAC and the common stock was deemed to have nominal value. On 
February 3, 1995, the Company agreed to issue 1,000,000 shares of Redeemable    
Series A preferred stock to TEAC in exchange for the return of the 482,850      
shares of common stock and the cancellation of a shareholder agreement with TEAC
(Note 8).                                                                       

The Company has continued to develop its technology and manufacturing 
capabilities during fiscal 1996. This development has resulted in substantial   
increases in accounts receivable, accounts payable, bank borrowings, and a net  
working capital deficit of $15,246,000 as of January 28, 1996. Operations       
subsequent to year end indicate the Company has continued to suffer losses and  
its working capital deficit has continued to increase. These factors raise a    
substantial doubt about the ability of the Company to continue as a going       
concern. The Company's management is pursuing plans to merge with Atari         
Corporation ("Atari"). In the opinion of management, the merger, if successful, 
would raise cash adequate to fund operations for at least the next 12 months.   
Thereafter, the Company will require additional funding. Subsequent to year end,
Atari extended a $25 million loan to the Company of which $19.7 million had been
used as of April 4, 1996. In the event the merger (Note 10) is not consummated, 
the loan will, at Atari's option, either be due September 30, 1996 or converted 
into the Company's preferred stock. In addition, Moduler Electronics received   
approval of additional financing from another Indian bank resulting in total    
unused credit facilities of approximately $12 million, subject to certain       
conditions.                                                                     

2.  ACCOUNTING POLICIES:                                                        

Pervasiveness of Estimates                                            

The preparation of financial statements in conformity with generally  
accepted accounting principles requires management to make estimates and        
assumptions 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 these estimates.             

Revenue Recognition and Product Warranty                              

Revenue from product sales is generally recognized upon shipment to   
customers. The Company warrants its products against defects in design,         
materials and workmanship generally for three years. A provision for estimated  
future costs relating to warranty expense is recorded when products are shipped.

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Inventories                                                           

     Inventories include direct materials at third party component manufacturers
(other than Moduler Electronics) and are recorded at the lower of cost          
(first-in, first-out) or market and consist of the following (in thousands):    

                                                                [Download Table]

                                                 1996    1995   
                                                ------   ----   
                                                                
Raw materials.................................  $2,093   $309   
Finished goods................................      --     49   
                                                         -----  
                                                           --   
                                                -------         
                                                $2,093   $358   
                                                =======  =======

Equipment and Leasehold Improvements                                  

 Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three years. Repairs and    
maintenance costs are expensed as incurred. Major renewals and betterments which
substantially extend the useful life of the asset are capitalized.              

The Company had equipment with an historical cost of approximately    
$4,400,000 and $530,000 located at Moduler Electronics at January 28, 1996 and  
January 29, 1995, respectively.                                                 

Research and Development                                              

Research and development costs are expensed as incurred and consist   
primarily of salaries, materials and supplies.                                  

Income Taxes                                                          

  The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires           
recognition of deferred tax assets for the expected future effects of all       
deductible temporary differences, loss carryforwards and tax credit             
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a  
valuation allowance for the amount of any tax benefits which, more likely than  
not based on current circumstances, are not expected to be realized.            

Cash and Cash Equivalents                                             

 For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with maturities of less than three     
months to be cash equivalents.                                                  

Fiscal year                                                           

 The fiscal year of the Company is a 52- or 53-week period ending on the
Sunday closest to January 31. The fiscal year for the year ended January 28,    
1996 was a 52-week period.                                                      

Reclassifications                                                     

Certain reclassifications have been made to prior period financial    
statements to conform to the current presentation.                              

Income from Technology License                                        

In February 1995, the Company entered into a technology transfer and  
perpetual license agreement. Under this agreement, the Company granted          
non-exclusive, perpetual rights to manufacture and sell certain of its products.
In connection with the agreement, the Company was obligated to achieve certain  
milestones                                                                      

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

regarding the successful completion of engineering tests, the delivery of       
working models and the commencement of volume production. As of January 28, 1995
the Company had delivered a working prototype and accordingly, recognized income
of $5,275,000 in connection with achieving specified milestones in fiscal 1996. 
The remaining income of $1,125,000 will be recognized as future milestones are  
achieved. Funds received under this agreement are not reimbursable to the       
licensee.                                                                       

Net Loss Per Common Share                                             

     Net loss per common share is based on the weighted average number of shares
of common stock outstanding during the periods. The outstanding shares and      
earnings per share have been restated for all periods presented to reflect the  
impact of the stock split described in Note 7.                                  

3.  INCOME TAXES:                                                               

The significant components of the Company's deferred tax assets and   
liabilities are as follows (in thousands):                                      

                                                                [Download Table]

                                                              1996      1995   
                                                            --------   ------- 
                                                                               
Deferred tax assets:                                                           
  Accounts receivable reserves............................  $    292   $    -- 
  Inventory reserves......................................     1,731        -- 
  Items not currently deductible principally manufacturing                     
     start-up costs related to Moduler Electronics........     2,327       181 
  Net operating loss carryforwards........................     9,930     1,819 
  Tax credit carryforwards................................       600       135 
                                                            ---------  --------
Total deferred tax assets.................................    14,880     2,135 
Valuation allowance.......................................   (14,828)   (2,135)
                                                            ---------  --------
Deferred tax assets, net of valuation allowance...........        52        -- 
Deferred tax liabilities -- accelerated depreciation......       (52)       -- 
                                                            ---------  --------
Net deferred tax assets...................................  $     --   $    -- 
                                                            =========  ========

Management believes that, based on a number of factors, the available 
objective evidence creates sufficient uncertainty regarding the realizability of
the net deferred tax assets such that a valuation allowance has been recorded to
completely offset the net deferred tax assets. Such factors include recurring   
operating losses from inception, recent increases in expense levels to support  
the Company's growth, and the fact that the market in which the Company competes
is intensely competitive and is characterized by rapidly changing technology.   

  For income tax reporting purposes, the Company has Federal and State net
operating loss carryforwards of approximately $27,000,000 and $13,500,000,      
respectively, and Federal and State research and development tax credit         
carryforwards of approximately $350,000 and $250,000, respectively, all of which
will expire on various dates through 2011.                                      

     The Internal Revenue Code contains provisions which may limit the amount of
tax carryforwards available to be used in any given year upon the occurrence of 
certain events, including changes in ownership interests.                       

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4.  RELATED PARTY TRANSACTIONS:                                                 

Moduler Electronics Transactions                                      

     As discussed in Note 1, the Company uses Moduler Electronics to manufacture
all of the Company's products. The Company purchased finished goods from Moduler
Electronics amounting to approximately $14 million in fiscal 1996 and the       
majority of the accounts payable balance to Moduler Electronics at January 28,  
1996 is a result of these purchases.                                            

 The Company made cash advances totalling approximately $2.5 million and
also sold fixed assets and inventory totalling approximately $8.3 million to    
Moduler Electronics in fiscal 1996.                                             

  The advances were made to fund the manufacturing start-up of disk drives
for the Company. Because the Company intended to (and subsequently did) acquire 
90% of Moduler Electronics (Note 10) and the ultimate realizability of these    
advances is subject to the achievement by Moduler Electronics of successful     
operations, the Company has expensed 90% of Moduler's Electronics' fiscal 1996  
net loss in order to reflect its investment in Moduler Electronics' start-up    
operations.                                                                     

    The Company entered into an agreement with Moduler Electronics whereby the
Company has undertaken to bear all inventory loss and the cost of any future    
warranty claims, product return and rework charges. In fiscal 1996, the Company 
assumed approximately $3,448,000 and $171,000 of inventory reserve and warranty 
costs, respectively.                                                            

Notes Receivable From Stockholders                                    

 In January 1996, the Company loaned certain executive officers $750,000
which was used by the officers to purchase 3,000,000 shares of common stock     
under restricted stock purchase agreements. The notes bear interest at an annual
rate of 5.91% and the principal and interest is payable in four annual          
installments. The notes are with full recourse and are collateralized by the    
stock purchased. As of February 28, 1996, $127,500 had been collected on these  
notes. The remaining balance of $622,500 is included in stockholders' deficit in
the 1996 accompanying balance sheet.                                            

Note Payable to Stockholders                                          

In January and February 1996, the Company entered into unsecured loan 
agreements totalling $1,965,000 with certain stockholders. The notes bear       
interest at 10% per annum and the principal and interest are due on July 15,    
1996.                                                                           

Convertible Notes Payable                                             

As of January 29, 1995, the Company had $5,121,186 outstanding under  
certain convertible notes payable. These notes were converted into 5,121,186    
shares of redeemable preferred stock in February 1995. The Company also had     
$2,764,953 outstanding under certain convertible notes payable in June 1995     
which were converted into 2,764,953 shares of redeemable preferred stock in     
August 1995.                                                                    

5.  NOTES PAYABLE:                                                              

Bank Line of Credit                                                   

    In December 1995, the Company established a line of credit for $5 million.
As of April 4, 1996, $4,323,000 was outstanding under the line. The line of     
credit is collateralized by certain assets, bears interest at 9.5%, is due      
monthly and the principal is due on June 30, 1996. The line of credit contains  
certain financial covenants, among others, relating to minimum financial ratios 
and minimum tangible net worth. The Company was not in compliance with these    
covenants at January 28, 1996. The bank has waived compliance                   

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

with these covenants until such time as the merger with Atari occurs (Note 10); 
however, the Company may not draw further on the line.                          

Capitalized Lease Obligations and Long-Term Debt                      

   In conjunction with the purchase of certain assets of Kalok (see Note 1),
the Company issued a non-interest bearing note payable to the Kalok bankruptcy  
estate for $225,000. The note is payable in 10 equal quarterly installments of  
$22,500, with the final payment due July 1, 1996.                               

   In fiscal 1995, the Company entered into equipment lease agreements under
which it can lease up to $6.5 million of equipment through July 1996. Payments  
are due in equal monthly installments over a 36 to 48 month period. As of       
January 28, 1996, the cost of the leased assets was $5,377,588 and the related  
accumulated depreciation was $1,087,644. The leases bear interest between 11.5% 
and 18.2%.                                                                      

  The following is a schedule of future payments under the note payable to
Kalok and equipment leases together with the present value of the net minimum   
lease payments at January 28, 1996:                                             

                                                                [Download Table]

                 YEARS ENDING                                  
-----------------------------------------------      AMOUNT    
                                                 --------------
                                                 (IN THOUSANDS)
                                                               
1997...........................................     $  2,077   
1998...........................................        2,021   
1999...........................................        2,198   
2000...........................................          285   
                                                    --------   
Total net minimum lease payments...............        6,581   
Less -- Amount representing interest...........       (1,576)  
                                                    --------   
Present value of net minimum lease payment.....        5,005   
Less -- Current portion........................       (1,520)  
                                                    --------   
Long term portion..............................     $  3,485   
                                                    ========   

6.  COMMITMENTS AND CONTINGENCIES:                                              

Lease Commitments                                                     

The Company leases its facilities and certain equipment under         
non-cancelable operating leases. The future payments under these leases at      
January 28, 1996 are as follows:                                                

                                                                [Download Table]

                 YEARS ENDING                                  
-----------------------------------------------      AMOUNT    
                                                 --------------
                                                 (IN THOUSANDS)
                                                               
1997...........................................      $  583    
1998...........................................         578    
1999...........................................         553    
2000...........................................         571    
2001...........................................         243    
                                                     ------    
                                                     $2,528    
                                                     ======    

   Total rent expense for the periods ended January 29, 1995 and January 28,
1996 was approximately $180,000 and $425,000, respectively.                     

Royalty Obligation                                                    

   As discussed in note 1 the Company licenses certain technology from TEAC.
In the event the Company commences selling certain products incorporating       
certain TEAC Technology it will incur a royalty obligation of up to 2% of sales 
for a certain period. The Company was not marketing any products incorporating  
TEAC developed technology and accordingly, no royalties were due as of January  
28, 1996.                                                                       

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7.  COMMON STOCK:                                                               

Stock Split and Capitalization                                        

In February 1995, the Board of Directors approved a 4,350-for-1 common
stock split. All share and per share amounts in the accompanying financial      
statements have been restated to reflect this split. In February 1996 the       
Company amended its certificate of incorporation and authorized 90,000,000 and  
70,000,000 shares of common and Redeemable Series A Preferred Stock,            
respectively.                                                                   

Warrants                                                              

    The Company has issued warrants to purchase 100,000 shares of common stock
to the unsecured creditors of Kalok Corporation in conjunction with the         
Company's acquisition of Kalok's assets. The warrants may be exercised for a    
one-year period commencing on the earlier of the closing of an initial public   
offering or the public registration of the Company's stock. The exercise price  
of the warrant is 25% of the initial public offering price or the fair market   
value of the Company's stock if the Company becomes a public registrant absent  
an initial public offering. Such warrants were deemed to have nominal value at  
the issuance date and, accordingly, are carried at no value in the accompanying 
financial statements.                                                           

   The Company has also issued warrants to purchase 500,000 shares of common
stock at $1.00 and $3.00 to the equipment lease company and the bank with which 
it has a line of credit, respectively. The warrants may be exercised at any time
before various dates through 2001. In the event of any acquisition, the warrant 
to purchase 450,000 shares issued to the equipment lease company will terminate.

Restricted Stock Purchase Agreement                                   

     The Company issued 3,000,000 shares of its common stock to certain officers
in exchange for a $750,000 note receivable (Note 4). The Company has the right  
to repurchase such shares at the original purchase price. However, the Company's
right to repurchase 1/48 of such shares lapses monthly. As of January 28, 1996, 
2,469,271 shares were subject to repurchase. Upon issuance of the common stock  
the Company recorded deferred compensation of $5,250,000 for the difference     
between the per share sales price of $.25 and $2.00 (the per share fair market  
value at the date of grant for financial reporting purposes). The Company is    
recognizing the deferred compensation ratably over the period that the          
repurchase agreement lapses. 2,000,000 of such shares, however, will no longer  
be subject to repurchase in the event there are certain changes of control of   
the Company. The merger (Note 10) constitutes a change of control and           
accordingly, any remaining unamortized deferred compensation will be expensed at
that time.                                                                      

Stock Option Plan                                                     

The Company has reserved 4,300,000 shares of common stock for issuance
under its 1995 Stock Option Plan. Under the plan, either incentive or           
nonstatutory stock options may be granted to purchase shares of common stock.   
Nonstatutory stock options may be granted to employees, nonemployee members of  
the Board of Directors and consultants at prices not less than 85% of the fair  
value of the stock at the date of the grant, as determined by the Board.        
Incentive stock options may be granted only to employees at prices not lower    
than the fair value of the stock at the date of grant, as determined by the     
Board. Options granted under the plan are generally exercisable at any time, and
expire no later than ten years from the date of grant. Options granted vest at a
rate of 25% per annum.                                                          

    The following table presents the option activity under the Option Plan for
the period from inception to January 28,1996.                                   

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

                                                                [Download Table]

                                                                          OPTION  
                                                             NUMBER OF     PRICE  
                                                              OPTIONS    PER SHARE
                                                             ---------   ---------
                                                                                  
Options outstanding at January 29, 1995.....................       --         --  
Granted..................................................... 3,996,675     $ .25  
Exercised...................................................  (16,729 )    $ .25  
Forfeited................................................... (219,199 )    $ .25  
                                                             ---------      ----  
Options outstanding at January 28, 1996..................... 3,760,747     $ .25  
                                                             ---------      ----  
Exercisable at January 28, 1996.............................  627,193      $ .25  
                                                             =========      ====  

    In February and March 1996, the Company issued options to purchase 486,000
shares of common stock to various employees. Such options are ratably           
exercisable ranging from $.25 to $2.95 per share and vest ratably over a four   
year period.                                                                    

 In March 1996, two officers purchased 1,000,000 shares of the Company's
Common Stock each at a purchase price of $1.00 per share. All of such shares are
subject to a right of repurchase which lapses after five years of service with  
the Company provided, however, that the right of repurchase will lapse at the   
rate of one-eighth in September 1996 and 1/48(th) per month thereafter if the   
merger with Atari closes (Note 10).                                             

Common Stock Reserved for Future Issuance                             

  As of January 28, 1996, the Company has reserved the following shares of
common stock for issuance in connection with:                                   

                                                                [Download Table]
                                                                     
Conversion of redeemable preferred stock.................  27,785,370
Conversion of redeemable preferred stock expected to be              
  issued in connection with the Moduler Electronics                  
  acquisition............................................   1,911,000
Stock option plan........................................   4,283,271
Warrants to purchase common stock........................     600,000
                                                           ----------
                                                           34,579,641
                                                           ==========

8.  REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK:                            

In fiscal 1996, the Company issued 27.8 million shares of Series A    
preferred stock at $1.00 per share for cash and conversion of certain notes     
payable. The Company also issued 30,000 shares of Series A preferred stock to a 
consultant for services. The Company also issued 1,000,000 shares of preferred  
stock to TEAC in exchange for 482,850 shares of the Company's common stock and  
the termination of the TEAC stockholder agreement. The exchange with TEAC was   
accounted for as an equity transaction and the value of the preferred stock     
issued was charged to accumulated deficit in the accompanying 1996 statement of 
operations.                                                                     

The rights, restrictions and preferences of the preferred stock are as
follows:                                                                        

     - Annual dividends of $.09 per share per annum, when and if declared by the
  Board of Directors. Dividends are cumulative and are payable, at the
option of the Company, in cash or shares of common stock.         

- In the event of any liquidation, dissolution or winding up of the   
  Company, the holders of preferred stock shall be entitled to receive
      proceeds equal to $1.00 per share plus the greater of (i) all cumulative
      unpaid dividends or (ii) any declared and unpaid dividends for preferred
stock then held by them. This distribution will occur prior to any
distribution to the common shareholders. At January 28, 1996, the 
liquidation preference was $29,715,761.                           

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    - Upon the election of the holders of a majority of the outstanding shares
   of preferred stock, 33%, 33% and 34% of the stock will be redeemed in
     cash by the Company on February 4, 2000, February 4, 2001, and February
      4, 2002, respectively. The redemption price shall be equal to $1.00 plus
all accrued but unpaid dividends.                                 

    - The following table represents the redemption amounts required under the
agreement:                                                        

                                                                [Download Table]

                    YEAR                                     
---------------------------------------------      AMOUNT    
                                               --------------
                                               (IN THOUSANDS)
                                                             
2000.........................................     $  9,905   
2001.........................................        9,905   
2002.........................................        9,906   
                                                   -------   
                                                  $ 29,716   
                                                   =======   

     - At the option of the holder, each preferred share is convertible into one
      share of common stock. The conversion rate is subject to change upon the
     occurrence of certain events. The preferred stockholders have agreed to
  convert each share of preferred stock into one share of common stock
prior to the closing of the merger with Atari (Note 10).          

- The preferred stock converts automatically into common stock at the 
  earlier of (i) the closing of an underwritten public offering of the
       Company's common stock at a price of not less than $5.00 per share and an
    aggregate offering price of greater than $10,000,000, or (ii) upon the
affirmative election of the holders of at least 66.7% of the then 
outstanding preferred stock.                                      

     - The holders of preferred stock are entitled to one vote for each share of
common stock into which such share may be converted.              

9.  EXPORT SALES AND SIGNIFICANT CUSTOMERS:                                     

    The Company operates in a single industry segment. The Company markets its
products in the United States and in foreign countries through its sales        
personnel, independent sales representatives and original equipment             
manufacturers. The Company's geographic sales as a percent of 1996 net revenues 
are as follows:                                                                 

                                                                [Download Table]
                                                             
United States..........................................   19%
Europe.................................................   81%
                                                         --- 
                                                         100%
                                                         === 

Sales to major customers as a percentage of 1996 product sales are as 
follows:                                                                        

                                                                [Download Table]
                                                              
Olidata.................................................   34%
Connexe.................................................   12%
Liuski..................................................   11%
Aashima.................................................   10%

10.  PROPOSED MERGER AND ACQUISITION:                                           

Atari Corporation                                                     

On February 12, 1996, the Company entered into a merger agreement with
Atari providing for the merger of the Company and Atari. The merger requires    
shareholder approval and is expected to be consummated in the second quarter of 
calendar year 1996. In connection with the merger, Atari extended a bridge loan 
to the Company in the amount of $25.0 million maturing on September 30, 1996    
with a stated interest rate of 8 1/2% per annum. If the merger is not           
consummated, the bridge loan is convertible at the option of Atari or the       

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JTS CORPORATION 

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Company into shares of the Company's Series A preferred stock and warrants to   
acquire the Company's Series A preferred stock, subject to certain conditions.  

Moduler Electronics                                                   

   In March 1995, the Company agreed to acquire the hard disk drive division
of Moduler Electronics for 1,911,673 shares of the Company's Series A preferred 
stock and a warrant to purchase 500,000 shares of the Company's common stock at 
an exercise price of $.25 per share. The Company subsequently assumed           
operational and management control of certain portions of the hard disk drive   
business of Moduler Electronics. The verbal agreement contemplated that prior to
the Company's acquisition, Moduler Electronics would divest itself of certain   
voice coil assembly and other operations not directly involved in its hard disk 
drive business.                                                                 

     In April 1996, following Moduler Electronics' divestiture of its voice coil
business and businesses unrelated to its hard disk drive operations, the Company
acquired 90% of the outstanding capital stock of Moduler Electronics. Upon the  
closing of the transaction, the Company acquired the stock in consideration for 
1,911,673 shares of the Company's Series A preferred stock and a warrant to     
purchase 750,000 shares of the Company's common stock at an exercise price of   
$0.25 per share. The warrant is immediately exercisable as to 500,000 shares of 
the Company's common stock and becomes exercisable with respect to the remaining
250,000 shares when there becomes available to Moduler Electronics certain      
borrowings and credit facilities in the amount of $29,000,000. Subject to the   
foregoing, the warrant may be exercised at any time until February 25, 2001.    

11.  RETIREMENT SAVING PLAN                                                     

    In January 1996, the Company adopted the Employee 401(K) Saving Plan ("the
plan"). The plan covers substantially all of employees and allows participants  
to defer a portion of their annual compensation on a pre-tax basis. The plan    
permits, but does not require, additional matching contributions and profit     
sharing contributions to the plan by the Company on behalf of all participants. 
In fiscal 1996, the Company did not make any such contributions.                

12.  EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED):                 

Change in Name                                                        

   On June 18, 1996, the Company changed its name to JTS Corporation from JT
Storage, Inc.                                                                   

Litigation                                                            

     The Company has been served with a complaint filed in the Superior Court of
the State of California in and for the County of Santa Clara by Venture Lending 
& Leasing, Inc. ("VLLI") relating to the relocation of certain leased equipment 
from its initial location to Madras, India, in alleged violation of the lease   
agreement. The complaint alleges fraud, possession and breach of the lease      
agreement and seeks damages of approximately $4.6 million. Such amount includes 
the lease liability of $3.4 million which is recorded in the accompanying       
balance sheet. The Company is currently evaluating its alternatives and the     
parties have commenced preliminary settlement discussions.                      

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JTS CORPORATION 

CONDENSED CONSOLIDATED BALANCE SHEETS 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                                    JANUARY 28,
                                                                                       1996    
                                                                       APRIL 28,    -----------
                                                                         1996                  
                                                                       ---------               
                                                                       (UNAUDITED)             
                                                                                               
                                             ASSETS                                            
CURRENT ASSETS:                                                                                
Cash, cash equivalent and restricted cash............................. $   5,116     $     547 
Trade accounts receivable, less allowance for doubtful accounts of                             
  $1,086 and $730, respectively.......................................     9,608         1,286 
Receivable from Moduler Electronics...................................        --         6,892 
Other receivables.....................................................     1,182           812 
Inventories...........................................................    12,983         2,093 
Prepaid and other current assets......................................     1,585           240 
                                                                          ------        ------ 
                                                                          30,474        11,870 
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net.............................    16,212         7,943 
GOODWILL..............................................................       185            -- 
                                                                          ------        ------ 
          TOTAL....................................................... $  46,871     $  19,813 
                                                                          ======        ====== 
                              LIABILITIES AND SHAREHOLDERS' DEFICIT                            
CURRENT LIABILITIES:                                                                           
Bank line of credit................................................... $  10,277     $   4,323 
Notes payable to stockholders.........................................     1,965         1,000 
Note payable to Atari Corporation.....................................    25,000            -- 
Accounts payable --                                                                            
  Trade...............................................................    18,240         7,226 
  Moduler Electronics.................................................        --         9,546 
Accrued liabilities...................................................     4,536         3,501 
Current portion of capitalized lease obligation and long-term debt....     1,651         1,520 
                                                                          ------        ------ 
                                                                          61,669        27,116 
                                                                          ------        ------ 
LONG-TERM OBLIGATIONS.................................................     6,381         3,485 
                                                                          ------        ------ 
REDEEMABLE SERIES A PREFERRED STOCK:                                                           
$.000001 par value -- authorized 70,000 shares; outstanding: 29,687                            
  and 27,785 shares, respectively.....................................    29,697        27,785 
                                                                          ------        ------ 
STOCKHOLDERS' DEFICIT:                                                                         
Common stock, $.000001 par value -- authorized 90,000 shares;                                  
  outstanding: 9,421 and 7,367 shares, respectively...................        --            -- 
Additional paid-in capital............................................     8,213         6,004 
Deferred compensation.................................................    (3,990)       (4,320)
Notes receivable from stockholders....................................    (2,610)         (623)
Accumulated deficit...................................................   (52,489)      (39,634)
                                                                          ------        ------ 
                                                                         (50,876)      (38,573)
                                                                          ------        ------ 
          TOTAL....................................................... $  46,871     $  19,813 
                                                                          ======        ====== 

See accompanying notes. 

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JTS CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                                   APRIL 28, 1996  APRIL 30, 1995
                                                                   --------------  --------------
                                                                                                 
REVENUE:                                                                                         
  Product sales...................................................    $ 17,481         $   48    
  Technology license revenue......................................         100          2,029    
                                                                   --------------     -------    
                                                                        17,581          2,077    
                                                                   --------------     -------    
COST AND EXPENSES:                                                                               
  Cost of sales...................................................      19,434             43    
  Research and development........................................       7,406          1,758    
  Selling, general and administrative.............................       3,103            718    
                                                                   --------------     -------    
                                                                        29,943          2,519    
                                                                   --------------     -------    
OPERATING LOSS                                                         (12,362)          (442)   
Interest income...................................................         105             --    
Interest expense..................................................        (542)            --    
Other expense, net................................................         (56)            (2)   
                                                                   --------------     -------    
NET LOSS                                                              $(12,855)        $ (444)   
                                                                    ==========     ==========    
NET LOSS PER COMMON SHARE.........................................    $  (1.47)        $(0.10)   
                                                                    ==========     ==========    
SHARES USED IN COMPUTING NET LOSS PER SHARE.......................       8,732          4,360    
                                                                    ==========     ==========    
                                       See accompanying notes.                                   

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JTS CORPORATION 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                             QUARTER ENDED          
                                                                   ---------------------------------
                                                                   APRIL 28, 1996     APRIL 30, 1995
                                                                   --------------     --------------
                                                                                                    
CASH FLOWS FROM OPERATING ACTIVITIES:                                                               
Net cash used in operations.......................................    $(21,216)          $ (3,228)  
CASH FLOWS FROM INVESTING ACTIVITIES:                                                               
Property purchases................................................      (1,763)            (1,654)  
Cash acquired from the Moduler acquisition........................       1,634                 --   
                                                                      --------           --------   
Net cash used in investing activities.............................        (129)            (1,654)  
CASH FLOWS FROM FINANCING ACTIVITIES:                                                               
Proceeds from issuance of preferred stock.........................          --              8,855   
Proceeds from note payable -- Atari Corporation...................      25,000                 --   
Other.............................................................         914               (841)  
                                                                      --------           --------   
Net cash provided by financing activities.........................      25,914              8,014   
NET INCREASE IN CASH AND EQUIVALENTS..............................       4,569              3,132   
CASH AND EQUIVALENTS:                                                                               
Beginning of period...............................................         547                 --   
                                                                      --------           --------   
End of period.....................................................    $  5,116           $  3,132   
                                                                      ========           ========   
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING                                           
  ACTIVITIES:                                                                                       
Issuance of preferred stock in connection with the Moduler                                          
  acquisition.....................................................    $  1,912           $     --   
Assets of $17,296 acquired net of related liabilities of $15,449                                    
  assumed from Moduler............................................       1,847                 --   
                                                                      ========           ========   

See accompanying notes. 

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JTS CORPORATION 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION                                                  

  The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the        
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally 
accepted accounting principles have been condensed or omitted pursuant to such  
rules and regulations. However, in the opinion of management, the accompanying  
financial statements include all adjustments (consisting of only normal         
recurring adjustments) necessary to present fairly the financial information set
forth therein, in accordance with generally accepted accounting principles. The 
condensed financial statements should be read in conjunction with the financial 
statements and notes thereto for the full year included elsewhere in this       
document.                                                                       

The Company operates with a 52/53 week fiscal calendar. Both quarters 
covered by this report have 13 weeks and for simplicity of presentation, the    
calendar quarter date is used to represent the quarter end. The actual fiscal   
closing date for the first quarter of 1996 and 1995 was April 28 and April 30,  
respectively.                                                                   

NOTE 2.  ACQUISITION OF MODULER ELECTRONICS                                     

In April 1996, the Company acquired 90% of the outstanding shares of  
Moduler Electronics, a disk drive manufacturer. The Company acquired the stock  
in consideration for 1,911,673 shares of the Company's Series A preferred stock 
and a warrant to purchase 750,000 shares of the Company's common stock at an    
exercise price of $0.25 per share. The acquisition was accounted for as a       
purchase.                                                                       

  In connection with the acquisition, net assets acquired were as follows:

                                                                [Download Table]
                                                                             
Inventories and other current assets..............................  $  9,542 
Equipment and leasehold improvements..............................     7,754 
Current liabilities assumed.......................................   (12,681)
Long-term liabilities assumed.....................................    (2,768)
                                                                    -------- 
          Net assets acquired.....................................  $  1,847 
                                                                    ======== 

The table below reflects condensed pro forma operating results of the 
combined companies for the three months then ended as if the acquisition took   
place at the beginning of each period.                                          

                                                                [Download Table]

                                                         APRIL 28,   APRIL 30, 
                                                           1996        1995    
                                                         ---------   --------- 
                                                                               
Revenues................................................ $  17,581    $  2,077 
Net loss................................................ $ (12,820)   $ (1,143)

NOTE 3.  INVENTORIES                                                            

Inventories consist of the following (in thousands):                  

                                                                [Download Table]

                                                        APRIL 28,  JANUARY 28,
                                                          1996        1996    
                                                        ---------  -----------
                                                                              
Raw materials..........................................  $  9,355    $ 2,093  
Work in process........................................     3,353         --  
Finished goods.........................................       275         --  
                                                          -------     ------  
                                                         $ 12,983    $ 2,093  
                                                          =======     ======  

NOTE 4.  MERGER WITH ATARI CORPORATION                                          

On February 12, 1996, the Company entered into a merger agreement with
Atari providing for the merger of the Company and Atari. On April 8, 1996, the  
merger agreement was amended and restated. The merger required shareholder      
approval and is expected to be consummated in the second quarter of 1996. In    
connection with the merger, Atari extended a bridge loan to the Company in the  
amount of $25.0 million maturing on September 30, 1996 with a stated interest   
rate of 8 1/2% per annum. If the merger is not consummated, the bridge loan is  
convertible at the option of Atari or the Company into shares of the Company's  
Series A preferred stock, subject to certain conditions.                        

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REPORT OF ARTHUR ANDERSEN LLP 

To Moduler Electronics (India) Private Limited:                                 

  We have audited the accompanying statements of assets and liabilities of
The Hard Disk Drive Division of Moduler Electronics (India) Private Limited as  
of January 28, 1996 and January 31, 1995, and the related statements of revenues
and expenses and cash flows for the year ended January 28, 1996. These financial
statements are the responsibility of the Division's management. Our             
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

The financial statements referred to above have been prepared for the 
purpose of complying with the rules and regulations of the Securities and       
Exchange Commission (for inclusion in the joint proxy statement of Atari        
Corporation and JTS Corporation, formerly JT Storage, Inc.) as described in Note
1, and are not intended to be a complete presentation of the assets,            
liabilities, revenues, expenses and cash flows of Moduler Electronics (India)   
Private Limited.                                                                

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of The Hard Disk Drive     
Division of Moduler Electronics (India) Private Limited as of January 28, 1996  
and January 31, 1995, and the related revenues, expenses and cash flows for the 
year ended January 28, 1996 in conformity with generally accepted accounting    
principles in the United States of America.                                     

    The accompanying financial statements have been prepared assuming that the
Division will continue as a going concern. As discussed in Note 1 to the        
financial statements, the Division has suffered a loss from operations and has  
an excess of liabilities over assets that raises substantial doubt about its    
ability to continue as a going concern. Management's plans in regard to these   
matters are also described in Note 1. The financial statements do not include   
any adjustments that might result from the outcome of this uncertainty.         

San Jose, California                                                            
April 4, 1996                                                                   

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

STATEMENTS OF ASSETS AND LIABILITIES
(CURRENCY: UNITED STATES DOLLAR, IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                       JANUARY 28,  JANUARY 31,
                                                                          1996         1995    
                                                                       -----------  -----------
                                                                                               
                                              ASSETS                                           
CURRENT ASSETS:                                                                                
  Cash and cash equivalents...........................................   $   488      $    65  
  Restricted cash balances............................................       380          197  
  Due from other business units, net..................................        --          776  
  Advances to suppliers...............................................       249           12  
  Inventories.........................................................     5,983        1,296  
  Prepaid expenses and other current assets...........................       264           61  
                                                                         -------       ------  
          Total current assets........................................     7,364        2,407  
PLANT AND EQUIPMENT, at cost, net of accumulated depreciation.........     5,603        1,645  
                                                                         -------       ------  
          Total assets................................................   $12,967      $ 4,052  
                                                                         -------       ------  
                                            LIABILITIES                                        
CURRENT LIABILITIES:                                                                           
  Secured short term borrowings.......................................   $ 6,085      $   367  
  Current portion of long term loans and capital lease obligations....       105           67  
  Due to related parties, net.........................................     1,168        1,261  
  Accounts payable....................................................     6,268        1,494  
  Accrued liabilities.................................................       197           46  
                                                                         -------       ------  
          Total current liabilities...................................    13,823        3,235  
CAPITAL LEASE OBLIGATIONS, net of current portion.....................        21           --  
SECURED LONG TERM LOANS, net of current portion.......................     2,742          200  
                                                                         -------       ------  
          Total liabilities...........................................    16,586        3,435  
                                                                         -------       ------  
NET (LIABILITIES) ASSETS..............................................   $(3,619)     $   617  
                                                                         =======       ======  

The accompanying notes to financial statements are
an integral part of these statements. 

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

STATEMENT OF REVENUES AND EXPENSES
FOR THE PERIOD FROM FEBRUARY 1, 1995 TO JANUARY 28, 1996
(CURRENCY: UNITED STATES DOLLAR, IN THOUSANDS)

                                                        [Enlarge/Download Table]
                                                                                            
NET REVENUES...................................................................... $ 15,580 
COST OF GOODS SOLD................................................................  (19,160)
                                                                                   -------- 
     Gross margin (deficit).......................................................   (3,580)
OTHER INCOME/(EXPENSE):                                                                     
  Interest and other income.......................................................      141 
  Foreign currency loss...........................................................     (333)
  Interest expense................................................................     (464)
                                                                                   -------- 
  Net loss........................................................................ $ (4,236)
                                                                                   ======== 

The accompanying notes to financial statements are
an integral part of this statement. 

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 

STATEMENT OF CASH FLOWS 

FOR THE PERIOD FROM FEBRUARY 1, 1995 TO JANUARY 28, 1996
(CURRENCY: UNITED STATES DOLLAR, IN THOUSANDS)

                                                        [Enlarge/Download Table]
                                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES:                                                       
  Net loss......................................................................... $(4,236)
  Adjustments to reconcile net loss to net cash used in operating activities --             
     Depreciation expense..........................................................     667 
     Write-off of plant and equipment..............................................     558 
     Decrease/(increase) in current assets --                                               
       Due from other business units, net..........................................     776 
       Advances to suppliers.......................................................    (237)
       Inventories.................................................................  (4,687)
       Prepaid expenses and other current assets...................................    (203)
     Increase (decrease) in current liabilities --                                          
       Due to related parties, net.................................................     (93)
       Accounts payable............................................................   4,774 
       Accrued liabilities.........................................................     151 
                                                                                    --------
          Net cash used in operating activities....................................  (2,530)
                                                                                    --------
CASH FLOWS FROM INVESTING ACTIVITIES:                                                       
  Purchases of plant and equipment.................................................  (2,491)
                                                                                    --------
CASH FLOWS FROM FINANCING ACTIVITIES:                                                       
  Net secured short term borrowings................................................   5,718 
  Principal payments under secured long term loan..................................     (91)
                                                                                    --------
          Net cash provided by financing activities................................   5,627 
                                                                                    --------
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH.........................     606 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period....................     262 
                                                                                    --------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period.......................... $   868 
                                                                                    ========

The accompanying notes to financial statements are
an integral part of this statement. 

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS 

1.  OPERATIONS AND BASIS OF PRESENTATION:                                       

BASIS OF STATEMENTS                                                   

The accompanying statements of assets and liabilities of the Hard Disk
Drive Division ("the Division") of Moduler Electronics (India) Private Limited  
("the Company") as of January 31, 1995 and January 28, 1996 and the related     
statements of revenues and expenses and of cash flows for the period from       
February 1, 1995 to January 28, 1996 ("the statements") have been prepared in   
conformity with generally accepted accounting principles in the United States of
America, from the accounting books and records maintained by the Company at     
Madras, India. The statements have been prepared for the purpose of inclusion in
the registration statement on Form S-4 to be filed by JTS Corporation ("JTS",   
formerly JT Storage, Inc.) in compliance with the rules and regulations of the  
Securities and Exchange Commission. The Form S-4 filing of JTS is pursuant to   
its proposed acquisition of Atari Corporation ("Atari"). In April 1996, JTS     
acquired 90% of the outstanding equity shares of the Company. The Division is   
likely to be the only remaining business of the Company after the transfer of   
the Voice Coil Magnetic Assembly ("VCMA") business to an entity owned by the    
Chairman of the Company and his family members. As of April 4, 1996, this       
transfer had been made, subject to completion of legal documentation.           

Although the Company began business in fiscal 1986, the Division first
began significant operations in fiscal 1996. Division operations prior to fiscal
1996 were insignificant; accordingly, the accompanying financial statements     
include the Statements of Assets and Liabilities of the Division as of January  
28, 1996 and January 31, 1995 and the related Statement of Revenues and Expenses
for the period from February 1, 1995 to January 28, 1996. These statements were 
prepared from the Balance Sheet and the Income Statement, respectively, of the  
total businesses of the Company, from which balances and transactions relating  
to the businesses that are being divested were excluded.                        

 The Division developed its disk drive manufacturing capabilities during
fiscal 1996 which has resulted in an operating loss and a working capital       
deficit of $6,459,000. In addition, the Company will require additional capital 
in order to achieve volume production. The Division's disk drive production is  
dedicated exclusively to JTS and JTS has recently completed its acquisition of  
90% of the Division. The auditors' report on the JTS financial statements dated 
April 4, 1996 contains a paragraph regarding a substantial doubt regarding the  
ability of JTS to continue as a going concern. These factors raise a substantial
doubt about the Division's ability to continue as a going concern. As discussed 
above, JTS plans to merge with Atari. In the opinion of management, the Atari   
merger, if successful, would raise capital adequate to fund operations for the  
next 12 months.                                                                 

Since the Company did not maintain separate accounting records for the
Division, certain estimates, which management believed to be reasonable, were   
required in order to segregate the Division's account balances as of January 31,
1995 as well as to reflect the proposed divestiture of other businesses as of   
January 28, 1996. The segregation of account balances relating to the Division  
was made on the following bases:                                                

     - Identification basis -- Account balances relating to assets, liabilities,
   revenues and expenses ("account balances") pertaining to the Division
were specifically identified and segregated.                      

   - Agreed basis -- Account balances which have been specifically agreed to
be assumed by the Division were identified and segregated.        

   - Transfer basis -- Account balances pertaining to other businesses which
were being divested, were identified and excluded.                

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

    - Allocation basis -- Account balances related to expenses incurred by the
      Company for the Division have been included in total as the Division was
  the significant portion of the Company's operations for fiscal 1996.

INCORPORATION                                                         

   The Company was incorporated on March 24, 1986 as a private company under
the Indian Companies Act, 1956 in the state of Maharashtra. The Company is owned
principally by Asperal Holdings, Inc. and Dexar Holdings, Inc., companies       
registered in Panama, which have a 45% equity stake each. The remaining 10% of  
the Company's outstanding equity shares are owned by the Chairman of the        
Company, Mr. Manohar Lal Tandon, and his relatives ("the Tandon Family").       

   The Company was established to operate a 100 percent Export Oriented Unit
("EOU") in the Madras Export Processing Zone ("MEPZ"), a free trade zone        
established by the Government of India at Madras, Tamil Nadu, India. The        
Company's industrial unit is located in a government provided low cost standard 
design factory within the MEPZ. The Company initially undertook the manufacture 
of computer hard disk drive components such as Head Gimble Assemblies ("HGA")   
and Head Stack Assemblies ("HSA"). During the first five years of operations,   
the Company diversified its product line to include two other products, namely, 
VCMA and Switch Mode Power Supplies ("SMPS").                                   

  During fiscal 1994, the Company closed its SMPS division and established
another EOU for the assembly of hard disk drives. Under the approval obtained   
from the Government of India in September 1994, the Company was originally      
licensed to manufacture, on an average, 286,000 hard disk drives annually. In   
November 1995, the Company obtained a revised approval to manufacture, on an    
average, 807,000 hard disk drives and 418,000 subassemblies (i.e., HGAs and     
HSAs) annually. In December 1994, the Company discontinued production of HGAs   
and HSAs for customers other than JTS, with which it began collaborations to    
manufacture hard disk drives.                                                   

  Though the Division started shipping nominal quantities in January 1995,
commercial production of hard disk drives commenced only in October 1995. The   
Company continued to produce VCMAs until January 18, 1996 when the VCMA business
was transferred to a related party. Prior to its divestiture, a portion of the  
voice coil assemblies produced by the VCMA business was used in the manufacture 
of hard disk drives, while the rest were sold to a related party. Except for the
VCMA business, the Company operated as a captive manufacturer for JTS during    
fiscal 1996. With its association, JTS has assumed operational and management   
control of certain portions of the Division and has provided financing for the  
hard disk drive business and corporate support in areas such as process         
engineering, tooling, vendor selection and financial management. Since assuming 
operational control, JTS has employed several expatriates consisting of disk    
drive industry professionals who have filled senior positions in engineering,   
manufacturing, quality control and materials management functions of the        
Division.                                                                       

Export Oriented Unit                                                  

In order to encourage export oriented businesses and foreign currency 
inflows, the Government of India offers special incentives to EOUs established  
in export processing zones such as state grants and subsidies, exemptions       
relating to import licenses, exemptions from payment of customs duty on imported
inputs and excise duty on local material procurements, and allotment of low cost
factory space. Such EOUs are also exempted from payment of corporate income     
taxes for a block of five years during the first eight years of operations,     
subject to fulfillment of certain conditions. Currently, export earnings        
received in convertible foreign currency continue to be exempt from tax, even   
after the tax holiday period.                                                   

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Current Operations                                                    

The Division currently manufactures hard disk drives with different   
capacity points, based on technical know-how and designs provided by JTS. The   
Division's products are marketed through JTS under the trade names Palladium and
Nordic, and are sold to original equipment manufacturers and system integrators 
who incorporate the products into desktop and notebook computers. The Division  
remained in development stage until October 1995 when it first started shipping 
commercial quantities.                                                          

Sources of Supply                                                     

Many components incorporated in, or used in the manufacture of, the   
Division's products are currently sourced from a single supplier. JTS procures  
components for the Division, which it purchases from third party manufacturers  
and in turn sells or consigns to the Division. JTS' customers have placed       
certain restrictions on vendor and design changes.                              

The Division purchases all of its components and equipment pursuant to
purchase orders placed from time to time and has no guaranteed supply           
arrangements. In the past, there have been certain instances of supply shortages
which had caused delays in manufacturing and loss of sales. Supply shortages    
resulting from a change in suppliers could cause a delay in manufacturing and   
possible loss of sales, which would have a material adverse impact on the       
Division's operating results. Further, the Division produces in-house a number  
of critical subassemblies incorporated in the final hard disk drive product.    
Failure to produce these subassemblies in adequate quantity or quality could    
also adversely impact the operating results of the Division.                    

Manufacturing Relationships                                           

 In the past, the Company has sold subassemblies and other components to
Xyratex in Havant, United Kingdom for the manufacture of hard disk drives under 
a subcontract manufacturing agreement between Xyratex and JTS. With the         
commencement of commercial production of hard disk drive products by the Company
in October 1995, the Division stopped supplying Xyratex.                        

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:                                 

Foreign Currency Translation                                          

The Division has determined the United States ("US") dollar to be its 
functional currency, in accordance with the Statement of Financial Accounting   
Standards No 52, "Foreign Currency Translation", based on indicators such as    
cash flows, sales market, sales price, expense, financing and inter-company     
transactions and arrangements. Since the Division's books are maintained in     
Indian rupees which is not its functional currency, account balances were first 
remeasured in US dollar. Since the Division's functional and reporting          
currencies are the same, the remeasurement process is intended to produce the   
same result as if the Division's books had been maintained in the functional    
currency, and obviates separate translation.                                    

     Nonmonetary assets and liabilities such as inventories, plant and equipment
and accumulated depreciation thereon have been remeasured using historical      
currency exchange rates prevailing at the dates transactions relating to such   
elements were recognized in the statements. Expenses related to such nonmonetary
assets and liabilities such as manufacturing overhead costs included in cost of 
goods sold have been remeasured using average exchange rates for the period to  
approximate remeasurement at the historical exchange rates prevailing at the    
dates those elements were recognized in the statements.                         

   All other monetary assets and liabilities that are not denominated in the
Division's functional currency have been translated at the current exchange     
rates prevailing on the dates of the statements. Exchange gains                 

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and losses from such translation of monetary assets and liabilities have been   
recognized in determining net loss for the current period.                      

  Certain expenses and cash flows have been translated at average exchange
rates for the period to approximate translation at the exchange rates prevailing
at the dates those elements were recognized in the statements.                  

 Gains and losses on foreign currency transactions have been included in
determining net loss for the current period in the Statement of Revenues and    
Expenses.                                                                       

Pervasiveness of Estimates                                            

The preparation of statements in conformity with generally accepted   
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of         
contingent assets and liabilities as of the dates of the statements and the     
related amounts of revenues and expenses during the reporting period. The       
Company has maintained its books of accounts in accordance with Indian          
accounting standards and in the local currency, the Indian rupee. As discussed  
above, the Division's statements have been remeasured into US dollar in         
accordance with the Statement of Financial Accounting Standards No 52. As       
discussed in Note 1, certain assumptions and estimates which, management        
believed to be reasonable, were required to segregate the Division's account    
balances from those relating to the rest of the Company's businesses as of      
January 31, 1995 and to reflect the divestiture of other businesses as of       
January 28, 1996. Actual results could have been different from these estimates 
and remeasurements.                                                             

Revenue Recognition                                                   

Revenues on product sales are recognized at the time of shipment and  
include incentives provided by the Government of India on export sales.         
Substantially, all shipments are sent directly to JTS' end customers, but are   
invoiced by the Division to JTS, which in turn bills and collects from the end  
customers.                                                                      

The Division's accounts receivables as of the dates of the statements 
comprised of receivables outstanding from JTS arising from sale of hard disk    
drives and receivables from a related party arising from sale of VCMAs. The     
Company has not experienced bad debts associated with either of these customers 
in the past, and accordingly, has not recorded an allowance for doubtful        
accounts.                                                                       

Due from Other Business Units, Net                                    

    As of January 31, 1995, due from other business units represent the excess
of assets over liabilities of the Company's businesses excluding the Division.  
Such receivables are expected to be collected within the next twelve months.    

Inventories                                                           

 Inventories include direct materials, freight thereon, direct labor and
related manufacturing overhead costs. The Division values its inventories at    
cost, determined on first in, first out ("FIFO") basis, or market value,        
whichever is lower.                                                             

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Inventories consist of the following (in thousands):                  

                                                                [Download Table]

                                                       JANUARY 28,  JANUARY 31,
                                                          1996         1995    
                                                       -----------  -----------
                                                                               
Raw materials.........................................   $ 2,520      $ 1,225  
Work-in-process.......................................     1,660           71  
Finished goods........................................     1,803           --  
                                                          ------       ------  
                                                         $ 5,983      $ 1,296  
                                                          ======       ======  

   JTS and the Division have an agreement whereby JTS has undertaken to bear
all inventory losses the Division might incur by repurchasing such inventories  
from the Division at their carrying value. As of January 28, 1996, JTS assumed  
inventory valued at $2,747,802, which is netted against the inventory balance   
shown above.                                                                    

Plant and Equipment                                                   

    Plant and equipment is recorded at cost and depreciation is computed using
the straight line method over the estimated useful lives of the assets.         

Plant and equipment consist of the following (in thousands):          

                                                        [Enlarge/Download Table]

                                                     ESTIMATED                           
                                                    USEFUL LIFE  JANUARY 28,  JANUARY 31,
                                                      (YEARS)       1996         1995    
                                                    -----------  -----------  -----------
                                                                                         
Machinery and equipment............................    2 - 7       $ 6,703      $ 2,237  
Furniture, fixtures and miscellaneous assets.......    2 - 6           288          129  
                                                       -----       -------       ------  
                                                                     6,991        2,366  
Less -- Accumulated depreciation...................                 (1,388)        (721) 
                                                                   -------       ------  
                                                                   $ 5,603      $ 1,645  
                                                                   =======       ======  

 Costs of normal repairs and maintenance are expensed as incurred. Major
replacements or betterments of plant and equipment are capitalized. When items  
are sold or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in     
determining net loss. The amount expensed for repairs and maintenance for the   
period from February 1, 1995 to January 28, 1996 was $494,104.                  

  The Division has certain specialized manufacturing equipment used in its
operations.                                                                     

Income Tax                                                            

   Under the Indian Income Tax Act, 1961, the Division, being an EOU located
in an export processing zone, is exempted from payment of corporate income taxes
for a block of five years during the first eight years of operations, subject to
fulfillment of certain conditions.                                              

     The Division continues to be exempt from income tax to the extent of income
attributable to the export sales of the Division. As the Division did not have  
any taxable income for the period from February 1, 1995 to January 28, 1996, no 
provision for income tax has been made.                                         

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Warranty Costs                                                        

  The Division manufactures disk drive products to customer specifications
and components for such disk drives are sourced from vendors specified by JTS.  
JTS generally provides a three year limited warranty on the Palladium and Nordic
drives manufactured by the Division and has agreed to bear the costs of all     
warranty claims, product returns and rework charges. Accordingly, no warranty   
cost has been recorded in the Division's statements as of January 28, 1996 and  
January 31, 1995.                                                               

Prior to the divestiture of the Company's VCMA business, voice coil   
products were manufactured and sold principally to a related party which        
provided product specifications and mandated specific component sources. No     
provision has been provided for any warranty costs on the voice coils sold prior
to the divestiture since the related party, to which the VCMA business is being 
sold, has agreed to assume any claims related to such products.                 

Supplemental Disclosure of Cash Flow Information                      

     For the purposes of the Statement of Cash Flows, the Division considers all
highly liquid investments purchased with original maturities of 90 days or less 
to be cash equivalents. The carrying amounts reported in the statements of      
assets and liabilities for cash and cash equivalents approximate their fair     
values. Cash paid for interest for the period from February 1, 1995 to January  
28, 1996 was $404,522. During fiscal 1996, the Company entered into capital     
lease obligations amounting to $36,170. The Company also financed the purchase  
of equipment amounting to $2,657,145 with secured long-term loans (Note 5).     

   During the period from February 1, 1995 to January 28, 1996, the Division
received equipment and inventories amounting to $2,569,471 and $6,748,512,      
respectively, from related parties. These were recorded as due to related       
parties in the Statement of Cash Flows since they are non-cash transactions.    

3.  RESTRICTED CASH BALANCES:                                                   

Restricted cash balances comprise margin money deposits with banks    
amounting to $380,013 and $197,578 as of January 28, 1996 and January 31, 1995  
respectively. These deposits are maintained as security against letters of      
credit issued by banks on behalf of the Division (see Note 4 below). During the 
period from February 1, 1995 to January 28, 1996, rates of interest on these    
deposits ranged from 9 to 12% per annum.                                        

4.  SECURED SHORT TERM BORROWINGS:                                              

     The Company has entered into an agreement with a consortium of three Indian
Government owned commercial banks to obtain working capital credit facilities.  
The consortium was established in February 1995. While the three banks have     
agreed to a total extension of credit and an allocation of participation, each  
bank independently sanctions its portion of the participation. The lead bank in 
the consortium, Indian Bank, has fully sanctioned its limit, while the other two
banks have only partially sanctioned their participation as of January 28, 1996.

The credit agreement with the consortium has four separate facilities,
namely, export sales accounts receivable bill discounting ("bill discounting"), 
exports sales order based inventory packing credit ("packing credit"), foreign  
letters of credit ("letters of credit" or "LC"), and letters of guarantee       
("guarantee").                                                                  

    Bill discounting is a post-shipment credit facility used to finance export
receivables. Under the Company's bill discounting lines, export invoices are    
presented to the bank, upon which the bank advances funds for the full value of 
the invoice. Bills are typically discounted for ninety days. This facility is   
self-                                                                           

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MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

liquidating in nature whereby advances made by the bank to the Company against  
bills discounted are settled through direct retirement of bills by the foreign  
customers.                                                                      

     Under the packing credit advance which is a pre-shipment facility, the bank
finances procurement of inventories and other costs incurred for fulfillment of 
the Division's export orders. The advances under this facility are liquidated   
using the proceeds of bills discounted by the Division. The Division has been   
fully utilizing its sanctioned credit limits on its bill discounting and packing
credit facilities, and therefore the total credit availed by the Division       
facilitates a continuous rotation of its inventory and invoice financing        
requirements.                                                                   

     Under the letter of credit facility, the bank guarantees timely payments to
the Division's foreign suppliers. Letter of credit is a non-funded limit which, 
when issued, results in a contingent liability to the Division. The Division is 
obligated to pay the bank at the time the bank remits money against documents   
presented by the foreign supplier. Contingent liabilities arising from the use  
of letters of credit have not been included in the Division's statements but    
have been disclosed in Note 7 below.                                            

    Letters of guarantee are provided by the bank on behalf of the Division to
third parties with which it has business dealings, to guarantee due performance 
of contracts as well as fulfillment of monetary obligations by the Division.    

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MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Following table summarizes details relating to the credit facilities  
described above (in thousands):                                                 

                                                        [Enlarge/Download Table]

                                                                       STATE BANK OF  STATE BANK OF 
                                                       INDIAN BANK      TRAVANCORE      HYDERABAD   
                                                     ---------------   -------------  ------------- 
                    PARTICULARS                       1996     1995     1996    1995  1996    1995  
---------------------------------------------------  ------   ------   ------   ----  -----   ----- 
                                                                                                    
1. Available lines of credit                                                                        
  (a) Bill Discounting.............................  $3,925   $  972   $1,389   $ --  $ 139   $ 222 
  (b) Packing Credit...............................     834      556       --     --     83      -- 
  (c) Letters of Credit............................   2,431    1,111    1,216     --    361     361 
  (d) Letters of Guarantee.........................      28       28       --     --     --      -- 
2. Amount outstanding                                                                               
  (a) Bill Discounting.............................   3,878      165    1,277     --    143      -- 
  (b) Packing Credit...............................     503      202       --     --     80      -- 
  (c) Advances for overdue letters of credit.......     204       --       --     --     --      -- 
  (d) Letters of Credit............................   2,268       --      784     --    279      -- 
  (e) Letters of Guarantee.........................      --       --       --     --     --      -- 
3. Amount by which sanctioned limits have been                                                      
   exceeded                                                                                         
  (a) Bill Discounting.............................      --       --       --     --      4      -- 
  (b) Packing Credit...............................      --       --       --     --     --      -- 
  (c) Letters of Credit............................      --       --       --     --     --      -- 
  (d) Letters of Guarantee.........................      --       --       --     --     --      -- 
4. Interest rates                                                                                   
  (a) Bill Discounting                                                                              
      --if availed in US Dollars...................     7.5%     6.5%     7.5%    --    7.5%    6.5%
      --if availed in Indian Rupees................   13-15%   13-15%   13-15%    --  13-15%  13-15%
  (b) Packing Credit                                                                                
      --if availed in US Dollars...................     7.5%     6.5%      --     --    6.5%     -- 
      --if availed in Indian Rupees................   13-15%   13-15%      --     --  13-15%     -- 
5. Margin                                                                                           
  (a) Packing Credit...............................      25%      10%      --     --     25%     -- 
  (b) Letters of Credit............................      10%      10%      10%    --     10%     10%
  (c) Letters of Guarantee.........................   10-50%   10-50%      --     --     --      -- 

Bill discounting agreements are secured by export receivables. Packing
credit agreements are secured by a first charge on the Company's stocks of raw  
materials, work in process and finished goods inventories.                      

Outstanding letters of credit are secured by a charge on goods covered
under the letter of credit and a lien on deposits made by the Company with the  
banks.                                                                          

Letters of guarantee are secured by counter guarantees issued by the  
Company and a lien on deposits made by the Company with the banks.              

   All the above agreements and facilities are fully covered by the personal
guarantee of the Chairman of the Company. The banks have sought for a second    
collateral on the Company's plant and equipment, present and future, which have 
already been used as collateral for the Company's secured long term loans (see  
Note 5 below). As of the date of the statements, the Company was in the process 
of fulfilling this requirement.                                                 

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MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

     According to the terms stipulated in the credit facility sanction letter of
Indian Bank, the Company's owners were required to contribute unsecured loans of
approximately $1.8 million and increase the paid-in capital of the Company to   
$611,281 (from $69,463) before September 30, 1995. The Company has not fulfilled
this requirement as of the date of the statements. However, the Company has     
obtained an undertaking from JTS, that advances made to the Division by JTS to  
the extent of $2,558,650, will not be withdrawn or adjusted, either in part or  
full, against the bills drawn by the Division, and, in due course, will be      
converted into equity capital/unsecured loan.                                   

5.  SECURED LONG TERM LOANS:                                                    

The Company has entered into term loan agreements with the Industrial 
Credit and Investment Corporation of India Limited ("ICICI"), a term lending    
institution in India. In September 1992, the Company was sanctioned a rupee loan
of approximately $571,429 for the purpose of augmenting its existing            
manufacturing facilities. Approximately $304,713 was available to the Company to
borrow as of January 31, 1995, subsequent to which the Company decided not to   
fully avail of this loan before the last date of withdrawal, February 15, 1995. 
The loan is repayable in Indian rupees in 12 equal quarterly installments of    
approximately $19,450 each commencing from May 1995. Interest on outstanding    
amounts are payable quarterly at the rate of 20% per annum.                     

In October 1994, the Company was sanctioned an additional loan by the 
ICICI, for approximately $2,550,000, denominated in four foreign currencies, for
the import of capital equipment. The Division had not borrowed against the loan 
as of January 31, 1995, and had utilized the loan for a US dollar equivalent    
amount of $2,625,758 as of January 28, 1996. As of January 28, 1996 there were  
immaterial unutilized balances in three of the four foreign currencies under the
loan, which were cancelled by ICICI on February 22, 1996 based on a written     
request by the Company. The loan is repayable in US dollar in 13 equal quarterly
installments of $201,981 each commencing from April 1997. Interest on           
outstanding amounts is payable quarterly at the rate of US dollar LIBOR plus    
2.75% per annum. For the period from February 1, 1995 to January 28, 1996, the  
interest rates on this loan ranged from 8.7 to 9.5% per annum.                  

   Both loans are secured by all of the Company's property and equipment and
are fully covered by the personal guarantee of the Chairman of the Company.     
According to the terms of the agreement for the foreign currency loan, the      
Company's promoters were required to contribute unsecured loans of approximately
$1.8 million and increase the paid-in capital of the Company to $611,281 (from  
$69,463). Though this amount has not been contributed by the owners as of the   
date of the statements, the Company has obtained an undertaking from JTS, that  
advances made to the Division by JTS to the extent of $2,558,650, will not be   
withdrawn or adjusted, either in part or full, against the bills drawn by the   
Division, and, in due course, will be converted into equity capital/unsecured   
loan.                                                                           

  In addition to the ICICI term loans, the Company has entered into a term
loan agreement with Corporation Bank, a Government owned commercial bank in     
India, for the purchase of automobiles. As of January 28, 1996, the Division had
utilized approximately $31,386 of the total sanctioned amount of $41,678. The   
loan is secured by the automobiles and is repayable in thirty equal monthly     
installments of $1,047 each.                                                    

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

   Future repayments under the Division's long-term loans are as follows (in
thousands):                                                                     

                                                                [Download Table]

                 YEAR ENDING                   LOAN REPAYMENTS
---------------------------------------------  ---------------
                                                              
1997 (current portion of long term loans)....      $    90    
1998.........................................          898    
1999.........................................          834    
2000.........................................          808    
2001.........................................          202    
                                                    ------    
                                                   $ 2,832    
                                                    ======    

6.  DUE TO RELATED PARTIES, NET:                                                

                                                                [Download Table]

                                                              1996       1995 
                                                             ------     ------
                                                              (IN THOUSANDS)  
                                                                              
Due from related parties                                                      
Ultra Tek Devices Limited..................................  $   62     $   80
Tantec Magnetics...........................................     318         --
Eastern Peripherals Limited................................      --         65
Memory Electronics.........................................      --         18
Golden Computers Limited...................................      --        120
Advance Technology Devices.................................      --         92
                                                             ------     ------
          Total............................................     380        375
                                                             ------     ------
Due to related parties                                                        
JTS........................................................   1,158        667
Nidec Corporation..........................................     367         --
Tandon Family..............................................      14         16
Tantec Magnetics...........................................      --        271
Tandon Associates, Inc.....................................      --        603
Reliable Consultancy Services Private Limited..............      --          1
Tancom Electronics.........................................       9         78
                                                             ------     ------
          Total............................................   1,548      1,636
                                                             ------     ------
Net due to related parties.................................  $1,168     $1,261
                                                             ======     ======

See Note 8 for a description of the relationships and the nature of   
transactions between the Division and the above related parties.                

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7.  COMMITMENTS AND CONTINGENCIES:                                              

Capital Leases                                                        

The Company has purchased automobiles through certain capital lease   
agreements. The gross amount of assets acquired under capital leases and        
capitalized was $38,673 as of January 28, 1996. Following is a schedule of      
aggregate future minimum lease payments under these capital leases together with
the present value of net minimum lease payments as of January 28, 1996 (in      
thousands):                                                                     

                                                                [Download Table]

                                                                 FUTURE MINIMUM
                          YEAR ENDING                            LEASE PAYMENTS
---------------------------------------------------------------  --------------
                                                                               
1997...........................................................       $ 19     
1998...........................................................         15     
1999...........................................................         14     
                                                                       ---     
Total net minimum lease payments...............................         48     
Less -- Amount representing interest...........................         12     
                                                                       ---     
Present value of net minimum lease payments....................         36     
Less -- Current portion........................................         15     
                                                                       ---     
                                                                      $ 21     
                                                                       ===     

Purchases                                                             

    Open letters of credit for import of raw materials in the normal course of
business amounted to $3,594,360 as of January 28, 1996 (see Note 4 above).      

Obligations to Employees                                              

The Company has made certain statutory minimum contributions towards  
employee obligations as required by labor laws enacted by the Government of     
India. These include, inter alia, minimum wages, provident fund, employee state 
insurance, bonus, gratuity, earned leave and labor welfare fund.                

8.  RELATED PARTY TRANSACTIONS:                                                 

As discussed in Note 1 above, the Division has functioned as a        
manufacturing arm of JTS since its association with JTS. Apart from JTS, the    
Division's related parties include Xyratex (former subcontractor of JTS), Nidec 
Corporation (supplier to the Company and an equity investee in JTS), and        
entities which are owned and/or controlled by the Chairman of the Company or his
relatives.                                                                      

     JTS loaned manufacturing equipment with an historical cost of approximately
$4,400,000 and $530,000 located at the Division at January 28, 1996 and January 
31, 1995.                                                                       

   The Division's related party transactions during the period from February
1, 1995 to January 28, 1996 primarily consist of transactions with JTS and      
Xyratex. These transactions include, inter alia, purchase of fixed assets and   
raw materials from JTS, receipt of certain fixed assets on loan basis from JTS, 
receipt of certain raw material free of cost from JTS, sale of disk drives to   
JTS, advances received from JTS, remittances made to JTS, assumption of obsolete
inventories and warranty costs by JTS, sale of subassemblies and raw material to
Xyratex, and purchase of tools from Xyratex. Since the VCMA business was part of
the Company until January 28, 1996, transactions between the Division and the   
VCMA business have not been considered as related party transactions.           

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THE HARD DISK DRIVE DIVISION OF 
MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

   The net balances due from or to each related party as of January 28, 1996
and January 31, 1995 for sales, purchases, advances, transfers and sharing of   
expenses are disclosed in Note 6 above. Summarized information relating to such 
transactions for the period from February 1, 1995 to January 28, 1996 are       
presented below (in thousands):                                                 

                                                        [Enlarge/Download Table]

      NAME OF THE RELATED PARTY                NATURE OF TRANSACTION           AMOUNT 
-------------------------------------  --------------------------------------  -------
                                                                                      
Nidec Corporation....................  Purchase of raw material                $   701
                                       Payment for purchase of raw material        522
Tandon Associates, Inc...............  Payment for purchases                       957
Tancom Electronics...................  Purchase of plant and equipment              42
                                       Sale of raw material                         41
                                       Proceeds from sale of raw material           55
                                       Charges for common expenses received          3
                                       Advance to Tancom                            10
JTS..................................  Purchase of plant and equipment           2,569
                                       Purchase of raw material                  6,621
                                       Payment for purchase of raw material      1,052
                                       Advance against export                    2,559
                                       Product sales                            14,892
                                       Receipt from product sales                8,495
                                       Assumption of obsolete inventories and    2,919
                                         warranty costs by JTS                        
Tantec Magnetics.....................  Purchase of raw material                    110
                                       Product sales                               465

 The Company has been capitalized since inception with 200,000 shares of
equity stock at a par value of Indian rupees 10 each and 5,000 shares of        
preferred stock at a par value of Indian rupees 100 each. The Company's lone    
preferred stock shareholder is the son of the Chairman of the Company. As part  
of the transfer of the Company's VCMA business to a related party and the       
proposed acquisition of the Division by JTS, it was decided in March 1995 to    
retire the preferred stock of the Company. Effective January 28, 1996, all      
preferred shares were retired for a consideration of Indian rupees 500,000      
($13,893). As of January 28, 1996, this amount has been included in "Due to     
related parties, net" (see Note 6 above).                                       

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MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9.  OTHER MATTERS:                                                              

Technical Know-how and Collaboration Agreement                        

 Foreign currency transactions with parties outside India are subject to
controls imposed by the Reserve Bank of India ("RBI"), India's central bank.    
Funds can only be remitted for payments against specific invoices for receipt of
materials or equipment and certain additional limited uses. Except for payments 
below $5,000, cash in advance or deposit payments are not freely permitted to   
parties outside the country. As part of the Company's disk drive EOU project    
approval, the Government has allowed the Company to pay $2 million to JTS for   
technical know-how fees. The Company is yet to finalize its agreement with JTS  
for the payment of technical know-how fees as of the date of the statements. The
Division has not recorded any liability for possible future payment of technical
know-how fees due to the anticipated acquisition of the Company by JTS. The     
Company's term loan agreements with ICICI contains certain restrictions on the  
timing and period of payment of technical know-how fees.                        

Divestiture of Voice Coil Business                                    

The Company transferred the VCMA business, after write-offs of        
approximately $350,000 of related party balances, to Tancom Electronics         
("Tancom") as of January 28, 1996. Such transfer included plant and equipment   
and inventories of the VCMA business, along with certain other assets and       
liabilities.                                                                    

Tancom is owned and controlled by the Chairman of the Company and his 
family members and is therefore considered a related party. Retained earnings   
attributable to the VCMA business since April 1, 1994 less advances made to     
certain related parties were also transferred to Tancom. The Division expects to
continue to purchase voice coil assemblies from Tancom, provided their prices   
remain competitive. The Division has not entered into any agreement mandating   
the purchase of voice coil assemblies from Tancom.                              

     As of January 28, 1996, the total value of assets transferred to Tancom was
$558,146 and the total value of liabilities transferred totalled $28,148.       
Retained earnings of the VCMA business transferred to Tancom totalled $418,493. 
Accounts receivable of $428,080 and accounts payable of $236,163 relating to the
voice coil business, outstanding as of January 28, 1996 has been included in the
Statement of Assets and Liabilities of the Division due to regulatory           
constraints on transfer of foreign currency receivables and payables. All of the
accounts receivables of the VCMA business are owing from Tantec Magnetics, a    
related party to the Company.                                                   

10.  SUBSEQUENT EVENTS:                                                         

New Long Term Loan                                                    

On February 20, 1996, the Company was sanctioned an additional foreign
currency loan of $10 million, to be reduced to the extent of participation by   
other institutions, by the ICICI for the proposed expansion of its disk drive   
business. The Company had received a letter of intent ("letter") from the ICICI 
the terms and conditions of which have to be agreed upon by the Company within  
30 days before a formal foreign currency loan agreement ("loan agreement") could
be executed by both parties. Interest on this proposed loan shall be payable at 
the lending rates of the ICICI prevailing on the date of execution of the loan  
agreement. Lending rates of the ICICI are US dollar LIBOR, plus a fixed percent,
if the funds are provided out of the floating rate US dollar funds, and a fixed 
rate per annum, if the funds are provided out of fixed rate US dollar funds.    
According to the letter, this loan will be secured by a first charge on all of  
the Company's equipment, both present and future, subject to any prior charge on
specified equipment in favor of the Company's banks. The Company is also        
required to provide an irrevocable and unconditional guarantee from the Chairman
in favor of ICICI for due repayment of the loan along with all interest and any 
other moneys. Further, for the loan to                                          

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MODULER ELECTRONICS (INDIA) PRIVATE LIMITED 
(CURRENCY: UNITED STATES DOLLAR)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

become effective, the Company would have to raise $5,584,885 by issue of equity 
shares to promoters, obtain an unsecured loan of $3,601,000 and state subsidies 
of $236,177 to meet a part of the cost of the project.                          

     On March 18, 1996, the Company entered into a loan agreement with the ICICI
for $7 million towards their participation in the total sanctioned amount of $10
million. The loan is repayable in US dollar in 12 equal quarterly installments  
of $583,333 each commencing form May 20, 1998. The Company has procured an      
irrevocable and unconditional guarantee from the Chairman of the Company as     
required by the letter of intent. The funding of this loan by ICICI is dependent
upon the Company's compliance with the pre-disbursement conditions relating to  
raising of additional equity capital and obtaining of unsecured loans and state 
subsidies, mentioned above. If the Company does not comply with these           
pre-disbursement conditions, the previously obtained loans from ICICI (see Note 
5) could be held in default and ICICI may have the right to recall the earlier  
loans, besides not funding the current loan.                                    

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APPENDIX A

AMENDED AND RESTATED AGREEMENT AND
PLAN OF REORGANIZATION

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AMENDED AND RESTATED

AGREEMENT AND PLAN OF REORGANIZATION

BY AND BETWEEN

ATARI CORPORATION 

AND 

JT STORAGE, INC.

APRIL 8, 1996 

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TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                         PAGE
                                                                                         ----
                                                                                             
ARTICLE I -- THE MERGER.............................................................       1 
1.1    The Merger.......................................................................   1 
1.2    Closing; Effective Time..........................................................   2 
1.3    Effect of the Merger.............................................................   2 
1.4    Certificate of Incorporation; Bylaws.............................................   2 
1.5    Directors and Executive Officers.................................................   2 
1.6    Effect on Capital Stock..........................................................   2 
1.7    Surrender of Certificates........................................................   3 
1.8    No Further Ownership Rights in Atari Stock.......................................   4 
1.9    Lost, Stolen or Destroyed Certificates...........................................   4 
1.10   Tax Consequences.................................................................   4 
1.11   Taking of Necessary Action; Further Action.......................................   4 
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF JTS.................................       4 
2.1    Organization, Standing and Power.................................................   5 
2.2    Capital Structure................................................................   5 
2.3    Authority........................................................................   6 
2.4    Financial Statements.............................................................   7 
2.5    Absence of Certain Changes.......................................................   7 
2.6    Absence of Undisclosed Liabilities...............................................   7 
2.7    Litigation.......................................................................   7 
2.8    Restrictions on Business Activities..............................................   7 
2.9    Governmental Authorization.......................................................   8 
2.10   Title to Property................................................................   8 
2.11   Intellectual Property............................................................   8 
2.12   Environmental Matters............................................................   8 
2.13   Tax..............................................................................   9 
2.14   Employee Benefit Plans...........................................................   9 
2.15   Certain Agreements Affected by the Merger........................................  10 
2.16   Employee Matters.................................................................  10 
2.17   Interested Party Transactions....................................................  10 
2.18   Insurance........................................................................  10 
2.19   Compliance With Laws.............................................................  11 
2.20   Minute Books.....................................................................  11 
2.21   Complete Copies of Materials.....................................................  11 
2.22   Brokers' and Finders' Fees.......................................................  11 
2.23   Registration Statement; Proxy Statement/Prospectus...............................  11 
2.24   Vote Required....................................................................  11 
2.25   Board Approval...................................................................  12 
2.26   Underlying Documents.............................................................  12 
2.27   Representations Complete.........................................................  12 
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF ATARI..............................      12 
3.1    Organization, Standing and Power.................................................  12 
3.2    Capital Structure................................................................  12 
3.3    Authority........................................................................  13 
3.4    SEC Documents; Financial Statements..............................................  13 
3.5    Absence of Certain Changes.......................................................  14 

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TABLE OF CONTENTS -- (CONTINUED)

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3.6    Absence of Undisclosed Liabilities...............................................  14 
3.7    Litigation.......................................................................  14 
3.8    Restrictions on Business Activities..............................................  14 
3.9    Governmental Authorization.......................................................  15 
3.10   Title to Property................................................................  15 
3.11   Intellectual Property............................................................  15 
3.12   Environmental Matters............................................................  15 
3.13   Tax..............................................................................  16 
3.14   Employee Benefit Plans...........................................................  16 
3.15   Certain Agreements Affected by the Merger........................................  17 
3.16   Employee Matters.................................................................  17 
3.17   Interested Party Transactions....................................................  17 
3.18   Insurance........................................................................  17 
3.19   Compliance With Laws.............................................................  18 
3.20   Minute Books.....................................................................  18 
3.21   Complete Copies of Materials.....................................................  18 
3.22   Broker's and Finders' Fees.......................................................  18 
3.23   Registration Statement; Proxy Statement/Prospectus...............................  18 
3.24   Opinion of Financial Advisor.....................................................  18 
3.25   Board Approval...................................................................  18 
3.26   Vote Required....................................................................  18 
3.27   Underlying Documents.............................................................  18 
3.28   Representations Complete.........................................................  19 
ARTICLE IV -- CONDUCT PRIOR TO THE EFFECTIVE TIME...................................      19 
4.1    Conduct of Business of JTS and Atari.............................................  19 
4.2    Conduct of Business of JTS.......................................................  20 
4.3    Conduct of Business of Atari.....................................................  20 
4.4    No Other JTS Negotiations........................................................  21 
4.5    No Other Atari Negotiations......................................................  22 
ARTICLE V -- ADDITIONAL AGREEMENTS..................................................      22 
5.1    Proxy Statement/Prospectus; Registration Statement...............................  22 
5.2    Meetings of Stockholders.........................................................  23 
5.3    Access to Information............................................................  23 
5.4    Public Disclosure................................................................  23 
5.5    Consents; Cooperation............................................................  23 
5.6    Continuity of Interest Certificates..............................................  24 
5.7    Voting Agreements................................................................  24 
5.8    FIRPTA...........................................................................  24 
5.9    Legal Requirements...............................................................  24 
5.10   Blue Sky Laws....................................................................  24 
5.11   Atari Employee Benefit Plans.....................................................  24 
5.12   Atari Debentures.................................................................  25 
5.13   Form S-8.........................................................................  25 
5.14   Tax-Free Reorganization; Tax Returns.............................................  25 
5.15   Registration Rights..............................................................  25 

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TABLE OF CONTENTS -- (CONTINUED)

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5.16   Indemnification of Officers and Directors........................................  25 
5.17   Listing of JTS Common Stock......................................................  25 
5.18   Atari Consent to JTS Transaction with Moduler....................................  25 
5.19   Atari SEC Documents..............................................................  25 
5.20   Best Efforts and Further Assurances..............................................  25 
ARTICLE VI -- CONDITIONS TO THE MERGER..............................................      26 
6.1    Conditions to Obligations of Each Party to Effect the Merger.....................  26 
6.2    Additional Conditions to Obligations of JTS......................................  27 
6.3    Additional Conditions to the Obligations of Atari................................  28 
ARTICLE VII -- TERMINATION, AMENDMENT AND WAIVER....................................      29 
7.1    Termination......................................................................  29 
7.2    Effect of Termination............................................................  29 
7.3    Expenses.........................................................................  29 
7.4    Amendment........................................................................  30 
7.5    Extension; Waiver................................................................  30 
ARTICLE VIII -- GENERAL PROVISIONS..................................................      30 
8.1    Non-Survival at Effective Time...................................................  30 
8.2    Absence of Third Party Beneficiary Rights........................................  30 
8.3    Notices..........................................................................  30 
8.4    Interpretation...................................................................  31 
8.5    Counterparts.....................................................................  31 
8.6    Entire Agreement; Nonassignability; Parties in Interest..........................  31 
8.7    Severability.....................................................................  31 
8.8    Remedies Cumulative..............................................................  31 
8.9    Governing Law....................................................................  32 
8.10   Rules of Construction............................................................  32 
8.11   Amendment and Restatement........................................................  32 

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SCHEDULES 

JTS Disclosure Schedule                                                         
Atari Disclosure Schedule                                                       

                                                                [Download Table]
                                                      
Schedule 5.6(a)  -- JTS Significant Stockholders      
Schedule 5.6(b)  -- Atari Significant Shareholders    
Schedule 5.7(a)  -- JTS Voting Agreement Signatories  
Schedule 5.7(b)  -- Atari Voting Agreement Signatories
Schedule 5.15    -- Registration Rights Holders       

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EXHIBITS

                                                                [Download Table]
                                                                       
Exhibit A     Form of Amended and Restated Certificate of Incorporation
Exhibit B     Form of Amended and Restated Bylaws                      
Exhibit C-1   Form of JTS Voting Agreement                             
Exhibit C-2   Form of Atari Voting Agreement                           

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AMENDED AND RESTATED

AGREEMENT AND PLAN OF REORGANIZATION

This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the   
"Agreement") is made and entered into as of April 8, 1996, by and between Atari 
Corporation, a Nevada corporation ("Atari"), and JT Storage, Inc., a Delaware   
corporation ("JTS").                                                            

RECITALS

A. Atari is in the business of designing, manufacturing and selling   
computers, computer peripheral products and video games.                        

    B. JTS is in the business of designing, manufacturing and selling computer
peripheral products including mass storage computer disc drives.                

C. The Boards of Directors of JTS and Atari believe it is in the best 
interests of their respective companies and the stockholders of their respective
companies that JTS and Atari combine into a single company through the statutory
merger of Atari with and into JTS (the "Merger") and, in furtherance thereof,   
have approved the Merger.                                                       

D. In connection with the Merger, among other things, the outstanding 
shares of Atari Common Stock, $.01 par value ("Atari Common Stock"), shall be   
converted into shares of JTS Common Stock, $.000001 par value ("JTS Common      
Stock"), at the rate set forth herein.                                          

    E. JTS and Atari desire to make certain representations and warranties and
other agreements in connection with the Merger.                                 

F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a          
reorganization under the provisions of Section 368(a)(1)(A) of the Code.        

  G. This Agreement amends and restates that certain Agreement and Plan of
Reorganization by and among Atari, JTS and JTS Acquisition Corporation dated as 
of February 12, 1996.                                                           

   NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree  
as follows:                                                                     

ARTICLE I 

THE MERGER

1.1 The Merger.  At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, a Certificate of
Merger prepared in accordance with Delaware Law (as defined herein) and Nevada  
Law (as defined herein) and reasonably acceptable to counsel to JTS and counsel 
to Atari (the "Certificate of Merger"), and the applicable provisions of the    
Delaware General Corporation Law ("Delaware Law") and Nevada General Corporation
Law ("Nevada Law"), Atari shall be merged with and into JTS, the separate       
corporate existence of Atari shall cease and JTS shall continue as the surviving
corporation. JTS as the surviving corporation after the Merger is hereinafter   
sometimes referred to as the "Surviving Corporation."                           

    1.2 Closing; Effective Time.  The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the        
satisfaction or waiver of each of the conditions set forth in Article VI hereof 
or at such other time as the parties hereto agree (the "Closing Date"). The     
Closing shall take place at the offices of Wilson Sonsini Goodrich & Rosati,    
P.C., 650 Page Mill Road, Palo Alto, California, or at such other location as   
the parties hereto agree. In connection with the Closing, the parties hereto    
shall cause the Merger to be consummated by filing the Certificate of Merger    
with (i) the Secretary of State of the State of Delaware and with the Recorder  
of the County in which the registered office of JTS is located, in              

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accordance with the relevant provisions of Delaware Law and (ii) the Secretary  
of State of the State of Nevada, in accordance with the relevant provisions of  
Nevada Law (the time of such filings being the "Effective Time").               

    1.3 Effect of the Merger.  At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the       
applicable provisions of Delaware Law and Nevada Law. Without limiting the      
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Atari shall vest in the  
Surviving Corporation, and all debts, liabilities and duties of Atari shall     
become the debts, liabilities and duties of the Surviving Corporation.          

1.4 Certificate of Incorporation; Bylaws.                             

   (a) At the Effective Time, the Certificate of Incorporation of JTS, as in
effect immediately prior to the Effective Time, shall be the Certificate of     
Incorporation of the Surviving Corporation until thereafter amended as provided 
by Delaware Law and such Certificate of Incorporation; provided, however, that  
the Certificate of Incorporation of the Surviving Corporation shall be amended  
and restated in the form attached hereto as Exhibit A.                          

(b) The Bylaws of JTS, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended;
provided, however, that the Bylaws of the Surviving Corporation shall be amended
and restated in the form attached hereto as Exhibit B.                          

     1.5 Directors and Executive Officers.  At the Effective Time, the directors
of the Surviving Corporation shall be Sirjang Lal Tandon, David T. Mitchell,    
Jean D. Deleage, Alan Azan, Roger W. Johnson, LipBu Tan, Jack Tramiel and       
Michael Rosenberg. The executive officers of JTS immediately prior to the       
Effective Time shall constitute the only executive officers of the Surviving    
Corporation as of the Effective Time, unless otherwise designated by JTS.       

1.6 Effect on Capital Stock.  By virtue of the Merger and without any 
action on the part of JTS, Atari or the holders of any of the following         
securities:                                                                     

      (a) Conversion of Atari Common Stock.  At the Effective Time, each
     share of Atari Common Stock issued and outstanding immediately prior to the
    Effective Time (other than any shares of Atari Common Stock to be canceled
pursuant to Section 1.6(b)) will be canceled and extinguished and be  
converted automatically into the right to receive one (1) share of JTS
Common Stock (the "Exchange Ratio").                                  

         (b) Cancellation of Certain Stock.  At the Effective Time, each share
   of Atari Common Stock owned by JTS or any direct or indirect wholly-owned
     subsidiary of JTS immediately prior to the Effective Time shall be canceled
and extinguished without any conversion thereof.                      

   (c) Atari Stock Options.  At the Effective Time, all options to
   purchase Atari Common Stock then outstanding under the Atari Amended 1986
   Stock Option Plan (the "Atari Stock Option Plan") shall be assumed by JTS
in accordance with Section 5.11.                                      

      (d) Atari Debentures.  At the Effective Time, JTS shall assume all
obligations of Atari under Atari's 5 1/4% Convertible Subordinated    
    Debentures Due 2002 (the "Atari Debentures"), and such debentures shall be
convertible into shares of JTS Common Stock in accordance with Section
5.12.                                                                 

     (e) Federated Debentures.  To the extent required by that certain
    Indenture dated as of April 15, 1985 from the The Federated Group, Inc. to
Security Pacific National Bank, as trustee, together with the first   
supplemental indenture thereto dated as of September 24, 1987, at the 
    Effective Time, JTS shall assume any obligations of Atari under the 7 1/2%
 Convertible Subordinated Debentures due April 15, 2010 of The Federated
Group, Inc. (the "Federated Debentures").                             

     (f) Adjustments to Exchange Ratio.  The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend      
(including any dividend or distribution of securities convertible into Atari    
Common Stock or JTS Common Stock), reorganization, recapitalization or other    
like change with                                                                

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respect to Atari Common Stock, JTS Common Stock or JTS Series A Preferred Stock,
$.000001 par value ("JTS Series A Preferred Stock"), occurring after the date   
hereof and prior to the Effective Time.                                         

    (g) Fractional Shares.  No fraction of a share of JTS Common Stock will be
issued, but in lieu thereof each holder of shares of Atari Common Stock who     
would otherwise be entitled to a fraction of a share of JTS Common Stock (after 
aggregating all fractional shares of JTS Common Stock to be received by such    
holder) shall receive from JTS an amount of cash (rounded to the nearest whole  
cent) equal to the product of (i) such fraction, multiplied by (ii) the closing 
price of a share of Atari Common Stock on the trading day immediately prior to  
the Effective Time, as reported by the American Stock Exchange.                 

1.7 Surrender of Certificates.                                        

  (a) Exchange Agent.  Registrar and Transfer Company, Cranford, NJ, shall
act as exchange agent (the "Exchange Agent") in the Merger.                     

 (b) JTS to Provide Common Stock and Cash.  Promptly after the Effective
Time, JTS shall make available to the Exchange Agent for exchange in accordance 
with this Article I, through such procedures as JTS may reasonably adopt, (i)   
the shares of JTS Common Stock issuable pursuant to Section 1.6(a) in exchange  
for shares of Atari Common Stock outstanding immediately prior to the Effective 
Time and (ii) cash in an amount sufficient to permit payment of cash in lieu of 
fractional shares pursuant to Section 1.6(g).                                   

    (c) Exchange Procedures.  Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate  
or certificates (the "Certificates") which immediately prior to the Effective   
Time represented outstanding shares of Atari Common Stock, whose shares were    
converted into the right to receive shares of JTS Common Stock (and cash in lieu
of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal      
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the    
Exchange Agent, and shall be in such form and have such other provisions as JTS 
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of JTS     
Common Stock (and cash in lieu of fractional shares). Upon surrender of a       
Certificate for cancellation to the Exchange Agent or to such other agent or    
agents as may be appointed by JTS, together with such letter of transmittal,    
duly completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole shares of JTS Common Stock and   
payment in lieu of fractional shares which such holder has the right to receive 
pursuant to Section 1.6, and the Certificate so surrendered shall forthwith be  
canceled. Until so surrendered, each outstanding Certificate that, prior to the 
Effective Time, represented shares of Atari Common Stock will be deemed from and
after the Effective Time, for all corporate purposes, other than the payment of 
dividends, to evidence the ownership of the number of full shares of JTS Common 
Stock into which such shares of Atari Common Stock shall have been so converted 
and the right to receive an amount in cash in lieu of the issuance of any       
fractional shares in accordance with Section 1.6.                               

(d) Distributions With Respect to Unexchanged Shares.  No dividends or
other distributions with respect to JTS Common Stock with a record date after   
the Effective Time will be paid to the holder of any unsurrendered Certificate  
with respect to the shares of JTS Common Stock represented thereby until the    
holder of record of such Certificate shall surrender such Certificate. Subject  
to applicable law, following surrender of any such Certificate, there shall be  
paid to the record holder of the certificates representing whole shares of JTS  
Common Stock issued in exchange therefor, without interest, at the time of such 
surrender, the amount of any such dividends or other distributions with a record
date after the Effective Time theretofore payable (but for the provisions of    
this Section 1.7(d)) with respect to such shares of JTS Common Stock.           

  (e) Transfers of Ownership.  If any certificate for shares of JTS Common
Stock is to be issued in a name other than that in which the Certificate        
surrendered in exchange therefor is registered, it will be a condition of the   
issuance thereof that the Certificate so surrendered will be properly endorsed  
and otherwise in proper form for transfer and that the person requesting such   
exchange will have paid to JTS or any agent designated by it any transfer or    
other taxes required by reason of the issuance of a certificate for shares of   
JTS                                                                             

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Common Stock in any name other than that of the registered holder of the        
Certificate surrendered, or established to the satisfaction of JTS or any agent 
designated by it that such tax has been paid or is not payable.                 

     (f) No Liability.  Notwithstanding anything to the contrary in this Section
1.7, none of the Exchange Agent, the Surviving Corporation or any party hereto  
shall be liable to any person for any amount properly paid to a public official 
pursuant to any applicable abandoned property, escheat or similar law.          

   1.8 No Further Ownership Rights in Atari Stock.  All shares of JTS Common
Stock issued upon the surrender for exchange of shares of Atari Common Stock in 
accordance with the terms hereof (including any cash paid in lieu of fractional 
shares) shall be deemed to have been issued in full satisfaction of all rights  
pertaining to such shares of Atari Common Stock, and there shall be no further  
registration of transfers on the records of the Surviving Corporation of shares 
of Atari Common Stock which were outstanding immediately prior to the Effective 
Time. If, after the Effective Time, Certificates are presented to the Surviving 
Corporation for any reason, they shall be canceled and exchanged as provided in 
this Article I.                                                                 

    1.9 Lost, Stolen or Destroyed Certificates.  In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in    
exchange for such lost, stolen or destroyed Certificates, upon the making of an 
affidavit of that fact by the holder thereof, such shares of JTS Common Stock   
(and cash in lieu of fractional shares) as may be required pursuant to Section  
1.6; provided, however, that JTS may, in its discretion and as a condition      
precedent to the issuance thereof, require the owner of such lost, stolen or    
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against JTS, the Surviving      
Corporation or the Exchange Agent with respect to the Certificates alleged to   
have been lost, stolen or destroyed.                                            

1.10 Tax Consequences.  It is intended by the parties hereto that the 
Merger shall constitute a reorganization within the meaning of Section 368 of   
the Code.                                                                       

     1.11 Taking of Necessary Action; Further Action.  If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the   
purposes of this Agreement and to vest the Surviving Corporation with full      
right, title and possession to all assets, property, rights, privileges, powers 
and franchises of Atari, the officers and directors of Atari are fully          
authorized in the name of the corporation or otherwise to take, and will take,  
all such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.                                                            

1.12 Dissenting JTS Shares.                                           

  (a) Notwithstanding any provision of this Agreement to the contrary, any
shares of JTS Common Stock or JTS Series A Preferred Stock held by a holder who 
has exercised dissenters' rights for such shares in accordance with Delaware Law
or California General Corporation Law to the extent such law is applicable by   
virtue of Section 2115 thereof ("California Law") and who, as of the Effective  
Time, has not effectively withdrawn or lost such dissenters' rights ("Dissenting
Shares"), shall be entitled to such rights as are granted by Delaware Law or    
California Law.                                                                 

    (b) JTS shall give Atari (i) prompt notice of any written demands received
by JTS for an appraisal of shares of capital stock of JTS pursuant to Section   
262 of Delaware Law or Chapter 13 of California Law, withdrawals of such        
demands, and any other related instruments served pursuant to Delaware Law or   
California Law and received by JTS and (ii) the opportunity to participate in   
all negotiations and proceedings with respect to such demands. JTS shall not,   
except with the prior written consent of Atari, voluntarily make any payment    
with respect to any such demands or offer to settle or settle any such demands. 

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF JTS 

    In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any      
material event, change, condition or effect related to the condition            

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(financial or otherwise), properties, assets (including intangible assets),     
liabilities, business, operations, results of operations or prospects of such   
entity or group of entities. In this Agreement, any reference to a "Material    
Adverse Effect" with respect to any entity or group of entities means any event,
change or effect that is materially adverse to the condition (financial or      
otherwise), properties, assets, liabilities, business, operations, results of   
operations or prospects of such entity and its subsidiaries, taken as a whole.  

In this Agreement, any reference to a party's "knowledge" means such  
party's actual knowledge after due and diligent inquiry.                        

  Except as disclosed in a document of even date herewith and delivered by
JTS to Atari prior to the execution and delivery of this Agreement and referring
to the representations and warranties in this Agreement (the "JTS Disclosure    
Schedule"), JTS represents and warrants to Atari as follows:                    

    2.1 Organization, Standing and Power.  Each of JTS and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the   
laws of its jurisdiction of organization. Each of JTS and its subsidiaries has  
the corporate power to own its properties and to carry on its business as now   
being conducted and as proposed to be conducted and is duly qualified to do     
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on JTS   
and its subsidiaries, taken as a whole. JTS has delivered a true and correct    
copy of the Certificate of Incorporation and Bylaws or other charter documents, 
as applicable, of JTS and each of its subsidiaries, each as amended to date, to 
Atari. Neither JTS nor any of its subsidiaries is in violation of any of the    
provisions of its Certificate of Incorporation or Bylaws or equivalent          
organizational documents. JTS is the owner of all outstanding shares of capital 
stock of each of its subsidiaries and all such shares are duly authorized,      
validly issued, fully paid and nonassessable. All of the outstanding shares of  
capital stock of each such subsidiary are owned by JTS free and clear of all    
liens, charges, claims or encumbrances or rights of others. There are no        
outstanding subscriptions, options, warrants, puts, calls, rights, exchangeable 
or convertible securities or other commitments or agreements of any character   
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating JTS or any such subsidiary to issue,        
transfer, sell, purchase, redeem or otherwise acquire any such securities.      
Except as disclosed in the JTS Disclosure Schedule, JTS does not directly or    
indirectly own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any         
corporation, partnership, joint venture or other business association or entity.

 2.2 Capital Structure.  The authorized capital stock of JTS consists of
90,000,000 shares of Common Stock, $.000001 par value, and 70,000,000 shares of 
Preferred Stock, $.000001 par value, all of which is designated Series A        
Preferred Stock, of which there were issued and outstanding as of the close of  
business on April 5, 1996, 9,204,741 shares of Common Stock and 29,696,370      
shares of Series A Preferred. The JTS Disclosure Schedule contains a true and   
complete list of the holders of JTS Common Stock and JTS Series A Preferred     
Stock and the number of shares held by each such holder on April 5, 1996. There 
are no other outstanding shares of capital stock or voting securities. Each     
outstanding share of JTS Series A Preferred Stock is convertible into one (1)   
share of JTS Common Stock. All outstanding shares of JTS Common Stock and JTS   
Series A Preferred Stock are duly authorized, validly issued, fully paid and    
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and are not subject
to preemptive rights or rights of first refusal created by statute, the         
Certificate of Incorporation or Bylaws of JTS or any agreement to which JTS is a
party or by which it is bound. As of the close of business on April 5, 1996, JTS
has reserved (i) 4,300,000 shares of JTS Common Stock for issuance to employees 
and consultants pursuant to the JTS 1995 Stock Option Plan (the "JTS Stock      
Option Plan"), of which 37,554 shares have been issued pursuant to option       
exercises and 3,680,358 shares are subject to outstanding, unexercised options, 
(ii) 600,000 shares of JTS Common Stock for issuance upon the exercise of       
outstanding, unexercised JTS Warrants and (iii) 32,500,000 shares of JTS Series 
A Preferred Stock and JTS Common Stock for issuance upon conversion of the note 
issued to Atari on February 13, 1996 and upon exercise of the warrants issuable 
to Atari pursuant to such note. Since April 5, 1996, JTS has not issued or      
granted additional options under the JTS Stock Option Plan. Other than pursuant 
to this Agreement, there are no other options, warrants, calls, rights,         
commitments or agreements of any character to which JTS is a party or by which  
it is bound obligating JTS to issue, deliver, sell, repurchase or redeem, or    
cause to be                                                                     

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issued, delivered, sold, repurchased or redeemed, any shares of capital stock of
JTS or obligating JTS to grant, extend, accelerate the vesting of, change the   
price of, or otherwise amend or enter into any such option, warrant, call,      
right, commitment or agreement. The terms of the JTS Stock Option Plan and the  
JTS Warrants permit the assumption or substitution of options or warrants, as   
applicable, to purchase Atari Common Stock as provided in this Agreement,       
without the consent or approval of the holders of such securities, the JTS      
stockholders, or otherwise. True and complete copies of all agreements and      
instruments relating to or issued under the JTS Stock Option Plan or JTS        
Warrants have been made available to Atari and such agreements and instruments  
have not been amended, modified or supplemented, and there are no agreements to 
amend, modify or supplement such agreements or instruments in any case from the 
form made available to Atari. The shares of JTS Common Stock to be issued       
pursuant to the Merger will be duly authorized, validly issued, fully paid, and 
non-assessable.                                                                 

2.3 Authority.  JTS has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated       
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary     
corporate action on the part of JTS, subject only to the approval of the Merger 
by JTS's stockholders as contemplated by Section 6.1(a). This Agreement has been
duly executed and delivered by JTS and constitutes the valid and binding        
obligation of JTS. The execution and delivery of this Agreement by JTS does not,
and the consummation of the transactions contemplated hereby will not, conflict 
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of JTS or any of its subsidiaries, as
amended, or (ii) any material mortgage, indenture, lease, contract or other     
agreement or instrument, permit, concession, franchise, license, judgment,      
order, decree, statute, law, ordinance, rule or regulation applicable to JTS or 
any of its subsidiaries or any of their properties or assets. No consent,       
approval, order or authorization of, or registration, declaration or filing     
with, any court, administrative agency or commission or other governmental      
authority or instrumentality ("Governmental Entity") is required by or with     
respect to JTS or any of its subsidiaries in connection with the execution and  
delivery of this Agreement or the consummation of the transactions contemplated 
hereby, except for (i) the filing of the Certificate of Merger as provided in   
Section 1.2, (ii) such consents, approvals, orders, authorizations,             
registrations, declarations and filings as may be required under applicable     
state securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under the Hart-Scott-Rodino Antitrust Improvements   
Act of 1976, as amended ("HSR"); and (iv) such other consents, authorizations,  
filings, approvals and registrations which, if not obtained or made, would not  
have a Material Adverse Effect on JTS and its subsidiaries, taken as a whole,   
and would not prevent, alter or materially delay any of the transactions        
contemplated by this Agreement. The JTS Disclosure Schedule sets forth a full   
and complete list of all necessary consents, waivers and approvals of third     
parties applicable to the operations of JTS that are required to be obtained by 
JTS in connection with the execution and delivery of this Agreement or the      
Merger Agreement by JTS or the consummation by JTS of the transactions          
contemplated hereby or thereby, except any such consents, waivers and approvals,
which, if not obtained, would not have a Material Adverse Effect on JTS and its 
subsidiaries, taken as a whole. Prior to the Closing Date, JTS will obtain all  
such consents.                                                                  

The Stock Purchase Agreement dated as of April 4, 1996 between JTS and
Lunenburg, S.A., a Panama corporation, together with all documents executed in  
connection therewith (the "Moduler Agreement"), has been duly executed and      
delivered by JTS, the transactions contemplated thereby have been consummated,  
and the Moduler Agreement constitutes a valid and binding obligation of JTS. JTS
has provided to Atari a true, correct and complete copy of the Moduler          
Agreement, and has performed all obligations required to be performed by it to  
date under the Moduler Agreement. To JTS' best knowledge, (a) the other parties 
to the Moduler Agreement have performed all obligations required to be performed
by them to date under such agreement, (b) as to such other parties, the Moduler 
Agreement is valid, binding and enforceable in accordance with its terms and (c)
the Moduler Agreement is in full force and effect with no default or dispute or 
basis therefor existing with respect thereto.                                   

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2.4 Financial Statements.  JTS has furnished to Atari its audited     
consolidated balance sheet, consolidated statements of operations and           
consolidated statements of stockholders equity and cash flows as of and for the 
year ended January 28, 1996, and the audited statement of assets and            
liabilities, statement of revenues and expenses and cash flows of The Hard Disk 
Drive Division of Moduler as of and for the year ended January 28, 1996         
(collectively, the "JTS Financial Statements"). The JTS Financial Statements,   
including the notes thereto, were complete and correct in all material respects 
as of their respective dates, complied as to form in all material respects with 
applicable accounting requirements as of their respective dates, and have been  
prepared in accordance with generally accepted accounting principles applied on 
a basis consistent throughout the periods indicated and consistent with each    
other (except as may be indicated in the notes thereto). The JTS Financial      
Statements are in accordance with the books and records of JTS and fairly       
present the consolidated financial condition and operating results of JTS and   
its subsidiaries at the dates and during the periods indicated therein. There   
has been no change in JTS accounting policies except as described in the notes  
to the JTS Financial Statements.                                                

    2.5 Absence of Certain Changes.  Since January 28, 1996, (the "JTS Balance
Sheet Date"), JTS has conducted its business in the ordinary course consistent  
with past practice and there has not occurred: (i) any change, event or         
condition (whether or not covered by insurance) that has resulted in, or might  
reasonably be expected to result in, a Material Adverse Effect to JTS and its   
subsidiaries, taken as a whole; (ii) any acquisition, sale or transfer of any   
material asset of JTS or any of its subsidiaries other than in the ordinary     
course of business and consistent with past practice; (iii) any change in       
accounting methods or practices (including any change in depreciation or        
amortization policies or rates) by JTS or any revaluation by JTS of any of its  
or any of its subsidiaries' assets; (iv) any issuance or agreement to issue or  
any commitment to issue any equity security, bond, note or other security of JTS
or any of its subsidiaries; (v) any declaration, setting aside, or payment of a 
dividend or other distribution with respect to the shares of JTS, or any direct 
or indirect redemption, purchase or other acquisition by JTS of any of its      
shares of capital stock; (vi) any material contract entered into by JTS or any  
of its subsidiaries, other than in the ordinary course of business and as       
provided to Atari, or any amendment or termination of, or default under, any    
material contract to which JTS or any of its subsidiaries is a party or by which
it is bound; or (vii) any negotiation or agreement by JTS or any of its         
subsidiaries to do any of the things described in the preceding clauses (i)     
through (vii) (other than negotiations with Atari regarding the transactions    
contemplated by this Agreement).                                                

     2.6 Absence of Undisclosed Liabilities.  JTS has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for in the JTS balance sheet and the 
Moduler statement of assets and liabilities, each as included in the JTS        
Financial Statements, and true, correct and complete copies of which have been  
provided to Atari, (collectively, the "JTS Balance Sheet"), (ii) those incurred 
in the ordinary course of business and not required to be set forth in the JTS  
Balance Sheet under generally accepted accounting principles, and (iii) those   
incurred in the ordinary course of business since the JTS Balance Sheet Date and
consistent with past practice.                                                  

2.7 Litigation.  There is no private or governmental action, suit,    
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of JTS or any of its     
subsidiaries, threatened against JTS or any of its subsidiaries or any of their 
respective properties or any of their respective officers or directors (in their
capacities as such) that, individually or in the aggregate, could have a        
Material Adverse Effect on JTS and its subsidiaries, taken as a whole. There is 
no judgment, decree or order against JTS or any of its subsidiaries, or, to the 
knowledge of JTS and its subsidiaries, any of their respective directors or     
officers (in their capacities as such), that could prevent, enjoin, alter or    
delay any of the transactions contemplated by this Agreement, or that could have
a Material Adverse Effect on JTS and its subsidiaries, taken as a whole.        

    2.8 Restrictions on Business Activities.  There is no agreement, judgment,
injunction, order or decree binding upon JTS or any of its subsidiaries which   
has or could have the effect of prohibiting or materially impairing any current 
or future business practice of JTS or any of its subsidiaries, any acquisition  
of property by JTS or any of its subsidiaries or the conduct of business by JTS 
or any of its subsidiaries as currently conducted or as proposed to be conducted
by JTS or any of its subsidiaries.                                              

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2.9 Governmental Authorization.  JTS and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,    
license, permit, grant, or other authorization of a Governmental Entity (i)     
pursuant to which JTS or any of its subsidiaries currently operates or holds any
interest in any of its properties or (ii) which is required for the operation of
JTS's or any of its subsidiaries' business or the holding of any such interest  
(herein collectively called "JTS Authorizations"), and all of such JTS          
Authorizations are in full force and effect, except where the failure to obtain 
or have any of such JTS Authorizations could not reasonably be expected to have 
a Material Adverse Effect on JTS and its subsidiaries, taken as a whole.        

    2.10 Title to Property.  JTS and its subsidiaries have good and marketable
title to all of their respective properties, interests in properties and assets,
real and personal, reflected in the JTS Balance Sheet or acquired after the JTS 
Balance Sheet Date (except properties, interests in properties and assets sold  
or otherwise disposed of since the JTS Balance Sheet Date thereof in the        
ordinary course of business), free and clear of all mortgages, liens, pledges,  
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and      
easements as do not and will not materially detract from or interfere with the  
use of the properties subject thereto or affected thereby, or otherwise         
materially impair business operations involving such properties and (iii) liens 
securing debt which is reflected on the JTS Balance Sheet. The plants, property 
and equipment of JTS and its subsidiaries that are used in the operations of    
their businesses are in good operating condition and repair. All properties used
in the operations of JTS and its subsidiaries are reflected in the JTS Balance  
Sheet to the extent generally accepted accounting principles require the same to
be reflected. The JTS Disclosure Schedule identifies each parcel of real        
property owned or leased by JTS or any of its subsidiaries.                     

    2.11 Intellectual Property.  JTS and its subsidiaries own, or are licensed
or otherwise possess legally enforceable rights to use all patents, trademarks, 
trade names, service marks, copyrights, and any applications therefor,          
maskworks, net lists, schematics, technology, know-how, computer software       
programs or applications (in both source code and object code form), and        
tangible or intangible proprietary information or material ("Intellectual       
Property") that are used or proposed to be used in the business of JTS and its  
subsidiaries as currently conducted or as proposed to be conducted by JTS and   
its subsidiaries. To the knowledge of JTS and its subsidiaries, there is no     
material unauthorized use, disclosure, infringement or misappropriation of any  
Intellectual Property rights of JTS or any of its subsidiaries, any trade secret
material to JTS or any of its subsidiaries, or any Intellectual Property right  
of any third party to the extent licensed by or through JTS or any of its       
subsidiaries, by any third party, including any employee or former employee of  
JTS or any of its subsidiaries. Neither JTS nor any of its subsidiaries has     
entered into any agreement to indemnify any other person against any charge of  
infringement of any Intellectual Property, other than indemnification provisions
(i) listed on the JTS Disclosure Schedule or (ii) contained in purchase orders  
arising in the ordinary course of business.                                     

2.12 Environmental Matters.                                           

(a) To the knowledge of JTS and its subsidiaries, no substance that is
regulated by any foreign, federal, state or local governmental authority or that
has been designated by any such authority to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment (herein a "Hazardous Material") 
is present in, on or under any property that JTS or any of its subsidiaries has 
at any time owned, operated, occupied or leased (herein a "JTS Facility"),      
except to the extent that such presence has not had and could not reasonably be 
expected to have a Material Adverse Effect on JTS and its subsidiaries, taken as
a whole.                                                                        

  (b) To the knowledge of JTS and its subsidiaries, neither JTS nor any of
its subsidiaries has transported, stored, used, disposed of, manufactured,      
released or exposed its employees or any other person to Hazardous Materials    
("Hazardous Materials Activity") in material violation of any applicable        
foreign, federal, state or local statute, rule, regulation, order or law.       

(c) To the knowledge of JTS and its subsidiaries, each of JTS and its 
subsidiaries is and at all times has been in compliance with all foreign,       
federal, state and local laws relating to emissions, discharges, releases or    
threatened releases of Hazardous Materials, except to the extent noncompliance  
with such laws has not had and could not reasonably be expected to have a       
Material Adverse Effect on JTS and its subsidiaries, taken as a whole.          

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    (d) No action, proceeding, permit revocation, writ, injunction or claim is
pending, or to the knowledge of JTS and its subsidiaries threatened, concerning 
the Hazardous Materials Activities of JTS or any of its subsidiaries and/or any 
JTS Facilities. Neither JTS nor any of its subsidiaries is aware of any fact or 
circumstance which could impose any material environmental liability upon JTS or
any of its subsidiaries.                                                        

2.13 Taxes.  JTS and each of its subsidiaries, and any consolidated,  
combined, unitary or aggregate group for Tax purposes of which JTS or any of its
subsidiaries is or has been a member have timely filed all Tax Returns required 
to be filed by it, have paid all Taxes shown thereon to be due and has provided 
adequate accruals in accordance with generally accepted accounting principles in
its financial statements for any Taxes that have not been paid, whether or not  
shown as being due on any Tax Returns. Except as disclosed in the JTS Disclosure
Schedule, (i) no material claim for Taxes has become a lien against the property
of JTS or any of its subsidiaries or is being asserted against JTS or any of its
subsidiaries other than liens for Taxes not yet due and payable, (ii) no audit  
of any Tax Return of JTS or any of its subsidiaries is being conducted by a Tax 
authority, (iii) no extension of the statute of limitations on the assessment of
any Taxes has been granted by JTS or any of its subsidiaries and is currently in
effect, and (iv) there is no agreement, contract or arrangement to which JTS or 
any of its subsidiaries is a party that may result in the payment of any amount 
that would not be deductible by reason of Sections 280G, 162 or 404 of the Code.
Neither JTS nor any of its subsidiaries is a party to any tax sharing or tax    
allocation agreement nor does JTS or any of its subsidiaries owe any amount     
under any such agreement. As used herein, "Taxes" shall mean all taxes of any   
kind, including, without limitation, those on or measured by or referred to as  
income, gross receipts, sales, use, ad valorem, franchise, profits, license,    
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar     
fees, assessments or charges of any kind whatsoever, together with any interest 
and any penalties, additions to tax or additional amounts imposed by any        
governmental authority, domestic or foreign. As used herein, "Tax Return" shall 
mean any return, report or statement required to be filed with any governmental 
authority with respect to Taxes. JTS and each of its subsidiaries are in full   
compliance with all terms and conditions of any Tax exemptions or other Tax-    
sharing agreement or order of a foreign government and the consummation of the  
Merger shall not have any adverse effect on the continued validity and          
effectiveness of any such Tax exemptions or other Tax-sharing agreement or      
order.                                                                          

2.14 Employee Benefit Plans.                                          

  (a) The JTS Disclosure Schedule lists, with respect to JTS, any trade or
business (whether or not incorporated) which is treated as a single employer    
with JTS (an "ERISA Affiliate") within the meaning of Section 414(b), (c), (m)  
or (o) of the Code or any subsidiary of JTS (i) all employee benefit plans (as  
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, 
as amended ("ERISA"), (ii) all loans to employees in excess of $50,000, loans to
officers, and any stock option, stock purchase, phantom stock, stock            
appreciation right, supplemental retirement, severance, sabbatical, disability, 
employee relocation, cafeteria (Code section 125), life insurance or accident   
insurance plans, programs or arrangements, (iii) all bonus, deferred            
compensation or incentive plans, programs or arrangements, (iv) other material  
fringe or employee benefit plans, programs or arrangements that apply to senior 
management of JTS and that do not generally apply to all employees, and (v) any 
current or former employment or executive compensation or severance agreements, 
written or otherwise, as to which current or contingent obligations of JTS of   
greater than $50,000 exist for the benefit of, or relating to, any current or   
former employee, consultant or director of JTS (together, the "JTS Employee     
Plans"), and a copy of each such JTS Employee Plan and each summary plan        
description and annual report on the Form 5500 series required to be filed with 
any government agency for each JTS Employee Plan for the three most recent Plan 
years has been delivered to Atari.                                              

     (b) (i) None of the JTS Employee Plans promises or provides retiree medical
or other retiree welfare benefits to any person; (ii) there has been no         
"prohibited transaction," as such term is defined in Section 406 of ERISA and   
Section 4975 of the Code, with respect to any JTS Employee Plan, which could    
reasonably be expected to have, in the aggregate, a Material Adverse Effect on  
JTS or its subsidiaries; (iii) all JTS Employee Plans have been administered in 
compliance with the requirements prescribed by any and all statutes, rules and  
regulations (including ERISA and the Code, orders, or governmental rules and    
regulations currently in effect with respect thereto and including all          
applicable requirements for notification to participants                        

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or to the Department of Labor, Internal Revenue Service or Secretary of the     
Treasury), except as would not have, in the aggregate, a Material Adverse Effect
on JTS or its subsidiaries, and JTS and each of its subsidiaries have performed 
all obligations required to be performed by them under, are not in any material 
respect in default under or violation of, and have no knowledge of any material 
default or violation by any other party to, any of the JTS Employee Plans; (iv) 
each JTS Employee Plan intended to qualify under Section 401(a) of the Code and 
each trust intended to qualify under Section 501(a) of the Code has received a  
favorable determination letter from the Internal Revenue Service (the "IRS") as 
to such qualification, and nothing has occurred which could reasonably be       
expected to cause the loss of such qualification or exemption; (v) all material 
contributions required to be made by JTS or any of its subsidiaries to any JTS  
Employee Plan have been made on or before their due dates and a reasonable      
amount has been accrued for contributions to each JTS Employee Plan for the     
current plan years; and (vi) no JTS Employee Plan is covered by, and neither JTS
nor any subsidiary has incurred or expects to incur any liability under Title IV
of ERISA or Section 412 of the Code.                                            

    (c) With respect to each JTS Employee Plan that constitutes a group health
plan within the meaning of Section 5000(b)(1) of the Code or Section 607(1) of  
ERISA, JTS and each of its United States subsidiaries have complied with the    
applicable health care continuation and notice provisions of the Consolidated   
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), and the        
proposed regulations thereunder, except to the extent that such failure to      
comply would not, in the aggregate, have a Material Adverse Effect on JTS and   
its subsidiaries.                                                               

    2.15 Certain Agreements Affected by the Merger.  Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated 
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of JTS or any of its subsidiaries, (ii) increase any   
benefits otherwise payable by JTS or (iii) result in the acceleration of the    
time of payment or vesting of any such benefits.                                

2.16 Employee Matters.  Except as to matters which could not, in the  
aggregate, have a Material Adverse Effect on JTS and its subsidiaries, taken as 
a whole, JTS and each of its subsidiaries are in compliance in all respects with
all currently applicable laws and regulations respecting employment,            
discrimination in employment, terms and conditions of employment, wages, hours  
and occupational safety and health and employment practices, and is not engaged 
in any unfair labor practice. There are no pending claims against JTS or any of 
its subsidiaries under any workers compensation plan or policy or for long term 
disability. Neither JTS nor any of its subsidiaries has any material obligations
under COBRA with respect to any former employees or qualifying beneficiaries    
thereunder. There are no controversies pending or, to the knowledge of JTS or   
any of its subsidiaries, threatened, between JTS or any of its subsidiaries and 
any of their respective employees, which controversies have or could have a     
Material Adverse Effect on JTS and its subsidiaries, taken as a whole. Neither  
JTS nor any of its subsidiaries is a party to any collective bargaining         
agreement or other labor unions contract nor does JTS nor any of its            
subsidiaries know of any activities or proceedings of any labor union or        
organize any such employees.                                                    

2.17 Interested Party Transactions.  Except as disclosed in the JTS   
Disclosure Schedule, neither JTS nor any of its subsidiaries is indebted to any 
director, officer, employee or agent of JTS or any of its subsidiaries (except  
for amounts due as normal salaries and in reimbursement of ordinary expenses),  
and no such person is indebted to JTS or any of its subsidiaries. Except as     
disclosed in the JTS Disclosure Schedule, no officer, director or stockholder of
JTS or any affiliate of such person has, either directly or indirectly, (i) an  
interest in any corporation, partnership, firm or other person or entity which  
furnishes or sells services or products which are similar to those furnished or 
sold by JTS or (ii) a beneficial interest in a contract or agreement to which   
JTS is a party or by which JTS may be bound. For purposes of this Section 2.17, 
there shall be disregarded any interest which arose solely from the ownership of
less than a one percent (1%) equity interest in a corporation whose stock is    
regularly traded on a national securities exchange or over-the-counter market.  

2.18 Insurance.  JTS and each of its subsidiaries have policies of    
insurance and bonds of the type and in amounts customarily carried by persons   
conducting businesses or owning assets similar to those of JTS and its          

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subsidiaries. There is no claim pending under any of such policies or bonds as  
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and JTS and its subsidiaries are otherwise in compliance   
with the terms of such policies and bonds. JTS has no knowledge of any          
threatened termination of, or premium increase with respect to, any of such     
policies.                                                                       

   2.19 Compliance With Laws.  Each of JTS and its subsidiaries has complied
with, are not in violation of, and have not received any notices of violation   
with respect to, any federal, state, local or foreign statute, law or regulation
with respect to the conduct of its business, or the ownership or operation of   
its business, except for such violations or failures to comply as could not be  
reasonably expected to have a Material Adverse Effect on JTS and its            
subsidiaries, taken as a whole.                                                 

2.20 Minute Books.  The minute books of JTS and its subsidiaries made 
available to Atari contain a complete and accurate summary of all meetings of   
directors and stockholders or actions by written consent since the time of      
incorporation of JTS and the respective subsidiaries through the date of this   
Agreement, and reflect all transactions referred to in such minutes accurately  
in all material respects.                                                       

 2.21 Complete Copies of Materials.  JTS has delivered or made available
true and complete copies of each document which has been requested by Atari or  
its counsel in connection with their legal and accounting review of JTS and its 
subsidiaries.                                                                   

    2.22 Brokers' and Finders' Fees.  JTS has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents' 
commissions or investment bankers' fees or any similar charges in connection    
with this Agreement or any transaction contemplated hereby.                     

   2.23 Registration Statement; Proxy Statement/Prospectus.  The information
supplied by JTS for inclusion in the registration statement on Form S-4 (or such
other or successor form as shall be appropriate, the "Registration Statement")  
pursuant to which the shares of JTS Common Stock to be issued in the Merger will
be registered with the Securities and Exchange Commission (the "SEC") shall not 
at the time the Registration Statement (including any amendments or supplements 
thereto) is declared effective by the SEC 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 light of the           
circumstances under which they were made, not misleading. The information       
supplied by JTS for inclusion in the proxy statement/prospectus to be sent to   
the stockholders of JTS and Atari in connection with the meeting of JTS's       
stockholders to consider the Merger (the "JTS Stockholders Meeting") and in     
connection with the meeting of Atari's stockholders to consider the Merger (the 
"Atari Stockholders Meeting") (such proxy statement/prospectus as amended or    
supplemented is referred to herein as the "Proxy Statement") shall not, on the  
date the Proxy Statement is first mailed to JTS's stockholders and Atari's      
stockholders, at the time of the JTS Stockholders Meeting, at the time of the   
Atari Stockholders Meeting and at the Effective Time, contain any statement     
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omit to state any     
material fact necessary in order to make the statements made therein not false  
or misleading; or omit to state any material fact necessary to correct any      
statement in any earlier communication with respect to the solicitation of      
proxies for the JTS Stockholders Meeting or the Atari Stockholders Meeting which
has become false or misleading. If at any time prior to the Effective Time any  
event or information should be discovered by JTS which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement, 
JTS shall promptly inform Atari. Notwithstanding the fore going, JTS makes no   
representation, warranty or covenant with respect to any information supplied by
Atari which is contained in any of the foregoing documents.                     

     2.24 Vote Required.  The affirmative votes of the holders of (i) a majority
of the shares of JTS Common Stock and JTS Series A Preferred Stock outstanding  
on the record date set for the JTS Stockholders Meeting, voting together, (ii) a
majority of the shares of JTS Common Stock outstanding on the record date set   
for the JTS Stockholders Meeting, voting separately as a class, and (iii) at    
least two-thirds of the shares of JTS Series A Preferred outstanding on the     
record date set for the JTS Stockholders Meeting, voting separately as a class, 
are the only votes of the holders of any of JTS's capital stock necessary to    
approve this Agreement and the transactions contemplated hereby.                

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 2.25 Board Approval.  The Board of Directors of JTS has unanimously (i)
approved this Agreement and the Merger, (ii) determined that the Merger is in   
the best interests of the stockholders of JTS and is on terms that are fair to  
such stockholders and (iii) recommended that the stockholders of JTS approve    
this Agreement and the Merger.                                                  

2.26 Underlying Documents.  True and complete copies of all underlying
documents set forth on the JTS Disclosure Schedule or described as having been  
disclosed or delivered to Atari pursuant to this Agreement have been furnished  
to Atari.                                                                       

   2.27 Representations Complete.  None of the representations or warranties
made by JTS herein or in any Schedule hereto, including the JTS Disclosure      
Schedule, or certificate furnished by JTS pursuant to this Agreement, when all  
such documents are read together in their entirety, contains or will contain at 
the Effective Time any untrue statement of a material fact, or omits or will    
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances   
under which made, not misleading.                                               

ARTICLE III 

REPRESENTATIONS AND WARRANTIES OF ATARI 

    Except as disclosed in the Atari SEC Documents (as defined in Section 3.4)
or in a document of even date herewith and delivered by Atari to JTS prior to   
the execution and delivery of this Agreement and referring to the               
representations and warranties in this Agreement (the "Atari Disclosure         
Schedule"), Atari represents and warrants to JTS as follows:                    

3.1 Organization, Standing and Power.  The Atari Disclosure Schedule  
identifies each subsidiary of Atari that is a "significant subsidiary" of Atari 
as defined by Rule 1-02(v) of Regulation S-X (the "Significant Subsidiaries").  
Atari and each of its Significant Subsidiaries is a corporation duly organized, 
validly existing and in good standing under the laws of its jurisdiction of     
organization. Each of Atari and its Significant Subsidiaries has the corporate  
power to own its properties and to carry on its business as now being conducted 
and as proposed to be conducted and is duly qualified to do business and is in  
good standing in each jurisdiction in which the failure to be so qualified and  
in good standing would have a Material Adverse Effect on Atari and its          
subsidiaries, taken as a whole. Atari has delivered a true and correct copy of  
the Articles of Incorporation and Bylaws or other charter documents, as         
applicable, of Atari and each of its Significant Subsidiaries, each as amended  
to date, to JTS. Neither Atari nor any of its Significant Subsidiaries is in    
violation of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents. Atari is the owner of all outstanding      
shares of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Atari free and     
clear of all liens, charges, claims or encumbrances or rights of others. There  
are no outstanding subscriptions, options, warrants, puts, calls, rights,       
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities  
of any such subsidiary, or otherwise obligating Atari or any such subsidiary to 
issue, transfer, sell, purchase, redeem or otherwise acquire any such           
securities. Except as disclosed in the Atari SEC Documents (as defined in       
Section 3.4), Atari does not directly or indirectly own any equity or similar   
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or   
other business association or entity.                                           

   3.2 Capital Structure.  The authorized capital stock of Atari consists of
100,000,000 shares of Common Stock, $.01 par value, and 10,000,000 shares of    
Preferred Stock, $.01 par value, of which there were issued and outstanding as  
of the close of business on March 29, 1996, 63,727,318 shares of Common Stock   
and no shares of Preferred Stock. There are no other outstanding shares of      
capital stock or voting securities of Atari, other than shares of Atari Common  
Stock issued after March 29, 1996 upon the exercise of options issued under the 
Atari 1986 Stock Option Plan (the "Atari Stock Option Plan"). All outstanding   
shares of Atari have been duly authorized, validly issued, fully paid and are   
nonassessable and free of any liens or encumbrances other than any liens or     
encumbrances created by or imposed upon the holders thereof, and are not subject
to                                                                              

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preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of Atari or any agreement to which Atari is a party or  
by which it is bound. As of the close of business on March 29, 1996, Atari has  
reserved 3,000,000 shares of Common Stock for issuance to employees, directors  
and consultants pursuant to the Atari Stock Option Plan, of which 599,674 shares
have been issued pursuant to option exercises, and 899,125 shares are subject to
outstanding, unexercised options. Since March 29, 1996, Atari has not issued or 
granted additional options under the Atari Stock Option Plan. There are no other
options, warrants, calls, rights, commitments or agreements of any character to 
which Atari is a party or by which it is bound obligating Atari to issue,       
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,    
repurchased or redeemed, any shares of the capital stock of Atari or obligating 
Atari to grant, extend or enter into any such option, warrant, call, right,     
commitment or agreement.                                                        

  3.3 Authority.  Atari has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated       
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary     
corporate action on the part of Atari, subject only to the approval of the      
Merger by the Atari stockholders as contemplated by Section 6.1(a). This        
Agreement has been duly executed and delivered by Atari and constitutes the     
valid and binding obligations of Atari. The execution and delivery of this      
Agreement do not, and the consummation of the transactions contemplated hereby  
will not, conflict with, or result in any violation of, or default under (with  
or without notice or lapse of time, or both), or give rise to a right of        
termination, cancellation or acceleration of any obligation or loss of any      
benefit under (i) any provision of the Articles of Incorporation or Bylaws of   
Atari or any of its Significant Subsidiaries, as amended, or (ii) any material  
mortgage, indenture, lease, contract or other agreement or instrument, permit,  
concession, franchise, license, judgment, order, decree, statute, law,          
ordinance, rule or regulation applicable to Atari or any of its Significant     
Subsidiaries or any of their properties or assets. No consent, approval, order  
or authorization of, or registration, declaration or filing with, any           
Governmental Entity, is required by or with respect to Atari or any of its      
Significant Subsidiaries in connection with the execution and delivery of this  
Agreement by Atari or the consummation by Atari of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in   
Section 1.2, (ii) the filing with the SEC and the American Stock Exchange of the
Proxy Statement relating to the Atari Stockholders Meeting, (iii) the filing of 
a Form 8-K and Form 10-C with the SEC and the American Stock Exchange within 15 
days and 10 days, respectively, after the Closing Date, (iv) any filings as may 
be required under applicable state securities laws and the securities laws of   
any foreign country, (v) such filings as may be required under HSR, (vi) such   
filings as may be required under the rules and regulations of the American Stock
Exchange, and (vii) such other consents, authorizations, filings, approvals and 
registrations which, if not obtained or made, would not have a Material Adverse 
Effect on Atari and its subsidiaries, taken as a whole, and would not prevent,  
alter or materially delay any of the transactions contemplated by this          
Agreement. The Atari Disclosure Schedule sets forth a full and complete list of 
all necessary consents, waivers and approvals of third parties applicable to the
operations of Atari that are required to be obtained by Atari in connection with
the execution and delivery of this Agreement or the Merger Agreement by Atari or
the consummation by Atari of the transactions contemplated hereby or thereby,   
except any such consents, waivers and approvals, which, if not obtained, would  
not have a Material Adverse Effect on Atari and its subsidiaries, taken as a    
whole. Prior to the Closing Date, Atari will obtain all such consents.          

     3.4 SEC Documents; Financial Statements.  Atari has furnished to JTS a true
and complete copy of each report, registration statement, definitive proxy      
statement, and other filings filed with the SEC by Atari since January 1, 1993  
(other than filings pursuant to Section 16 of the Securities Exchange Act of    
1934, as amended (the "Exchange Act"), and any registration statement on Form   
S-8), and prior to the Effective Time, Atari will have furnished JTS with true  
and complete copies of any additional documents (other than filings pursuant to 
Section 16 of the Exchange Act, and any registration statement on Form S-8)     
filed with the SEC by Atari prior to the Effective Time (collectively, the      
"Atari SEC Documents"). As of their respective filing dates, the Atari SEC      
Documents complied in all material respects with the requirements of the        
Exchange Act and the Securities Act, and none of the Atari SEC Documents        
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made     
therein, in light of the circumstances in which they were made, not misleading, 
except to the                                                                   

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extent corrected by a subsequently filed Atari SEC Document. The financial      
statements of Atari, including the notes thereto, included in the Atari SEC     
Documents (the "Atari Financial Statements") were complete and correct in all   
material respects as of their respective dates, complied as to form in all      
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their respective    
dates, and have been prepared in accordance with generally accepted accounting  
principles applied on a basis consistent throughout the periods indicated and   
consistent with each other (except as may be indicated in the notes thereto or, 
in the case of unaudited statements included in Quarterly Reports on Form 10-Qs,
as permitted by Form 10-Q of the SEC). The Atari Financial Statements are in    
accordance with the books and records of Atari and fairly present the           
consolidated financial condition and operating results of Atari and its         
subsidiaries at the dates and during the periods indicated therein (subject, in 
the case of unaudited statements, to normal, recurring year-end adjustments).   
There has been no change in Atari accounting policies except as described in the
notes to the Atari Financial Statements.                                        

3.5 Absence of Certain Changes.  Since December 31, 1995 (the "Atari  
Balance Sheet Date"), Atari has conducted its business in the ordinary course   
consistent with past practice and there has not occurred: (i) any change, event 
or condition (whether or not covered by insurance) that has resulted in, or     
might reasonably be expected to result in, a Material Adverse Effect to Atari   
and its subsidiaries, taken as a whole; (ii) any acquisition, sale or transfer  
of any material asset of Atari or any of its subsidiaries other than in the     
ordinary course of business and consistent with past practice; (iii) any change 
in accounting methods or practices (including any change in depreciation or     
amortization policies or rates) by Atari or any revaluation by Atari of any of  
its assets; (iv) any issuance or agreement to issue or any commitment to issue  
any equity security, bond, note or other security of Atari or any of its        
subsidiaries; (v) any declaration, setting aside, or payment of a dividend or   
other distribution with respect to the shares of Atari, or any direct or        
indirect redemption, purchase or other acquisition by Atari of any of its shares
of capital stock; (vi) any material contract entered into by Atari, other than  
in the ordinary course of business and as provided to JTS, or any amendment or  
termination of, or default under, any material contract to which Atari is a     
party or by which it is bound; or (vii) any negotiation or agreement by Atari or
any of its subsidiaries to do any of the things described in the preceding      
clauses (i) through (vii) (other than negotiations with JTS regarding the       
transactions contemplated by this Agreement).                                   

    3.6 Absence of Undisclosed Liabilities.  Atari has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other  
than (i) those set forth or adequately provided for in the Balance Sheet        
included in Atari's Annual Report on Form 10-K for the period ended December 31,
1995 (the "Atari Balance Sheet"), (ii) those incurred in the ordinary course of 
business and not required to be set forth in the Atari Balance Sheet under      
generally accepted accounting principles, and (iii) those incurred in the       
ordinary course of business since the Atari Balance Sheet Date and consistent   
with past practice.                                                             

3.7 Litigation.  There is no private or governmental action, suit,    
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Atari or any of its   
subsidiaries, threatened against Atari or any of its subsidiaries or any of     
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could have a  
Material Adverse Effect on Atari and its subsidiaries, taken as a whole. There  
is no judgment, decree or order against Atari or any of its subsidiaries or, to 
the knowledge of Atari or any of its subsidiaries, any of their respective      
directors or officers (in their capacities as such) that could prevent, enjoin, 
alter or delay any of the transactions contemplated by this Agreement, or that  
could have a Material Adverse Effect on Atari and its subsidiaries, taken as a  
whole. The outcome of the matter In re The Federated Group, Inc. Alleged Debtor 
U.S.B.C. (N.D.Cal. Div. 5) No. 92-50412-JRG Chapter 7, is not reasonably likely 
to have a Material Adverse Effect on Atari and its subsidiaries, taken as a     
whole.                                                                          

    3.8 Restrictions on Business Activities.  There is no agreement, judgment,
injunction, order or decree binding upon Atari or any of its subsidiaries which 
has or could have the effect of prohibiting or materially impairing any current 
or future business practice of Atari or any of its subsidiaries, any acquisition
of property by Atari or any of its subsidiaries or the conduct of business by   
Atari or any of its subsidiaries as currently conducted or as proposed to be    
conducted by Atari or any of its subsidiaries.                                  

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  3.9 Governmental Authorization.  Atari and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,    
license, permit, grant, or other authorization of a Governmental Entity (i)     
pursuant to which Atari or any of its subsidiaries currently operates or holds  
any interest in any of its properties or (ii) which is required for the         
operation of Atari's or any of its subsidiaries' business or the holding of any 
such interest (herein collectively called "Atari Authorizations"), and all of   
such Atari Authorizations are in full force and effect, except where the failure
to obtain or have any of such Atari Authorizations could not reasonably be      
expected to have a Material Adverse Effect on Atari and its subsidiaries, taken 
as a whole.                                                                     

   3.10 Title to Property.  Atari and its Significant Subsidiaries have good
and marketable title to all of their respective properties, interests in        
properties and assets, real and personal, reflected in the Atari Balance Sheet  
or acquired after the Atari Balance Sheet Date (except properties, interests in 
properties and assets sold or otherwise disposed of since the Atari Balance     
Sheet Date thereof in the ordinary course of business), free and clear of all   
mortgages, liens, pledges, charges or encumbrances of any kind or character,    
except (i) the lien of current taxes not yet due and payable, (ii) such         
imperfections of title, liens and easements as do not and will not materially   
detract from or interfere with the use of the properties subject thereto or     
affected thereby, or otherwise materially impair business operations involving  
such properties and (iii) liens securing debt which is reflected on the Atari   
Balance Sheet. The plants, property and equipment of Atari and its Significant  
Subsidiaries that are used in the operations of their businesses are in good    
operating condition and repair. All properties used in the operations of Atari  
and its Significant Subsidiaries are reflected in the Atari Balance Sheet to the
extent generally accepted accounting principles require the same to be          
reflected. The Atari Disclosure Schedule identifies each parcel of real property
owned or leased by Atari or any of its Significant Subsidiaries                 

     3.11 Intellectual Property.  Atari and its Significant Subsidiaries own, or
are licensed or otherwise possess legally enforceable rights to use all         
Intellectual Property that are used or proposed to be used in the business of   
Atari and its Significant Subsidiaries as currently conducted or as proposed to 
be conducted by Atari and its subsidiaries, except to the extent that the       
failure to have such rights have not had and could not reasonably be expected to
have a Material Adverse Effect on Atari and its subsidiaries, taken as a whole. 
To the knowledge of Atari and its Significant Subsidiaries, there is no material
unauthorized use, disclosure, infringement or misappropriation of any           
Intellectual Property rights of Atari or any of its subsidiaries, any trade     
secret material to Atari or any of its subsidiaries, or any Intellectual        
Property right of any third party to the extent licensed by or through Atari or 
any of its subsidiaries, by any third party, including any employee or former   
employee of Atari or any of its subsidiaries. Neither Atari nor any of its      
subsidiaries has entered into any agreement to indemnify any other person       
against any charge of infringement of any Intellectual Property, other than     
indemnification provisions (i) listed on the Atari Disclosure Schedule or (ii)  
contained in purchase orders arising in the ordinary course of business.        

3.12 Environmental Matters.                                           

(a) To the knowledge of Atari and its Significant Subsidiaries, no    
Hazardous Material is present in, on or under any property that Atari or any of 
its subsidiaries has at any time owned, operated, occupied or leased (herein an 
"Atari Facility"), except to the extent that such presence has not had and could
not reasonably be expected to have a Material Adverse Effect on Atari and its   
subsidiaries, taken as a whole.                                                 

 (b) To the knowledge of Atari and its Significant Subsidiaries, neither
Atari nor any of its subsidiaries has engaged in a Hazardous Materials Activity 
in material violation of any applicable foreign, federal, state or local        
statute, rule, regulation, order or law.                                        

 (c) To the knowledge of Atari and its Significant Subsidiaries, each of
Atari and its subsidiaries is and at all times has been in compliance with all  
foreign, federal, state and local laws relating to emissions, discharges,       
releases or threatened releases of Hazardous Materials, except to the extent    
noncompliance with such laws has not had and could not reasonably be expected to
have a Material Adverse Effect on Atari and its subsidiaries, taken as a whole. 

    (d) No action, proceeding, permit revocation, writ, injunction or claim is
pending, or to the knowledge of Atari and its subsidiaries threatened,          
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subsidiaries and/or any Atari Facilities. Neither Atari nor any of its          
Significant Subsidiaries is aware of any fact or circumstance which could impose
any material environmental liability upon Atari or any of its subsidiaries.     

3.13 Taxes.  Atari and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Atari or any of  
its subsidiaries is or has been a member have timely filed all Tax Returns      
required to be filed by it, have paid all Taxes shown thereon to be due and has 
provided adequate accruals in accordance with generally accepted accounting     
principles in its financial statements for any Taxes that have not been paid,   
whether or not shown as being due on any Tax Returns. Except as disclosed in the
Atari SEC Documents, (i) no material claim for Taxes has become a lien against  
the property of Atari or any of its subsidiaries or is being asserted against   
Atari or any of its subsidiaries other than liens for Taxes not yet due and     
payable, (ii) no audit of any Tax Return of Atari or any of its subsidiaries is 
being conducted by a Tax authority, (iii) no extension of the statute of        
limitations on the assessment of any Taxes has been granted by Atari or any of  
its subsidiaries and is currently in effect, and (iv) there is no agreement,    
contract or arrangement to which Atari or any of its subsidiaries is a party    
that may result in the payment of any amount that would not be deductible by    
reason of Sections 280G, 162 or 404 of the Code. Neither Atari nor any of its   
subsidiaries is a party to any tax sharing or tax allocation agreement nor does 
Atari or any of its subsidiaries owe any amount under any such agreement. As    
used herein, "Taxes" shall mean all taxes of any kind, including, without       
limitation, those on or measured by or referred to as income, gross receipts,   
sales, use, ad valorem, franchise, profits, license, withholding, payroll,      
employment, excise, severance, stamp, occupation, premium, value added, property
or windfall profits taxes, customs, duties or similar fees, assessments or      
charges of any kind whatsoever, together with any interest and any penalties,   
additions to tax or additional amounts imposed by any governmental authority,   
domestic or foreign. As used herein, "Tax Return" shall mean any return, report 
or statement required to be filed with any governmental authority with respect  
to Taxes. Atari and each of its subsidiaries are in full compliance with all    
terms and conditions of any Tax exemptions or other Tax-sharing agreement or    
order of a foreign government and the consummation of the Merger shall not have 
any adverse effect on the continued validity and effectiveness of any such Tax  
exemption or other Tax-sharing agreement or order.                              

3.14 Employee Benefit Plans.                                          

   (a) The Atari Disclosure Schedule lists, with respect to Atari, any ERISA
affiliate of Atari or any subsidiary of Atari (i) all employee benefit plans (as
defined in Section 3(3) of ERISA), (ii) all loans to employees in excess of     
$50,000, loans to officers, and any stock option, stock purchase, phantom stock,
stock appreciation right, supplemental retirement, severance, sabbatical,       
disability, employee relocation, cafeteria (Code section 125), life insurance or
accident insurance plans, programs or arrangements, (iii) all bonus, deferred   
compensation or incentive plans, programs or arrangements, (iv) other material  
fringe or employee benefit plans, programs or arrangements that apply to senior 
management of Atari and that do not generally apply to all employees, and (v)   
any current or former employment or executive compensation or severance         
agreements, written or otherwise, as to which current or contingent obligations 
of Atari of greater than $50,000 exist for the benefit of, or relating to, any  
current or former employee, consultant or director of Atari (together, the      
"Atari Employee Plans"), and a copy of each such Atari Employee Plan and each   
summary plan description and annual report on the Form 5500 series required to  
be filed with any government agency for each Atari Employee Plan for the three  
most recent Plan years has been delivered to JTS.                               

(b) (i) None of the Atari Employee Plans promises or provides retiree 
medical or other retiree welfare benefits to any person; (ii) there has been no 
"prohibited transaction," as such term is defined in Section 406 of ERISA and   
Section 4975 of the Code, with respect to any Atari Employee Plan, which could  
reasonably be expected to have, in the aggregate, a Material Adverse Effect on  
Atari or its subsidiaries; (iii) all Atari Employee Plans have been administered
in compliance with the requirements prescribed by any and all statutes, rules   
and regulations (including ERISA and the Code, orders, or governmental rules and
regulations currently in effect with respect thereto and including all          
applicable requirements for notification to participants or to the Department of
Labor, Internal Revenue Service or Secretary of the Treasury), except as would  
not have, in the aggregate, a Material Adverse Effect on Atari or its           
subsidiaries, and Atari and each of its subsidiaries have performed all         
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respect in default under or violation of, and have no knowledge of any material 
default or violation by any other party to, any of the Atari Employee Plans;    
(iv) each Atari Employee Plan intended to qualify under Section 401(a) of the   
Code and each trust intended to qualify under Section 501(a) of the Code has    
received a favorable determination letter from the IRS as to such qualification,
and nothing has occurred which could reasonably be expected to cause the loss of
such qualification or exemption; (v) all material contributions required to be  
made by Atari or any of its subsidiaries to any Atari Employee Plan have been   
made on or before their due dates and a reasonable amount has been accrued for  
contributions to each Atari Employee Plan for the current plan years; and (vi)  
no Atari Employee Plan is covered by, and neither Atari nor any subsidiary has  
incurred or expects to incur any liability under Title IV of ERISA or Section   
412 of the Code.                                                                

(c) With respect to each Atari Employee Plan that constitutes a group 
health plan within the meaning of Section 5000(b)(1) of the Code or Section     
607(1) of ERISA, Atari and each of its United States subsidiaries have complied 
with the applicable health care continuation and notice provisions of COBRA and 
the proposed regulations thereunder, except to the extent that such failure to  
comply would not, in the aggregate, have a Material Adverse Effect on Atari and 
its subsidiaries.                                                               

    3.15 Certain Agreements Affected by the Merger.  Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated 
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Atari or any of its subsidiaries, (ii) increase any 
benefits otherwise payable by Atari or (iii) result in the acceleration of the  
time of payment or vesting of any such benefits.                                

3.16 Employee Matters.  Except as to matters which could not, in the  
aggregate, have a Material Adverse Effect on Atari and its subsidiaries, taken  
as a whole, Atari and each of its Significant Subsidiaries are in compliance in 
all respects with all currently applicable laws and regulations respecting      
employment, discrimination in employment, terms and conditions of employment,   
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. There are no pending claims against   
Atari or any of its subsidiaries under any workers compensation plan or policy  
or for long term disability. Neither Atari nor any of its subsidiaries has any  
material obligations under COBRA with respect to any former employees or        
qualifying beneficiaries thereunder. There are no controversies pending or, to  
the knowledge of Atari or any of its subsidiaries, threatened, between Atari or 
any of its subsidiaries and any of their respective employees, which            
controversies have or could have a Material Adverse Effect on Atari and its     
subsidiaries, taken as a whole. Neither Atari nor any of its subsidiaries is a  
party to any collective bargaining agreement or other labor unions contract nor 
does Atari nor any of its subsidiaries know of any activities or proceedings of 
any labor union or organize any such employees.                                 

3.17 Interested Party Transactions.  Except as disclosed in the Atari 
Disclosure Schedule or the Atari SEC Documents, neither Atari nor any of its    
subsidiaries is indebted to any director, officer, employee or agent of Atari or
any of its subsidiaries (except for amounts due as normal salaries and in       
reimbursement of ordinary expenses), and no such person is indebted to Atari or 
any of its subsidiaries. Except as disclosed in the Atari Disclosure Schedule or
the Atari SEC Documents, no officer, director or shareholder of Atari or any    
affiliate of such person has, either directly or indirectly, (i) an interest in 
any corporation, partnership, firm or other person or entity which furnishes or 
sells services or products which are similar to those furnished or sold by Atari
or (ii) a beneficial interest in a contract or agreement to which Atari is a    
party or by which Atari may be bound. For purposes of this Section 3.17, there  
shall be disregarded any interest which arose solely from the ownership of less 
than a one percent (1%) equity interest in a corporation whose stock is         
regularly traded on a national securities exchange or over-thecounter market.   

3.18 Insurance.  Atari and each of its Significant Subsidiaries have  
policies of insurance and bonds of the type and in amounts customarily carried  
by persons conducting businesses or owning assets similar to those of Atari and 
its subsidiaries. There is no claim pending under any of such policies or bonds 
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds. All premiums due and payable under all such policies 
and bonds have been paid and Atari and its Significant Subsidiaries are         
otherwise in compliance with the terms of such policies and bonds. Atari has no 
knowledge of any threatened termination of, or premium increase with respect to,
any of such policies.                                                           

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    3.19 Compliance With Laws.  Each of Atari and its Significant Subsidiaries
has complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or 
regulation with respect to the conduct of its business, or the ownership or     
operation of its business, except for such violations or failures to comply as  
could not be reasonably expected to have a Material Adverse Effect on Atari and 
its subsidiaries, taken as a whole.                                             

 3.20 Minute Books.  The minute books of Atari and its subsidiaries made
available to JTS contain a complete and accurate summary of all meetings of     
directors and stockholders or actions by written consent since the time of      
incorporation of Atari and the respective subsidiaries through the date of this 
Agreement, and reflect all transactions referred to in such minutes accurately  
in all material respects.                                                       

   3.21 Complete Copies of Materials.  Atari has delivered or made available
true and complete copies of each document which has been requested by JTS or its
counsel in connection with their legal and accounting review of Atari and its   
subsidiaries.                                                                   

3.22 Broker's and Finders' Fees.  Atari has not incurred, nor will it 
incur, directly or indirectly, any liability for brokerage or finders' fees or  
agents' commissions or investment bankers' fees or any similar charges in       
connection with this Agreement or any transaction contemplated hereby.          

   3.23 Registration Statement; Proxy Statement/Prospectus.  The information
supplied by Atari for inclusion in the Registration Statement shall not, at the 
time the Registration Statement (including any amendments or supplements        
thereto) is declared effective by the SEC, contain any untrue statement of a    
material fact or omit to state any material fact necessary in order to make the 
statements therein, in light of the circumstances under which they were made,   
not misleading. The information supplied by Atari for inclusion in the Proxy    
Statement shall not, on the date the Proxy Statement is first mailed to JTS's   
stockholders and Atari's stockholders, at the time of the JTS Stockholders      
Meeting, at the time of the Atari Stockholders Meeting and at the Effective     
Time, contain any statement which, at such time and in light of the             
circumstances under which it is made, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein not false or misleading; or omit to state any material fact  
necessary to correct any statement in any earlier communication with respect to 
the solicitation of proxies for the JTS Stockholders Meeting or the Atari       
Stockholders Meeting which has become false or misleading. If at any time prior 
to the Effective Time any event or information should be discovered by Atari    
which should be set forth in an amendment to the Registration Statement or a    
supplement to the Proxy Statement, Atari will promptly inform JTS.              
Notwithstanding the foregoing, Atari makes no representation, warranty or       
covenant with respect to any information supplied by JTS which is contained in  
any of the foregoing documents.                                                 

  3.24 Opinion of Financial Advisor.  Atari has been advised in writing by
its financial advisor, Montgomery Securities, that in such advisor's opinion, as
of the date hereof, the consideration to be paid by Atari hereunder is fair,    
from a financial point of view, to Atari.                                       

   3.25 Board Approval.  The Board of Directors of Atari has unanimously (i)
approved this Agreement and the Merger, (ii) determined that the Merger is in   
the best interests of its stockholders and is on terms that are fair to such    
stockholders and (iii) recommended that its stockholders approve this Agreement 
and the Merger.                                                                 

   3.26 Vote Required.  The affirmative vote of the holders of a majority of
the shares of Atari Common Stock outstanding on the record date set for the     
Atari Stockholders Meeting is the only vote of the holders of any of Atari's    
capital stock necessary to approve this Agreement and the transactions          
contemplated hereby. No shareholder of Atari will be entitled to statutory      
dissenters rights under Nevada Law as a result of the Merger.                   

3.27 Underlying Documents.  True and complete copies of all underlying
documents set forth on the Atari Disclosure Schedule or described as having been
disclosed or delivered to JTS pursuant to this Agreement have been furnished to 
JTS.                                                                            

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   3.28 Representations Complete.  None of the representations or warranties
made by Atari herein or in any Schedule hereto, including the Atari Disclosure  
Schedule, or certificate furnished by Atari pursuant to this Agreement, or the  
Atari SEC Documents, when all such documents are read together in their         
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any       
material fact necessary in order to make the statements contained herein or     
therein, in the light of the circumstances under which made, not misleading.    

ARTICLE IV

CONDUCT PRIOR TO THE EFFECTIVE TIME 

    4.1 Conduct of Business of JTS and Atari.  During the period from the date
of this Agreement and continuing until the earlier of the termination of this   
Agreement or the Effective Time, each of JTS and Atari agrees (except to the    
extent expressly contemplated by this Agreement or as consented to in writing by
the other), to carry on its and its subsidiaries' business in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted, to
pay and to cause its subsidiaries to pay debts and taxes when due (subject to   
good faith disputes over such debts or taxes) and to pay or perform other       
obligations when due. Each of JTS and Atari agrees to promptly notify the other 
of any event or occurrence not in the ordinary course of its or its             
subsidiaries' business, and of any event which could have a Material Adverse    
Effect on it and its subsidiaries, taken as a whole. Without limiting the       
foregoing, except as expressly contemplated by this Agreement, neither JTS nor  
Atari shall do, cause or permit any of the following, or allow, cause or permit 
any of its subsidiaries to do, cause or permit any of the following, without the
prior written consent of the other:                                             

 (a) Charter Documents.  Cause or permit any amendments to its
   Certificate of Incorporation or Bylaws (except as contemplated by Section
1.4 hereof);                                                          

       (b) Issuance of Securities.  Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the 
purchase of, any shares of its capital stock or securities convertible
  into, or subscriptions, rights, warrants or options to acquire, or other
    agreements or commitments of any character obligating it to issue any such
   shares or other convertible securities, other than the issuance of shares
    of its Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of the date of this Agreement;   
     provided, however, that in addition to any grants specifically described on
  the JTS Disclosure Schedule, JTS may, in the ordinary course of business
consistent with past practice, grant options for the purchase of up to
250,000 shares of JTS Common Stock under the JTS Stock Option Plan and
 issue shares of JTS Common Stock upon the exercise of such options; and
   provided, further, that Atari may issue securities under the Atari Option
Plan.                                                                 

          (c) Dividends; Changes in Capital Stock.  Declare or pay any dividends
    on or make any other distributions (whether in cash, stock or property) in
     respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other     
   securities in respect of, in lieu of or in substitution for shares of its
    capital stock, or repurchase or otherwise acquire, directly or indirectly,
     any shares of its capital stock except from former employees, directors and
   consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its     
subsidiaries;                                                         

(d) Acquisitions.  Acquire or agree to acquire by merging or
  consolidating with, or by purchasing a substantial portion of the assets
   of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or    
otherwise acquire or agree to acquire any assets which are material,  
 individually or in the aggregate, to its and its parent's/subsidiaries'
business, taken as a whole;                                           

      (e) Taxes.  Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any 
accounting method in respect of Taxes, file any material Return or any
  amendment to a material Return, enter into any closing agreement, settle
     any claim or assessment in respect of Taxes, or consent to any extension or
  waiver of the limitation period applicable to any claim or assessment in
respect of Taxes;                                                     

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        (f) Stock Option Plans, Etc.  Accelerate, amend or change the period
  of exercisability of options, warrants or other rights granted under its
employee stock plans or authorize cash payments in exchange for any   
options, warrants or other rights granted under any of such plans;    

          (g) Other.  Take, or agree in writing or otherwise to take, any of the
     actions described in Sections 4.1(a) through (f) above, or any action which
would make any of its representations or warranties contained in this 
     Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.                                   

  4.2 Conduct of Business of JTS.  During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement 
or the Effective Time, except as expressly contemplated by this Agreement, JTS  
shall not do, cause or permit any of the following, or allow, cause or permit   
any of its subsidiaries to do, cause or permit any of the following, without the
prior written consent of Atari:                                                 

(a) Material Contracts.  Enter into any material contract or
     commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of
business consistent with past practice;                               

    (b) Intellectual Property.  Transfer to any person or entity any
  rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;                               

      (c) Dispositions.  Sell, lease, license or otherwise dispose of or
   encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past 
practice;                                                             

        (d) Indebtedness.  Incur any indebtedness for borrowed money (except
     amounts borrowed under JTS's existing revolving credit line or drawdowns of
 existing credit facilities for working capital or construction purposes
only) or guarantee any such indebtedness or issue or sell any debt    
securities or guarantee any debt securities of others;                

  (e) Revaluation.  Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
     accounts receivable other than in the ordinary course of business and other
than as disclosed in the JTS Disclosure Schedule;                     

          (f) Payment of Obligations.  Pay, discharge or satisfy in an amount in
    excess of $50,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,   
contingent or otherwise) arising other than in the ordinary course of 
    business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the JTS Financial Statements;        

(g) Termination or Waiver.  Terminate or waive any right of 
substantial value, other than in the ordinary course of business;     

       (h) Employee Benefit Plans.  Adopt or amend any employee benefit or
stock purchase or option plan;                                        

    (i) Lawsuits.  Commence a lawsuit other than (i) for the routine
   collection of bills, (ii) in such cases where it in good faith determines
    that failure to commence suit would result in the material impairment of a
     valuable aspect of its business, provided that it consults with Atari prior
   to the filing of such a suit, (iii) in such cases in which the damages or
     legal fees are not reasonably expected to material, or (iv) for a breach of
this Agreement; or                                                    

          (j) Other.  Take, or agree in writing or otherwise to take, any of the
     actions described in Sections 4.2(a) through (i) above, or any action which
would make any of its representations or warranties contained in this 
     Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.                                   

    4.3 Conduct of Business of Atari.  During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement 
or the Effective Time, except as expressly contemplated                         

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by this Agreement, Atari shall not do, cause or permit any of the following, or 
allow, cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of JTS:                            

(a) Material Contracts.  Enter into any material contract or
     commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of
business consistent with past practice;                               

    (b) Intellectual Property.  Transfer to any person or entity any
  rights to its Intellectual Property other than in the ordinary course of
business consistent with past practice;                               

      (c) Dispositions.  Sell, lease, license or otherwise dispose of or
   encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past 
practice;                                                             

        (d) Indebtedness.  Incur any indebtedness for borrowed money (except
     amounts borrowed under JTS's existing revolving credit line or drawdowns of
 existing credit facilities for working capital or construction purposes
only) or guarantee any such indebtedness or issue or sell any debt    
securities or guarantee any debt securities of others;                

  (e) Revaluation.  Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
     accounts receivable other than in the ordinary course of business and other
than as disclosed in the Atari Disclosure Schedule;                   

          (f) Payment of Obligations.  Pay, discharge or satisfy in an amount in
    excess of $50,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,   
contingent or otherwise) arising other than in the ordinary course of 
    business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Atari Financial Statements;      

     (g) Capital Expenditures.  Make any capital expenditures, capital
     additions or capital improvements except in the ordinary course of business
   and consistent with past practice, and in any event not to exceed $25,000
per quarter;                                                          

(h) Termination or Waiver.  Terminate or waive any right of 
substantial value, other than in the ordinary course of business;     

       (i) Employee Benefit Plans.  Adopt or amend any employee benefit or
stock purchase or option plan;                                        

    (j) Lawsuits.  Commence a lawsuit other than (i) for the routine
   collection of bills, (ii) in such cases where it in good faith determines
    that failure to commence suit would result in the material impairment of a
   valuable aspect of its business, provided that it consults with JTS prior
   to the filing of such a suit, (iii) in such cases in which the damages or
     legal fees are not reasonably expected to material, or (iv) for a breach of
this Agreement; or                                                    

          (k) Other.  Take, or agree in writing or otherwise to take, any of the
     actions described in Sections 4.3(a) through (j) above, or any action which
would make any of its representations or warranties contained in this 
     Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.                                   

   4.4 No Other JTS Negotiations.  From and after the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in 
accordance with its terms, JTS shall not, directly or indirectly (i) solicit,   
initiate discussion or engage in negotiations with any person (whether such     
negotiations are initiated by JTS or otherwise) or take any other action        
intended or designed to facilitate the efforts of any person, other than Atari, 
relating to the possible acquisition of JTS or any of its subsidiaries (whether 
by way of merger, purchase of capital stock, purchase of assets of otherwise) or
any of its or their capital stock or any material portion of its or their assets
(with any such efforts by any such person, including a firm proposal to make    
such an acquisition, to be referred to as a "JTS Acquisition Proposal") (ii)    
provide non-public information with respect to JTS or any of its subsidiaries to
any person, other than Atari, relating to a possible                            

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JTS Acquisition Proposal by any person, other than Atari, (iii) enter into an   
agreement with any person, other than Atari, providing for a possible JTS       
Acquisition Proposal, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible JTS Acquisition Proposal by any person  
other than Atari. If JTS or any of its subsidiaries receives any unsolicited    
offer or proposal to enter negotiations relating to a JTS Acquisition Proposal, 
JTS shall immediately notify Atari thereof, including information as to the     
identity of the party making any such offer or proposal and the specific terms  
of such offer or proposal, as the case may be. JTS recognizes and acknowledges  
that a breach of this Section 4.4 may cause irreparable and material loss and   
damage to Atari as to which Atari may not have an adequate remedy at law or in  
damages and that, accordingly, JTS agrees that the issuance of an injunction or 
other equitable remedy is the appropriate remedy for any such breach.           

     4.5 No Other Atari Negotiations.  From and after the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in 
accordance with its terms, Atari shall not, directly or indirectly (i) solicit, 
initiate discussion or engage in negotiations with any person (whether such     
negotiations are initiated by Atari or otherwise) or take any other action      
intended or designed to facilitate the efforts of any person, other than JTS,   
relating to the possible acquisition of Atari (whether by way of merger,        
purchase of capital stock, purchase of assets of otherwise) or any of its       
capital stock or any material portion of its assets (with any such efforts by   
any such person, including a firm proposal to make such an acquisition, to be   
referred to as an "Atari Acquisition Proposal") (ii) provide non-public         
information with respect to Atari to any person, other than JTS, relating to a  
possible Atari Acquisition Proposal by any person, other than JTS, (iii) enter  
into an agreement with any person, other than JTS, providing for a possible     
Atari Acquisition Proposal, or (iv) make or authorize any statement,            
recommendation or solicitation in support of any possible Atari Acquisition     
Proposal by any person other than JTS. If Atari receives any unsolicited offer  
or proposal to enter negotiations relating to an Atari Acquisition Proposal,    
Atari shall immediately notify JTS thereof, including information as to the     
identity of the party making any such offer or proposal and the specific terms  
of such offer or proposal, as the case may be. Atari recognizes and acknowledges
that a breach of this Section 4.5 may cause irreparable and material loss and   
damage to JTS as to which JTS may not have an adequate remedy at law or in      
damages and that, accordingly, JTS agrees that the issuance of an injunction or 
other equitable remedy is the appropriate remedy for any such breach.           
Notwithstanding the foregoing, nothing contained in this Agreement (i) shall    
prevent the Board of Directors of Atari from referring any third party to this  
Section 4.5 or providing a copy of this Agreement (other than the JTS Disclosure
Schedule) to any third party, (ii) shall prevent the Board of Directors of Atari
from considering, negotiating, approving and recommending to the shareholders of
Atari an unsolicited bona fide written Atari Acquisition Proposal which the     
Board of Directors of Atari determines in good faith (after consultation with   
its financial advisors and after consultation with outside counsel as to whether
the Board of Directors is required to do so in order to discharge properly its  
fiduciary duties to shareholders under applicable law) would result in a        
transaction more favorable to the Company's shareholders from a financial point 
of view than the transaction contemplated by this Agreement (any such Atari     
Acquisition Proposal being referred to herein as a "Superior Atari Proposal").  

ARTICLE V 

ADDITIONAL AGREEMENTS 

 5.1 Proxy Statement/Prospectus; Registration Statement.  As promptly as
practicable after the execution of this Agreement, JTS and Atari shall prepare, 
and Atari shall file with the SEC, preliminary proxy materials relating to the  
approval of the Merger and the transactions contemplated hereby by the          
stockholders of each of JTS and Atari and, as promptly as practicable following 
receipt of SEC comments thereon, JTS and Atari shall file with the SEC a        
Registration Statement on Form S-4 (or such other or successor form as shall be 
appropriate), which complies in form with applicable SEC requirements and shall 
use all reasonable efforts to cause the Registration Statement to become        
effective as soon thereafter as practicable. The Proxy Statement shall include  
the recommendation of the Board of Directors of JTS in favor of the Merger;     
provided that such recommendation may not be included or may be withdrawn if    
previously included if JTS's Board of Directors, upon written advice of its     
outside legal counsel, shall determine that to include such recommenda-         

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tion or not withdraw such recommendation if previously included would constitute
a breach of the Board's fiduciary duty under applicable law. The Proxy Statement
shall include the recommendation of the Board of Directors of Atari in favor of 
the Merger; provided that such recommendation may not be included or may be     
withdrawn if previously included if Atari's Board of Directors, upon written    
advice of its outside legal counsel, shall determine that to include such       
recommendation or not withdraw such recommendation if previously included would 
constitute a breach of the Board's fiduciary duty under applicable law.         

5.2 Meetings of Stockholders.                                         

   (a) JTS shall promptly after the date hereof take all action necessary in
accordance with Delaware Law and its Certificate of Incorporation and Bylaws to 
convene the JTS Stockholders Meeting on or prior to June 30, 1996 or as soon    
thereafter as is practicable. JTS shall consult with Atari and use all          
reasonable efforts to hold the JTS Stockholders Meeting on the same day as the  
Atari Stockholders Meeting and shall not postpone or adjourn (other than for the
absence of a quorum) the JTS Stockholders Meeting without the consent of Atari. 
JTS shall use its best efforts to solicit from stockholders of JTS proxies in   
favor of the Merger and shall take all other action necessary or advisable to   
secure the vote or consent of stockholders required to effect the Merger.       

     (b) Atari shall promptly after the date hereof take all action necessary in
accordance with Nevada Law and its Articles of Incorporation and Bylaws to      
convene the Atari Stockholders Meeting on or prior to June 30, 1996 or as soon  
thereafter as is practicable. Atari shall consult with JTS and shall use all    
reasonable efforts to hold the Atari Stockholders Meeting on the same day as the
JTS Stockholders Meeting and shall not postpone or adjourn (other than for the  
absence of a quorum) the Atari Stockholders Meeting without the consent of JTS. 
Atari shall use its best efforts to solicit from stockholders of Atari proxies  
in favor of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required to effect the Merger.       

 5.3 Access to Information.  JTS shall afford Atari and its accountants,
counsel and other representatives, reasonable access during normal business     
hours during the period prior to the Effective Time to (i) all of JTS's and its 
subsidiaries' properties, books, contracts, commitments and records, and (ii)   
all other information concerning the business, properties and personnel of JTS  
and its subsidiaries as Atari may reasonably request. JTS agrees to provide to  
Atari and its accountants, counsel and other representatives copies of internal 
financial statements promptly upon request. Atari shall afford JTS and its      
accountants, counsel and other representatives, reasonable access during normal 
business hours during the period prior to the Effective Time to (i) all of      
Atari's and its subsidiaries' properties, books, contracts, commitments and     
records, and (ii) all other information concerning the business, properties and 
personnel of Atari and its subsidiaries as JTS may reasonably request. Atari    
agrees to provide to JTS and its accountants, counsel and other representatives 
copies of internal financial statements promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall      
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.      

    5.4 Public Disclosure.  Atari and JTS shall consult with each other before
issuing any press release or otherwise making any public statement or making any
other public (or non-confidential) disclosure regarding the terms of this       
Agreement and the transactions contemplated hereby, and neither shall issue any 
such press release or make any such statement or disclosure without the prior   
approval of the other (which approval shall not be unreasonably withheld),      
except as may be required by law.                                               

    5.5 Consents; Cooperation.  Each of Atari and JTS shall promptly apply for
or otherwise seek, and use its best efforts to obtain, all consents and         
approvals required to be obtained by it for the consummation of the Merger,     
including those required under HSR, and shall use its best efforts to obtain all
necessary consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The parties 
hereto will consult and cooperate with one another, and consider in good faith  
the views of one another, in connection with any analyses, appearances,         
presentations, memoranda, briefs, arguments, opinions and proposals made or     
submitted by or on behalf of any party hereto in connection with proceedings    
under or relating to HSR or any other federal or state antitrust or fair trade  
law.                                                                            

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5.6 Continuity of Interest Certificates.                              

   (a) Schedule 5.6(a) sets forth those persons who hold one percent (1%) or
more of the outstanding shares of JTS capital stock (the "JTS Significant       
Stockholders"). JTS shall provide Atari such information and documents as Atari 
shall reasonably request for purposes of reviewing such list. JTS shall use its 
best efforts to deliver or cause to be delivered to Atari, concurrently with the
execution of this Agreement (and in each case prior to the Effective Time) from 
each of the JTS Significant Stockholders, an executed Continuity of Interest    
Certificate in a form reasonably satisfactory to counsel to Atari. The Surviving
Company shall be entitled to place appropriate legends on the certificates      
evidencing any JTS Common Stock held by such JTS Significant Stockholders, and  
to issue appropriate stop transfer instructions to the transfer agent for JTS   
Common Stock, consistent with the terms of such Continuity of Interest          
Certificates.                                                                   

    (b) Schedule 5.6(b) sets forth those persons who hold five percent (5%) or
more of the outstanding shares of Atari capital stock (the "Atari Significant   
Stockholders"). Atari shall provide JTS such information and documents as JTS   
shall reasonably request for purposes of reviewing such list. Atari shall use   
its best efforts to deliver or cause to be delivered to JTS, concurrently with  
the execution of this Agreement (and in each case prior to the Effective Time)  
from each of the Atari Significant Stockholders, an executed Continuity of      
Interest Certificate in a form reasonably satisfactory to counsel to JTS. The   
Surviving Company shall be entitled to place appropriate legends on the         
certificates evidencing any JTS Common Stock to be received by such Atari       
Significant Stockholders pursuant to the terms of this Agreement, and to issue  
appropriate stop transfer instructions to the transfer agent for JTS Common     
Stock, consistent with the terms of such Continuity of Interest Certificates.   

5.7 Voting Agreements.                                                

     (a) Prior to or concurrently with the execution of this Agreement, each JTS
stockholder named in Schedule 5.7(a) shall have executed and delivered to Atari 
a Voting Agreement substantially in the form of Exhibit C-1 attached hereto.    

 (b) Prior to or concurrently with the execution of this Agreement, each
Atari stockholder named in Schedule 5.7(b) shall have executed and delivered to 
JTS a Voting Agreement substantially in the form of Exhibit C-2 attached hereto.

     5.8 FIRPTA.  Promptly following the Closing, JTS and Atari shall deliver to
the IRS appropriate notices that their capital stock is not a "U.S. Real        
Property Interest" as defined in and in accordance with the requirements of     
Treasury Regulation Section 1.897-2(h)(2).                                      

   5.9 Legal Requirements.  Each of Atari and JTS will, and will cause their
respective subsidiaries to, take all reasonable actions necessary to comply     
promptly with all legal requirements which may be imposed on them with respect  
to the consummation of the transactions contemplated by this Agreement and will 
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in          
connection with the consummation of the transactions contemplated by this       
Agreement and will take all reasonable actions necessary to obtain (and will    
cooperate with the other parties hereto in obtaining) any consent, approval,    
order or authorization of, or any registration, declaration or filing with, any 
Governmental Entity or other person, required to be obtained or made in         
connection with the taking of any action contemplated by this Agreement.        

5.10 Blue Sky Laws.  JTS shall take such steps as may be necessary to 
comply with the securities and blue sky laws of all jurisdictions which are     
applicable to the issuance of the JTS Common Stock in connection with the       
Merger. Atari shall use its best efforts to assist JTS as may be necessary to   
comply with the securities and blue sky laws of all jurisdictions which are     
applicable in connection with the issuance of JTS Common Stock in connection    
with the Merger.                                                                

     5.11 Atari Employee Benefit Plans.  At the Effective Time, each outstanding
option to purchase shares of Atari Common Stock under the Atari Stock Option    
Plan whether vested or unvested, will be assumed by JTS. Each such option so    
assumed by JTS under this Agreement shall continue to have, and be subject to,  
the same terms and conditions set forth in the Atari Stock Option Plan          
immediately prior to the Effective Time,                                        

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except that (i) such option will be exercisable for that number of whole shares 
of JTS Common Stock equal to the product of the number of shares of Atari Common
Stock that were issuable upon exercise of such option immediately prior to the  
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest    
whole number of shares of JTS Common Stock, and (ii) the per share exercise     
price for the shares of JTS Common Stock issuable upon exercise of such assumed 
option will be equal to the quotient determined by dividing the exercise price  
per share of Atari Common Stock at which such option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest    
whole cent. It is the intention of the parties that the options so assumed by   
JTS qualify following the Effective Time as incentive stock options as defined  
in Section 422 of the Code to the extent such options qualified as incentive    
stock options prior to the Effective Time.                                      

    5.12 Atari Debentures.  Each Atari Debenture, upon its surrender to JTS at
any time at or following the Closing, shall be exchanged for a debenture in     
substantially identical form (i) representing the right to convert into that    
number of shares of JTS Common Stock equal to the number of shares of Atari     
Common Stock for which such debenture was previously convertible multiplied by  
the Exchange Ratio, rounded down to the nearest whole number of shares of JTS   
Common Stock, and (ii) with a per share conversion price for the shares of JTS  
Common Stock issuable upon exercise of such assumed debenture equal to the      
quotient determined by dividing the conversion price per share of JTS Common    
Stock at which such debenture was convertible immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent.               

   5.13 Form S-8.  JTS agrees to file, no later than five (5) days after the
Closing, a registration statement on Form S-8 covering the shares of JTS Common 
Stock issuable pursuant to outstanding options under the Atari Stock Option Plan
assumed by JTS.                                                                 

  5.14 Tax-Free Reorganization; Tax Returns.  Atari and JTS shall each use
its best efforts to cause the Merger to be treated as a "reorganization" within 
the meaning of Section 368(a)(1)(A) of the Code and shall report the Merger as  
such in all federal and, to the extent permitted, all state and local tax       
returns filed after the Effective Time of the Merger.                           

     5.15 Registration Rights.  At or prior to the Closing, JTS shall provide to
the holders of Atari Common Stock listed on Schedule 5.15 hereto, the           
registration rights set forth in that certain Registration Rights Agreement     
dated as of February 3, 1995 by and among JTS and the entities listed on Exhibit
A thereto, by amending such agreement in a form reasonably acceptable to counsel
to Atari.                                                                       

    5.16 Indemnification of Officers and Directors.  After the Effective Time,
the Surviving Corporation shall (to the extent not prohibited by law) indemnify 
and hold harmless, and pay in advance expenses, costs, damages, settlements and 
fees to each director or officer of Atari serving as such as of the date hereof 
as provided in the Nevada law or the Articles of Incorporation or bylaws of     
Atari or any indemnification agreement to which Atari and such officer or       
director is a party, in each case as in effect at the date hereof, which        
provisions shall survive the Merger and shall continue in full force and effect 
after the Effective Time.                                                       

  5.17 Listing of JTS Common Stock.  Atari and JTS shall each use its best
efforts to cause the JTS Common Stock to be approved for listing on the Nasdaq  
National Market or the American Stock Exchange, such that trading in JTS Common 
Stock shall commence on the first trading day following the Closing.            

5.18 Atari Consent to JTS Transaction with Moduler.  JTS covenants and
agrees with Atari that JTS will not amend or modify the Moduler Agreement       
without the prior written consent of Atari.                                     

  5.19 Atari SEC Documents.  Atari covenants and agrees with JTS that from
and after the date hereof, Atari will timely file all reports which it is       
required to file with the SEC pursuant to the Exchange Act.                     

5.20 Best Efforts and Further Assurances.  Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill or cause to be fulfilled the conditions to closing under  
this Agreement. Each party hereto, at the reasonable request of another party   
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary                                       

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or desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.                                               

ARTICLE VI

CONDITIONS TO THE MERGER

6.1 Conditions to Obligations of Each Party to Effect the Merger.  The
respective obligations of each party to this Agreement to consummate and effect 
this Agreement and the transactions contemplated hereby shall be subject to the 
satisfaction at or prior to the Effective Time of each of the following         
conditions, any of which may be waived, in writing, by agreement of all the     
parties hereto:                                                                 

       (a) Stockholder Approval.  This Agreement and the Merger shall have
     been approved and adopted by (i) the holders of a majority of the shares of
 JTS Common Stock and JTS Series A Preferred Stock outstanding as of the
   record date set for the JTS Stockholders Meeting, voting together, (ii) a
   majority of the shares of JTS Common Stock outstanding on the record date
  set for the JTS Stockholders Meeting, voting separtely as a class, (iii)
    the holders of at least two-thirds of the shares of JTS Series A Preferred
 outstanding as of the record date set for the JTS Stockholders Meeting,
 voting separately as a class, and (iv) the holders of a majority of the
    shares of Atari Common Stock outstanding as of the record date set for the
Atari Stockholders Meeting.                                           

          (b) Registration Statement Effective.  The SEC shall have declared the
Registration Statement effective. No stop order suspending the        
    effectiveness of the Registration Statement or any part thereof shall have
   been issued and no proceeding for that purpose, and no similar proceeding
    in respect of the Proxy Statement, shall have been initiated or threatened
    by the SEC; and all requests for additional information on the part of the
 SEC shall have been complied with to the reasonable satisfaction of the
parties hereto.                                                       

      (c) Exchange Act Registration Statement Effective.  JTS shall have
 filed a Registration Statement on Form 8-A with the SEC pursuant to the
 Exchange Act (the "Form 8-A"). The SEC shall have declared the Form 8-A
   effective. No stop orders suspending the effectiveness of the Form 8-A or
     any part thereof shall have been issued and no proceeding for that purpose,
shall have been initiated or threatened by the SEC.                   

(d) No Injunctions or Restraints; Illegality.  No temporary 
restraining order, preliminary or permanent injunction or other order 
    issued by any court of competent jurisdiction or other legal or regulatory
 restraint or prohibition preventing the consummation of the Merger, nor
   shall any proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, 
seeking any of the foregoing be pending; nor shall there be any action
     taken, or any statute, rule, regulation or order enacted, entered, enforced
 or deemed applicable to the Merger, which makes the consummation of the
   Merger illegal. In the event an injunction or other order shall have been
  issued, each party agrees to use its reasonable diligent efforts to have
such injunction or other order lifted.                                

  (e) Governmental Approval.  Atari and JTS and their respective
   subsidiaries shall have timely obtained from each Governmental Entity all
   approvals, waivers and consents, if any, necessary for consummation of or
 in connection with the Merger and the several transactions contemplated
   hereby, including such approvals, waivers and consents as may be required
under the Securities Act, under state Blue Sky laws, and under HSR.   

     (f) Tax Opinion.  Atari and JTS shall have received substantially
   identical written opinions of Wilson Sonsini Goodrich & Rosati, P.C., and
   Cooley Godward Castro Huddleson & Tatum, in form and substance reasonably
satisfactory to them, to the effect that the Merger will constitute a 
   reorganization within the meaning of Section 368(a) of the Code, and such
     opinions shall not have been withdrawn. In rendering such opinions, counsel
     shall be entitled to rely upon representations of Atari and JTS and certain
stockholders of Atari and JTS.                                        

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          (g) Listing of JTS Common Stock.  The JTS Common Stock shall have been
    approved for quotation on the Nasdaq National Market or the American Stock
Exchange.                                                             

        (h) Limit on JTS Dissenting Shares.  No more than 5.0% of the shares
  of JTS Common Stock and JTS Series A Preferred Stock shall be Dissenting
Shares or entitled to exercise any dissenters or appraisal rights with
respect to the Merger.                                                

       (i) Continuity of Interest Certificates.  Atari shall have received
 from each of the JTS Significant Stockholders an executed Continuity of
    Interest Certificate as contemplated by Section 5.6 hereof. JTS shall have
received from each of the Atari Significant Shareholders an executed  
   Continuity of Interest Certificate as contemplated by Section 5.6 hereof.

         (j) Supplemental Indentures.  To the extent required by the indenture
   related to the Atari Debentures or the indenture related to the Federated
   Debentures, Atari and JTS shall have entered into supplemental indentures
   with the trustees for such debentures, such supplemental indentures to be
   in a form reasonably satisfactory to counsel to Atari and counsel to JTS.

     6.2 Additional Conditions to Obligations of JTS.  The obligations of JTS to
consummate and effect this Agreement and the transactions contemplated hereby   
shall be subject to the satisfaction at or prior to the Effective Time of each  
of the following conditions, any of which may be waived, in writing, by JTS:    

(a) Representations, Warranties and Covenants.  (i) The     
     representations and warranties of Atari in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
    representations and warranties were made on and as of such time, except to
  the extent that the failure of such representations and warranties to be
    true and accurate in such respects has not had and could not reasonably be
  expected to have a Material Adverse Effect on Atari and its subsidiaries
   and (ii) Atari shall have performed and complied in all respects with all
covenants, obligations and conditions of this Agreement required to be
   performed and complied with by it as of the Effective Time, except to the
   extent that the failure to so perform or comply has not had and could not
   reasonably be expected to have a Material Adverse Effect on Atari and its
subsidiaries.                                                         

  (b) Certificate of Atari.  JTS shall have been provided with a
certificate executed on behalf of Atari by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:       

         (i) all representations and warranties made by Atari under this
    Agreement are true and complete in all respects except to the extent
      that the failure of such representations and warranties to be true and
 accurate in such respects has not had and could not reasonably be
expected to have a Material Adverse Effect on Atari and its     
subsidiaries; and                                               

             (ii) all covenants, obligations and conditions of this Agreement to
      be performed by Atari on or before such date have been so performed in
   all respects except to the extent that the failure to so perform or
 comply has not had and could not reasonably be expected to have a
Material Adverse Effect on Atari and its subsidiaries.          

          (c) Third Party Consents.  JTS shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose  
   consent or approval shall be required in connection with the Merger under
  any material contract of Atari or any of its Significant Subsidiaries or
otherwise.                                                            

       (d) Injunctions or Restraints on Conduct of Business.  No temporary
restraining order, preliminary or permanent injunction or other order 
    issued by any court of competent jurisdiction or other legal or regulatory
  restraint provision limiting or restricting JTS' conduct or operation of
   the business of Atari and its subsidiaries, following the Merger shall be
    in effect, nor shall any proceeding brought by an administrative agency or
   commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.                                                 

    (e) Legal Opinions.  JTS shall have received legal opinions from
  Wilson Sonsini Goodrich & Rosati, P.C. and Atari's Nevada counsel, which
opinions shall be reasonably satisfactory to counsel to JTS.          

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       (f) No Material Adverse Changes.  There shall not have occurred any
material adverse change in the condition (financial or otherwise),    
  properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Atari and its       
subsidiaries, taken as a whole.                                       

    6.3 Additional Conditions to the Obligations of Atari.  The obligations of
Atari to consummate and effect this Agreement and the transactions contemplated 
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by    
Atari:                                                                          

(a) Representations, Warranties and Covenants.  (i) The     
   representations and warranties of JTS in this Agreement shall be true and
correct in all respects on and as of the Effective Time as though such
    representations and warranties were made on and as of such time, except to
  the extent that the failure of such representations and warranties to be
    true and accurate in such respects has not had and could not reasonably be
    expected to have a Material Adverse Effect on JTS and its subsidiaries and
(ii) JTS shall have performed and complied in all respects with all   
covenants, obligations and conditions of this Agreement required to be
   performed and complied with by it as of the Effective Time, except to the
   extent that the failure to so perform or comply has not had and could not
 reasonably be expected to have a Material Adverse Effect on JTS and its
subsidiaries.                                                         

  (b) Certificate of JTS.  Atari shall have been provided with a
  certificate executed on behalf of JTS by its Chief Executive Officer and
Chief Financial Officer to the effect that, as of the Effective Time: 

       (i) all representations and warranties made by JTS under this
     Agreement are true and complete in all respects; except to the extent
      that the failure of such representations and warranties to be true and
 accurate in such respects has not had and could not reasonably be
       expected to have a Material Adverse Effect on JTS and its subsidiaries;
and                                                             

             (ii) all covenants, obligations and conditions of this Agreement to
        be performed by JTS on or before such date have been so performed in all
      respects except to the extent that the failure to so perform or comply
   has not had and could not reasonably be expected to have a Material
Adverse Effect on JTS and its subsidiaries.                     

   (c) Third Party Consents.  Atari shall have been furnished with
 evidence satisfactory to it of the consent or approval of those persons
   whose consent or approval shall be required in connection with the Merger
     under any material contract of JTS or any of its subsidiaries or otherwise.

       (d) Injunctions or Restraints on Conduct of Business.  No temporary
restraining order, preliminary or permanent injunction or other order 
    issued by any court of competent jurisdiction or other legal or regulatory
  restraint provision limiting or restricting JTS' conduct or operation of
    the business of JTS and its subsidiaries, following the Merger shall be in
 effect, nor shall any proceeding brought by an administrative agency or
   commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending.                                                 

      (e) Legal Opinion.  Atari shall have received a legal opinion from
    Cooley Godward Castro Huddleson & Tatum, which opinion shall be reasonably
satisfactory to counsel to Atari.                                     

       (f) No Material Adverse Changes.  There shall not have occurred any
material adverse change in the condition (financial or otherwise),    
  properties, assets (including intangible assets), liabilities, business,
     operations, results of operations or prospects of JTS and its subsidiaries,
taken as a whole.                                                     

     (g) Conversion of JTS Series A Preferred Stock.  Each outstanding
     share of JTS Series A Preferred Stock shall be converted into one (1) share
of JTS Common Stock.                                                  

        (h) Right of First Refusal and Co-Sale Agreement.  The provisions of
  the Right of First Refusal and Co-Sale Agreement dated as of February 3,
 1995 by and among JTS and certain other parties, as amended, shall have
terminated.                                                           

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ARTICLE VII 

TERMINATION, AMENDMENT AND WAIVER 

7.1 Termination.  Notwithstanding approval of this Agreement by the   
stockholders of JTS or Atari, this Agreement may be terminated and the Merger   
abandoned at any time prior to the Effective Time:                              

(a) by mutual written consent of JTS and Atari;             

       (b) by Atari if (i) it is not in material breach of its obligations
 under this Agreement and there has been a breach of any representation,
    warranty, covenant or agreement contained in this Agreement on the part of
 JTS, which has or can reasonably be expected to have a Material Adverse
   Effect on JTS and its subsidiaries, taken as a whole, and such breach has
   not been cured within five (5) days after written notice to JTS (provided
 that, no cure period shall be required for a breach which by its nature
cannot be cured) or (ii) there shall be any final action taken, or any
     statute, rule, regulation or order enacted, promulgated or issued or deemed
   applicable to the Merger by any Governmental Entity, which would prohibit
   JTS's ownership or operation of all or a material portion of the business
of Atari or any of its subsidiaries, or compel Atari or any of Atari's
subsidiaries or JTS or any of JTS's subsidiaries to dispose of or hold
    separate or otherwise relinquish all or a material portion of the business
  or assets of JTS or any of JTS's subsidiaries or Atari or any of Atari's
subsidiaries as a result of the Merger.                               

     (c) by JTS if (i) it is not in material breach of its obligations
 under this Agreement and there has been a breach of any representation,
    warranty, covenant or agreement contained in this Agreement on the part of
   Atari, which has or can reasonably be expected to have a Material Adverse
     Effect on Atari and its subsidiaries, taken as a whole, and such breach has
     not been cured within five (5) days after written notice to Atari (provided
 that, no cure period shall be required for a breach which by its nature
cannot be cured) or (ii) there shall be any final action taken, or any
     statute, rule, regulation or order enacted, promulgated or issued or deemed
   applicable to the Merger by any Governmental Entity, which would prohibit
   JTS's ownership or operation of all or a material portion of the business
of JTS or any of its subsidiaries, or compel Atari or any of Atari's  
subsidiaries or JTS or any of JTS's subsidiaries to dispose of or hold
    separate or otherwise relinquish all or a material portion of the business
  or assets of JTS or any of JTS's subsidiaries or Atari or any of Atari's
subsidiaries as a result of the Merger.                               

        (d) by any party hereto if: (i) the Closing has not occurred by July
     31, 1996, (ii) there shall be a final, non-appealable order of a federal or
  state court in effect preventing consummation of the Merger; (iii) there
    shall be any final action taken, or any statute, rule, regulation or order
  enacted, promulgated or issued or deemed applicable to the Merger by any
  Governmental Entity which would make consummation of the Merger illegal;
    (iv) if JTS's stockholders do not approve the Merger and this Agreement by
     the requisite vote at JTS Stockholders Meeting; (v) if Atari's stockholders
   do not approve the Merger and this Agreement by the requisite vote at the
   Atari Stockholders Meeting; or (vi) if the Atari Board of Directors shall
have accepted, approved or recommended to the shareholders of Atari a 
Superior Atari Proposal.                                              

    Where action is taken to terminate this Agreement pursuant to this Section
7.1, it shall be sufficient for such action to be authorized by the Board of    
Directors of the party taking such action and for such party to then notify the 
other parties in writing of such action.                                        

   7.2 Effect of Termination.  In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Atari and JTS or their       
respective officers, directors, stockholders or affiliates, except to the extent
that such termination results from the breach by a party hereto of any of its   
representations, warranties or covenants set forth this Agreement; provided     
that, the provisions of Section 7.3 (Expenses) and this Section 7.2 shall remain
in full force and effect and survive any termination of this Agreement.         

7.3 Expenses.  Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions        
contemplated hereby shall be paid by the party incurring such expense, except   
that expenses incurred in connection with printing the Proxy Materials and the  
S-4                                                                             

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Registration Statement, registration and filing fees incurred in connection with
the S-4 Registration Statement and the Proxy Materials and fees, costs and      
expenses associated with compliance with applicable state securities laws,      
listing of the JTS Common Stock on the Nasdaq National Market or the American   
Stock Exchange, and with HSR in connection with the Merger shall be shared      
equally by JTS and Atari.                                                       

 7.4 Amendment.  The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in       
writing signed on behalf of each of the parties hereto; provided that an        
amendment made subsequent to adoption of the Agreement by the stockholders of   
JTS or Atari shall not (i) alter or change the amount or kind of consideration  
to be received on conversion of the Atari Common Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be     
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the holders
of Atari Common Stock.                                                          

   7.5 Extension; Waiver.  At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the          
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such  
party contained herein or in any document delivered pursuant hereto and (iii)   
waive compliance with any of the agreements or conditions for the benefit of    
such party contained herein. Any agreement on the part of a party hereto to any 
such extension or waiver shall be valid only if set forth in an instrument in   
writing signed on behalf of such party.                                         

ARTICLE VIII

GENERAL PROVISIONS

  8.1 Non-Survival at Effective Time.  The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,   
except that the agreements set forth in Article I, Section 5.8 (FIRPTA), Section
5.11 (Employee Benefit Plans), Section 5.12 (Atari Debentures), Section 5.13    
(Form S-8), Section 5.14 (Tax Free Reorganization; Tax Returns), Section 5.16   
(Indemnification), Section 5.20 (Best Efforts and Further Assurances), 7.3      
(Expenses), and this Article VIII shall survive the Effective Time.             

8.2 Absence of Third Party Beneficiary Rights.  No provisions of this 
Agreement are intended, nor will be interpreted, to provide or create any third 
party beneficiary rights or any other rights of any kind in any client,         
customer, affiliate, stockholder, partner or employee of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,      
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.                                                      

  8.3 Notices.  All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial      
delivery service, or mailed by registered or certified mail (return receipt     
requested) or sent via facsimile (with confirmation of receipt) to the parties  
at the following addresses (or at such other address for a party as shall be    
specified by like notice):                                                      

(a) if to Atari, to:                                                  

Atari Corporation                                               
455 South Mathilda Avenue                                       
Sunnyvale, California 94086                                     
Attention: Jack Tramiel                                         
Facsimile No.: (408) 328-0909                                   
Telephone No.: (408) 328-0900                                   

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with a copy to:                                                 

Wilson Sonsini Goodrich & Rosati, P.C.                          
650 Page Mill Road                                              
Palo Alto, California 94304-1050                                
Attention: Jeffrey D. Saper, Esq.                               
Facsimile No.: (415) 493-6811                                   
Telephone No.: (415) 493-9300                                   

(b) if to JTS, to:                                                    

JTS Corporation                                                 
166 Baypointe Parkway                                           
San Jose, California 95134                                      
Attention: David T. Mitchell                                    
Facsimile No.: (408) 468-1619                                   
Telephone No.: (408) 468-1800                                   

with a copy to:                                                 

Cooley Godward Castro Huddleson & Tatum                         
Five Palo Alto Square                                           
Palo Alto, California 94306                                     
Attention: Andrei M. Manoliu, Esq.                              
Facsimile No.: (415) 857-0663                                   
Telephone No.: (415) 843-5000                                   

8.4 Interpretation.  When a reference is made in this Agreement to    
Exhibits, such reference shall be to an Exhibit to this Agreement unless        
otherwise indicated. The words "include," "includes" and "including" when used  
herein shall be deemed in each case to be followed by the words "without        
limitation." The table of contents and headings contained in this Agreement are 
for reference purposes only and shall not affect in any way the meaning or      
interpretation of this Agreement.                                               

    8.5 Counterparts.  This Agreement may be executed in counterparts, both of
which shall be considered one and the same agreement and shall become effective 
when one or more counterparts have been signed by each of the parties and       
delivered to the other parties, it being understood that all parties need not   
sign the same counterpart.                                                      

8.6 Entire Agreement; Nonassignability; Parties in Interest.  This    
Agreement and the documents and instruments and other agreements specifically   
referred to herein or delivered pursuant hereto, including the Exhibits, the    
Schedules, including the JTS Disclosure Schedule and the Atari Disclosure       
Schedule (a) constitute the entire agreement among the parties with respect to  
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter     
hereof; (b) are not intended to confer upon any other person any rights or      
remedies hereunder; and (c) shall not be assigned by operation of law or        
otherwise.                                                                      

  8.7 Severability.  In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent         
jurisdiction to be illegal, void or unenforceable, the remainder of this        
Agreement will continue in full force and effect and the application of such    
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and         
enforceable provision that will achieve, to the extent possible, the economic,  
business and other purposes of such void or unenforceable provision.            

    8.8 Remedies Cumulative.  Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with 
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the 
exercise of any other remedy.                                                   

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  8.9 Governing Law.  This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law. Each of 
the parties hereto irrevocably consents to the exclusive jurisdiction of any    
court located in the County of Santa Clara, California, in connection with any  
matter based upon or arising out of this Agreement or the matters contemplated  
herein, agrees that process may be served upon them in any manner authorized by 
the laws of the State of California for such persons and waives and covenants   
not to assert or plead any objection which they might otherwise have to such    
jurisdiction and such process.                                                  

   8.10 Rules of Construction.  The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding 
or rule of construction providing that ambiguities in an agreement or other     
document will be construed against the party drafting such agreement or         
document.                                                                       

8.11 Amendment and Restatement.  The parties hereto hereby consent and
agree that this Agreement shall constitute an amendment and restatement of that 
certain Agreement and Plan of Reorganization by and among Atari, JTS and JTS    
Acquisition Corporation dated as of February 12, 1996.                          

     IN WITNESS WHEREOF, JTS and Atari have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized, all as of 
the date first written above.                                                   

                    JT STORAGE, INC.

                                  By:     /s/  David T. Mitchell

                                            ------------------------------------
                                           President

                     ATARI CORPORATION

                               By:        /s/  Sam Tramiel

                                            ------------------------------------
                                           President

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APPENDIX B-1

FORM OF ATARI VOTING AGREEMENT

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APPENDIX B-1

ATARI CORPORATION 

AMENDED AND RESTATED
VOTING AGREEMENT

  This AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made and
entered into as of April 8, 1996, by and among JT STORAGE, INC., a Delaware     
corporation ("JTS"), and the undersigned stockholder ("Stockholder") of ATARI   
CORPORATION, a Nevada corporation ("Atari").                                    

RECITALS

A. Whereas JTS and the Stockholder desire to amend that certain Voting
Agreement, dated as of February 12, 1996, and related Irrevocable Proxy to Vote 
Stock of Atari Corporation dated as of February 12, 1996.                       

B. Pursuant to an Amended and Restated Agreement and Plan of          
Reorganization, dated as of April 8, 1996 (the "Reorganization Agreement") by   
and among JTS and Atari, Atari is merging with and into JTS (the "Merger");     

    C. The Reorganization Agreement amends and restates that certain Agreement
and Plan of Reorganization dated as of February 12, 1996, by and among JTS,     
Atari and JT Acquisition Corporation ("Newco");                                 

 D. Pursuant to Section 5.7 of the Reorganization Agreement, in order to
induce JTS to enter into the Reorganization Agreement, Atari has agreed to      
solicit the proxy of certain significant stockholders of Atari on behalf of JTS 
and to cause certain significant stockholders of Atari to execute and delivery  
Voting Agreements to JTS;                                                       

    E. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of shares of the outstanding Common Stock, $0.01 par value per share, of Atari  
as is indicated on the signature page of this Agreement (the "Shares"); and     

 F. In consideration of the execution of the Reorganization Agreement by
JTS, Stockholder agrees not to transfer or otherwise dispose of any of the      
Shares, or any other shares of capital stock of Atari acquired by Stockholder   
hereafter and prior to the Expiration Date (as defined in Section 1.1 below),   
and agrees to vote the Shares and any other such shares of capital stock of     
Atari so as to facilitate consummation of the Merger.                           

NOW, THEREFORE, the parties agree as follows:                         

1. AGREEMENT TO RETAIN SHARES.                                        

   1.1 TRANSFER AND ENCUMBRANCE.  Stockholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge (except 
in connection with a bona fide loan transaction, provided that any pledgee      
agrees not to transfer, sell, exchange, pledge or otherwise dispose of or       
encumber the Shares or any New Shares (as defined in Section 1.2) prior to the  
Expiration Date and to be subject to the Proxy (as defined in Section 3)) or    
otherwise dispose of or encumber the Shares or any New Shares, or to make any   
offer or agreement relating thereto, at any time prior to the Expiration Date.  
As used herein, the term ("Expiration Date") shall mean the earlier to occur of 
(i) such date and time as the Merger shall become effective in accordance with  
the terms and provisions of the Reorganization Agreement, (ii) the close of     
business on December 31, 1996 and (iii) the date of termination of the          
Reorganization Agreement.                                                       

 1.2 NEW SHARES.  Stockholder agrees that any shares of capital stock of
Atari that Stockholder purchases or with respect to which Stockholder otherwise 
acquires beneficial ownership after the date of this Agreement and prior to the 
Expiration Date ("New Shares") shall be subject to the terms and conditions of  
this Agreement to the same extent as if they constituted Shares.                

     2. AGREEMENT TO VOTE SHARES.  At every meeting of the stockholders of Atari
called with respect to any of the following, and at every adjournment thereof,  
and on every action or approval by written consent of                           

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the stockholders of Atari with respect to any of the following, Stockholder     
shall vote the Shares and any New Shares in favor of approval of the            
Reorganization Agreement and the Merger and any matter that could reasonably be 
expected to facilitate the Merger. This Agreement is intended to bind           
Stockholder as a stockholder of Atari only with respect to the specific matters 
set forth herein and shall not prohibit Stockholder from acting in accordance   
with his or her fiduciary duties, if applicable, as an officer or director of   
Atari.                                                                          

   3. IRREVOCABLE PROXY.  Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to JTS a proxy in the form attached hereto as     
Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in   
Section 78.355 of the Nevada General Corporation Law, covering the total number 
of Shares and New Shares beneficially owed or as to which beneficial ownership  
is acquired (as such term is defined in Rule 13d-3 under the Exchange Act) by   
Stockholder set forth therein.                                                  

   4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER.  Stockholder
hereby represents, warrants and covenants to JTS that Stockholder (i) is the    
beneficial owner of the Shares, which at the date of this Agreement are and at  
all times up until the Expiration Date will be free and clear of any liens,     
claims, options, charges or other encumbrances; (ii) does not beneficially own  
any shares of capital stock of Atari other than the Shares (excluding shares as 
to which Stockholder currently disclaims beneficial ownership in accordance with
applicable law); and (iii) has full power and authority to make, enter into and 
carry out the terms of this Agreement and the Proxy.                            

5. ADDITIONAL DOCUMENTS.  Stockholder hereby covenants and agrees to  
execute and deliver any additional documents necessary or desirable, in the     
reasonable opinion of JTS, to carry out the purpose and intent of this          
Agreement.                                                                      

  6. CONSENT AND WAIVER.  Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms 
of any agreement to which Stockholder is a party or pursuant to any rights      
Stockholder may have.                                                           

7. TERMINATION.  This Agreement and the Proxy delivered in connection 
herewith shall terminate and shall have no further force or effect as of the    
Expiration Date.                                                                

8. MISCELLANEOUS.                                                     

    8.1 SEVERABILITY.  If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or   
unenforceable, then the remainder of the terms, provisions, covenants and       
restrictions of this Agreement shall remain in full force and effect and shall  
in no way be affected, impaired or invalidated.                                 

8.2 BINDING EFFECT AND ASSIGNMENT.  This Agreement and all of the     
provisions hereof shall be binding upon and inure to the benefit of the parties 
hereto and their respective successors and permitted assigns, but, except as    
otherwise specifically provided herein, neither this Agreement nor any of the   
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other.                  

8.3 AMENDMENT AND MODIFICATION.  This Agreement may not be modified,  
amended, altered or supplemented except by the execution and delivery of a      
written agreement executed by the parties hereto.                               

8.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF.  The parties hereto      
acknowledge that JTS 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 
Stockholder set forth herein. Therefore, it is agreed that, in addition to any  
other remedies that may be available to JTS upon any such violation, JTS shall  
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to JTS at law or in equity.   

  8.5 NOTICES.  All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial      
delivery service, or mailed by registered or certified mail (return             

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receipt requested) or sent via facsimile (with confirmation of receipt) to the  
parties at the following addresses (or at such other address for a party as     
shall be specified by like notice):                                             

(a)  if to JTS, to:                                             

JTS Corporation                                         
166 Baypointe Parkway                                   
San Jose, California 95134                              
Attention: David T. Mitchell                            
Facsimile No.: (408) 468-1619                           
Telephone No.: (408) 468-1800                           

With a copy to:                                         

Cooley Godward Castro Huddleson & Tatum                 
Five Palo Alto Square                                   
3000 El Camino Real                                     
Palo Alto, California 94306                             
Attention: Andrei M. Manoliu, Esq.                      
Facsimile No.: (415) 857-0663                           
Telephone No.: (415) 843-5000                           

(b)  if to Stockholder, to the address set forth below.         

8.6 GOVERNING LAW.  This Agreement and the Proxy shall be governed by,
construed and enforced in accordance with the internal laws of the State of     
Nevada.                                                                         

8.7 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 matters.                                                

   8.8 COUNTERPART.  This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute  
one and the same agreement.                                                     

  8.9 EFFECT OF HEADINGS.  The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement. 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly 
executed on the day and year first above written.                               

                    JT STORAGE, INC.

       By:
                                          --------------------------------------

          Title:
                                          --------------------------------------

               STOCKHOLDER

       By:
                                          --------------------------------------

          Title:
                                          --------------------------------------

                                     Stockholder's Address for Notice:

                                          --------------------------------------

                                          --------------------------------------

                              Shares beneficially owned:

                    ------------------------------------------------------------
                                shares of Atari Common Stock

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EXHIBIT A 
IRREVOCABLE PROXY TO VOTE STOCK OF
ATARI CORPORATION 

The undersigned stockholder of Atari Corporation, a Nevada corporation
("Atari"), hereby irrevocably (to the full extent permitted by Section 78.355 of
the Nevada General Corporation Law) appoints the members of the Board of        
Directors of JT Storage, Inc., a Delaware corporation ("JTS"), and each of them,
as the sole and exclusive attorneys 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 Atari that now are or     
hereafter may be beneficially owned by the undersigned, and any and all other   
shares or securities of Atari issued or issuable in respect thereof on or after 
the date hereof (collectively, the "Shares") in accordance with the terms of    
this Proxy. The Shares beneficially owned by the undersigned stockholder of     
Atari as of the date of this Proxy are listed below. 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 agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration    
Date (as defined below).                                                        

    This Proxy is irrevocable (to the extent provided in Section 78.355 of the
Nevada General Corporation Law), is granted pursuant to that certain Amended and
Restated Voting Agreement dated as of the date hereof, by and among JTS and the 
undersigned stockholder (the "Voting Agreement") which amends and restates that 
certain Voting Agreement, dated as of February 12, 1996, by and among JTS and   
the undersigned stockholder, and is granted in consideration of JTS entering    
into that certain Amended and Restated Agreement and Plan of Reorganization by  
and among JTS and Atari (the "Reorganization Agreement") which amends and       
restates that certain Agreement and Plan of Reorganization by and among JTS,    
Atari and JTS Acquisition Corporation dated as of February 12, 1996. The        
Reorganization Agreement provides for the merger of Atari with and into JTS. As 
used herein, the term "Expiration Date" shall mean the earlier to occur of (i)  
such date and time as the Merger shall become effective in accordance with the  
terms and provisions of the Reorganization Agreement, (ii) the close of business
on December 31, 1996 and (iii) the date of termination of the Reorganization    
Agreement.                                                                      

The attorneys and proxies named above, and each of them are hereby    
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to 
exercise all voting and other rights of the undersigned with respect to the     
Shares (including, without limitation, the power to execute and deliver written 
consents pursuant to Section 78.320 of the Nevada General Corporation Law), at  
every annual, special or adjourned meeting of the stockholders of Atari and in  
every written consent in lieu of such meeting in favor of approval of the Merger
and the Reorganization Agreement and in favor of any matter that could          
reasonably be expected to facilitate the Merger. The attorneys and proxies named
above may not exercise this Proxy on any other matter except as provided above. 
The undersigned stockholder may vote the Shares on all other matters.           

Any obligation of the undersigned hereunder shall be binding upon the 
successors and assigns of the undersigned. This Proxy is irrevocable to the     
extent provided in Section 78.355 of the Nevada General Corporation Law.        

Dated: April 8, 1996                                                            
                              (Signature of Stockholder)

Shares beneficially owned:                (Print Name of Stockholder)           

________ shares of Atari Common Stock                                           

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APPENDIX B-2

FORM OF JTS VOTING AGREEMENT

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APPENDIX B-2

JT STORAGE, INC.

AMENDED AND RESTATED
VOTING AGREEMENT

  This AMENDED AND RESTATED VOTING AGREEMENT (the "Agreement") is made and
entered into as of April 8, 1996, by and among ATARI CORPORATION, a Nevada      
corporation ("Atari"), and the undersigned stockholder ("Stockholder") of JT    
STORAGE, INC., a Delaware corporation ("JTS").                                  

RECITALS

  A. Whereas Atari and the Stockholder desire to amend that certain Voting
Agreement, dated as of February 12, 1996, and related Irrevocable Proxy to Vote 
Stock of JT Storage, Inc., dated as of February 12, 1996.                       

B. Pursuant to an Amended and Restated Agreement and Plan of          
Reorganization, dated as of April   , 1996 (the "Reorganization Agreement") by  
and among JTS and Atari, Atari is merging with and into JTS (the "Merger");     

    C. The Reorganization Agreement amends and restates that certain Agreement
and Plan of Reorganization dated as of February 12, 1996, by and among JTS,     
Atari and JT Acquisition Corporation;                                           

 D. Pursuant to Section 5.7 of the Reorganization Agreement, in order to
induce Atari to enter into the Reorganization Agreement, JTS has agreed to      
solicit the proxy of certain significant stockholders of JTS on behalf of Atari 
and to cause certain significant stockholders of JTS to execute and delivery    
Voting Agreements to Atari;                                                     

    E. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such number
of shares of the outstanding Common Stock, $0.000001 par value per share, of JTS
as is indicated on the signature page of this Agreement (the "Shares"); and     

 F. In consideration of the execution of the Reorganization Agreement by
Atari, Stockholder agrees not to transfer or otherwise dispose of any of the    
Shares, or any other shares of capital stock of JTS acquired by Stockholder     
hereafter and prior to the Expiration Date (as defined in Section 1.1 below),   
and agrees to vote the Shares and any other such shares of capital stock of JTS 
so as to facilitate consummation of the Merger.                                 

NOW, THEREFORE, the parties agree as follows:                         

1. AGREEMENT TO RETAIN SHARES.                                        

   1.1 TRANSFER AND ENCUMBRANCE.  Stockholder agrees not to transfer (except
as may be specifically required by court order), sell, exchange, pledge (except 
in connection with a bona fide loan transaction, provided that any pledgee      
agrees not to transfer, sell, exchange, pledge or otherwise dispose of or       
encumber the Shares or any New Shares (as defined in Section 1.2) prior to the  
Expiration Date and to be subject to the Proxy (as defined in Section 3)) or    
otherwise dispose of or encumber the Shares or any New Shares, or to make any   
offer or agreement relating thereto, at any time prior to the Expiration Date.  
As used herein, the term ("Expiration Date") shall mean the earlier to occur of 
(i) such date and time as the Merger shall become effective in accordance with  
the terms and provisions of the Reorganization Agreement, (ii) the close of     
business on December 31, 1996 and (iii) the date of termination of the          
Reorganization Agreement.                                                       

     1.2 NEW SHARES.  Stockholder agrees that any shares of capital stock of JTS
that Stockholder purchases or with respect to which Stockholder otherwise       
acquires beneficial ownership after the date of this Agreement and prior to the 
Expiration Date ("New Shares") shall be subject to the terms and conditions of  
this Agreement to the same extent as if they constituted Shares.                

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   2. AGREEMENT TO VOTE SHARES.  At every meeting of the stockholders of JTS
called with respect to any of the following, and at every adjournment thereof,  
and on every action or approval by written consent of the stockholders of JTS   
with respect to any of the following, Stockholder shall vote the Shares and any 
New Shares in favor of approval of the Reorganization Agreement and the Merger  
and any matter that could reasonably be expected to facilitate the Merger. This 
Agreement is intended to bind Stockholder as a stockholder of JTS only with     
respect to the specific matters set forth herein and shall not prohibit         
Stockholder from acting in accordance with his or her fiduciary duties, if      
applicable, as an officer or director of Atari.                                 

   3. IRREVOCABLE PROXY.  Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Atari a proxy in the form attached hereto as   
Exhibit A (the "Proxy"), which shall be irrevocable to the extent provided in   
Section 212 of the Delaware General Corporation Law, covering the total number  
of Shares and New Shares beneficially owed or as to which beneficial ownership  
is acquired (as such term is defined in Rule 13d-3 under the Exchange Act) by   
Stockholder set forth therein.                                                  

   4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER.  Stockholder
hereby represents, warrants and covenants to Atari that Stockholder (i) is the  
beneficial owner of the Shares, which at the date of this Agreement are and at  
all times up until the Expiration Date will be free and clear of any liens,     
claims, options, charges or other encumbrances; (ii) does not beneficially own  
any shares of capital stock of JTS other than the Shares (excluding shares as to
which Stockholder currently disclaims beneficial ownership in accordance with   
applicable law); and (iii) has full power and authority to make, enter into and 
carry out the terms of this Agreement and the Proxy.                            

5. ADDITIONAL DOCUMENTS.  Stockholder hereby covenants and agrees to  
execute and deliver any additional documents necessary or desirable, in the     
reasonable opinion of Atari, to carry out the purpose and intent of this        
Agreement.                                                                      

  6. CONSENT AND WAIVER.  Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms 
of any agreement to which Stockholder is a party or pursuant to any rights      
Stockholder may have.                                                           

7. TERMINATION.  This Agreement and the Proxy delivered in connection 
herewith shall terminate and shall have no further force or effect as of the    
Expiration Date.                                                                

8. MISCELLANEOUS.                                                     

    8.1 SEVERABILITY.  If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or   
unenforceable, then the remainder of the terms, provisions, covenants and       
restrictions of this Agreement shall remain in full force and effect and shall  
in no way be affected, impaired or invalidated.                                 

8.2 BINDING EFFECT AND ASSIGNMENT.  This Agreement and all of the     
provisions hereof shall be binding upon and inure to the benefit of the parties 
hereto and their respective successors and permitted assigns, but, except as    
otherwise specifically provided herein, neither this Agreement nor any of the   
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other.                  

8.3 AMENDMENT AND MODIFICATION.  This Agreement may not be modified,  
amended, altered or supplemented except by the execution and delivery of a      
written agreement executed by the parties hereto.                               

8.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF.  The parties hereto      
acknowledge that Atari 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 
Stockholder set forth herein. Therefore, it is agreed that, in addition to any  
other remedies that may be available to Atari upon any such violation, Atari    
shall have the right to enforce such covenants and agreements by specific       
performance, injunctive relief or by any other means available to Atari at law  
or in equity.                                                                   

  8.5 NOTICES.  All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial      
delivery service, or mailed by registered or certified mail (return             

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receipt requested) or sent via facsimile (with confirmation of receipt) to the  
parties at the following addresses (or at such other address for a party as     
shall be specified by like notice):                                             

(a)  if to Atari, to:                                           

Atari Corporation                                       
455 South Mathilda Avenue                               
Sunnyvale, California 94086                             
Attention: Jack Tramiel                                 
Facsimile No.: (408) 328-0909                           
Telephone No.: (408) 328-0900                           

With a copy to:                                         

Wilson, Sonsini, Goodrich & Rosati, P.C.                
650 Page Mill Road                                      
Palo Alto, California 94304-1050                        
Attention: Jeffrey D. Saper, Esq.                       
Facsimile No.: (415) 493-6811                           
Telephone No.: (415) 493-9300                           

(b)  if to Stockholder, to the address set forth below.         

8.6 GOVERNING LAW.  This Agreement and the Proxy shall be governed by,
construed and enforced in accordance with the internal laws of the State of     
Delaware.                                                                       

8.7 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 matters.                                                

   8.8 COUNTERPART.  This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute  
one and the same agreement.                                                     

  8.9 EFFECT OF HEADINGS.  The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement. 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly 
executed on the day and year first above written.                               
                     ATARI CORPORATION

       By:
                                          --------------------------------------

          Title:
                                          --------------------------------------

               STOCKHOLDER

       By:
                                          --------------------------------------

          Title:
                                          --------------------------------------

                                     Stockholder's Address for Notice:

                                          --------------------------------------

                                          --------------------------------------

                              Shares beneficially owned:

                          ------------------------------------------------------
                              shares of JTS Common Stock

                          ------------------------------------------------------
                                          shares of JTS Series A Preferred Stock

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EXHIBIT A 

IRREVOCABLE PROXY TO VOTE STOCK OF
JT STORAGE, INC.

The undersigned stockholder of JT Storage, Inc. a Delaware corporation
("JTS"), hereby irrevocably (to the full extent permitted by Section 212 of the 
Delaware General Corporation Law) appoints the members of the Board of Directors
of Atari Corporation, a Nevada corporation ("Atari"), and each of them, as the  
sole and exclusive attorneys 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 JTS that now are or hereafter  
may be beneficially owned by the undersigned, and any and all other shares or   
securities of JTS issued or issuable in respect thereof on or after the date    
hereof (collectively, the "Shares") in accordance with the terms of this Proxy. 
The Shares beneficially owned by the undersigned stockholder of JTS as of the   
date of this Proxy are listed below. 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 agrees not to grant any subsequent
proxies with respect to the Shares until after the Expiration Date (as defined  
below).                                                                         

 This Proxy is irrevocable (to the extent provided in Section 212 of the
Delaware General Corporation Law), is granted pursuant to that certain Amended  
and Restated Voting Agreement dated as of the date hereof, by and among Atari   
and the undersigned stockholder (the "Voting Agreement") which amends and       
restates that certain Voting Agreement, dated as of February 12, 1996, by and   
among Atari and the undersigned stockholder, and is granted in consideration of 
Atari entering into that certain Amended and Restated Agreement and Plan of     
Reorganization by and among JTS and Atari (the "Reorganization Agreement") which
amends and restates that certain Agreement and Plan of Reorganization by and    
among JTS, Atari and JTS Acquisition Corporation dated as of February 12, 1996. 
The Reorganization Agreement provides for the merger of Atari with and into JTS.
As used herein, the term "Expiration Date" shall mean the earlier to occur of   
(i) such date and time as the Merger shall become effective in accordance with  
the terms and provisions of the Reorganization Agreement, (ii) the close of     
business on December 31, 1996 and (iii) the date of termination of the          
Reorganization Agreement.                                                       

The attorneys and proxies named above, and each of them are hereby    
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to 
exercise all voting and other rights of the undersigned with respect to the     
Shares (including, without limitation, the power to execute and deliver written 
consents pursuant to Section 228 of the Delaware General Corporation Law), at   
every annual, special or adjourned meeting of the stockholders of JTS and in    
every written consent in lieu of such meeting in favor of approval of the Merger
and the Reorganization Agreement and in favor of any matter that could          
reasonably be expected to facilitate the Merger. The attorneys and proxies named
above may not exercise this Proxy on any other matter except as provided above. 
The undersigned stockholder may vote the Shares on all other matters.           

Any obligation of the undersigned hereunder shall be binding upon the 
successors and assigns of the undersigned. This Proxy is irrevocable to the     
extent provided in Section 212 of the Delaware General Corporation Law.         

                                                        [Enlarge/Download Table]
                                                                                            
Dated:  April 8, 1996                                                                       
                                              ----------------------------------------------
                                              (Signature of Stockholder)                    
                                              ----------------------------------------------
Shares beneficially owned:                    (Print Name of Stockholder)                   
______ shares of JTS Common Stock                                                           
______ shares of JTS Series A Preferred Stock                                               

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APPENDIX C

MONTGOMERY SECURITIES FAIRNESS OPINION

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MONTGOMERY LETTERHEAD 

                    February 5, 1996

Board of Directors                                                              
Atari Corporation                                                               
1196 Borregas Avenue                                                            
Sunnyvale, California 94089                                                     

Gentlemen:                                                                      

     We understand that Atari Corporation, a Nevada corporation (the "Company"),
JT Storage, Inc., a Delaware corporation ("JTS"), and JTS Acquisition           
Corporation, a Delaware corporation ("Newco"), propose to enter into an         
Agreement and Plan of Reorganization, dated as of February 12, 1996 (the        
"Reorganization Agreement"), pursuant to which the Company and JTS will be      
merged with and into Newco, which will be the surviving entity (the "Merger").  
Pursuant to the Merger, as more fully described in the February 2, 1996 draft of
the Reorganization Agreement provided to us by the Company, we understand that  
each outstanding share of (a) the common stock of the Company, $.01 par value   
per share (the "Company Common Stock"), (b) the common stock of JTS, par value  
$.000001 per share, and (c) the Series A preferred stock of JTS, par value      
$.000001 per share, in each case not owned directly or indirectly by Newco, will
be converted into 1.00 shares (the "Exchange Ratio") of the common stock, par   
value $.01 per share, of Newco ("Newco Common Stock"). We understand that,      
immediately following the Merger, the former securityholders of the Company and 
JTS will own approximately 61% and 39% respectively, of the Newco Common Stock  
on a fully diluted basis. We also understand that Newco is a newly formed       
corporation with no material assets and no liabilities.                         

You have asked for our opinion as investment bankers as to whether the
Exchange Ratio to be paid by Newco pursuant to the Merger is fair to the Company
from a financial point of view, as of the date hereof.                          

   In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to the Company,
including the consolidated financial statements for recent years and interim    
periods to September 30, 1995, and certain other relevant financial and         
operating data relating to the Company and JTS made available to us from        
published sources and from the internal records of the Company and JTS,         
including the consolidated financial statements of JTS for recent years and     
interim periods to November 30, 1995; (ii) reviewed the February 2, 1996 draft  
of the Reorganization Agreement provided to us by the Company; (iii) reviewed   
certain historical market prices and trading volumes of the Company Common Stock
as reported in the American Stock Exchange; (iv) compared the Company and JTS   
from a financial point of view with certain other companies in the computer     
peripherals industry that we deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business            
combinations of companies in the computer peripherals industry that we deemed to
be comparable, in whole or in part, to the Merger; (vi) reviewed and discussed  
with representatives of the management of the Company and JTS certain           
information of a business and financial nature regarding the Company and JTS,   
furnished to us by them; (vii) reviewed and discussed with representatives of   
the management of the Company and JTS financial forecasts and related           
assumptions of JTS, provided to us by JTS management; (viii) made inquiries     
regarding and discussed the Merger and the draft of the Reorganization Agreement
and other matters related thereto with the Company's counsel; and (ix) performed
such other analyses and examinations as we have deemed appropriate.             

     In connection with our review, we have assumed and relied upon the accuracy
and completeness of the foregoing information and we have not assumed any       
responsibility for independent verification of such information. With respect to
the financial forecasts provided to us as described above, we have assumed for  
purposes of our opinion that such forecasts have been reasonably prepared on    
bases reflecting the best                                                       

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available estimates and judgments of the management of JTS at the time of       
preparation as to the future financial performance of JTS, and, except as       
described below, that they provide a reasonable basis upon which we can form our
opinion. For purposes of our opinion and with the agreement of management of the
Company, we have adjusted the financial forecasts for JTS provided to us by its 
management to reflect more conservative assumptions regarding future results of 
operations. We have also assumed that there have been no material changes in the
Company's or JTS' assets, financial condition, results of operations, business  
or prospects since the respective dates of their last financial statements made 
available to us. We have relied on advice of counsel and independent accountants
to the Company as to all legal and financial reporting matters with respect to  
the Company, the Merger and the draft of the Reorganization Agreement. In       
addition, we have not assumed responsibility for making an independent          
evaluation, appraisal or physical inspection of the assets or individual        
properties of the Company or JTS, nor have we been furnished with any such      
appraisals. Finally, our opinion is based on economic, monetary and market and  
other conditions as in effect on, and the information made available to us as   
of, the date hereof.                                                            

We have further assumed, with your consent, that the Merger will be   
consummated in accordance with the terms described in the draft of the          
Reorganization Agreement without any amendments thereto, and without waiver by  
the Company or JTS of any of the conditions to their respective obligations     
thereunder.                                                                     

We have, in the ordinary course of our business, previously performed 
various investment banking services for JTS.                                    

Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Exchange Ratio to be paid by Newco pursuant to the  
Merger is fair to the Company from a financial point of view, as of the date    
hereof.                                                                         

  This opinion is directed to the Board of Directors of the Company and is
not a recommendation to any shareholder as to how such shareholder should vote  
with respect to the Merger. This opinion may not be used or referred to by the  
Company, or quoted or disclosed to any person in any manner, without our prior  
written consent, which consent is hereby given to its inclusion in any proxy    
statement or prospectus filed with the Securities and Exchange Commission in    
connection with the Merger. In furnishing this opinion, we do not admit that we 
are experts within the meaning of the term "experts" as used in the Securities  
Act of 1933, as amended, and the rules and regulations promulgated thereunder   
(the "Securities Act"), nor do we admit that this opinion constitutes a report  
or valuation within the meaning of Section 11 of the Securities Act.            

                     Very truly yours,

                         Montgomery Securities

                         MONTGOMERY SECURITIES

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APPENDIX D-1

SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW

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APPENDIX D-1

SECTION 262 
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS

     Section 262 Appraisal Rights.  (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant  
to subsection (d) of this section with respect to such shares, who continuously 
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither  
voted in favor of the merger or consolidation nor consented thereto in writing  
pursuant to sec. 228 of this title shall be entitled to an appraisal by the     
Court of Chancery of the fair value of his shares of stock under the            
circumstances described in subsections (b) and (c) of this section. As used in  
this section, the word "stockholder" means a holder of record of stock in a     
stock corporation and also a member of record of a nonstock corporation; the    
words "stock" and "share" mean and include what is ordinarily meant by those    
words and also membership or membership interest of a member of a nonstock      
corporation.                                                                    

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be 
effected pursuant to sec.sec. 251, 252, 254, 257, 258 or 263 of this title:     

      (1) Provided, however, that no appraisal rights under this section
     shall be available for the shares of any class or series of stock which, at
 the record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the  
    agreement of merger or consolidation, were either (i) listed on a national
     securities exchange or (ii) held of record by more than 2,000 stockholders;
  and further provided that no appraisal rights shall be available for any
  shares of stock of the constituent corporation surviving a merger if the
     merger did not require for its approval the vote of the stockholders of the
 surviving corporation as provided in subsection (f) of sec. 251 of this
title.                                                                

          (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
     under this section shall be available for the shares of any class or series
   of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to   
   sec.sec. 251, 252, 254, 257, 258 and 263 of this title to accept for such
   stock anything except: a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation; b. Shares of stock of any
other corporation which at the effective date of the merger or        
  consolidation will be either listed on a national securities exchange or
held of record by more than 2,000 stockholders; c. Cash in lieu of    
fractional shares of the corporations described in the foregoing      
 subparagraphs a. and b. of this paragraph; or d. Any combination of the
shares of stock and cash in lieu of fractional shares described in the
foregoing subparagraphs a., b. and c. of this paragraph.              

          (3) In the event all of the stock of a subsidiary Delaware corporation
     party to a merger effected under sec. 253 of this title is not owned by the
    parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.   

  (c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any    
class or series of its stock as a result of an amendment to its certificate of  
incorporation, any merger or consolidation in which the corporation is a        
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision, 
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as practicable.                      

(d) Appraisal rights shall be perfected as follows:                   

        (1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a  
  meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
 record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof, that   

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appraisal rights are available for any or all of the shares of the    
   constituent corporations, and shall include in such notice a copy of this
  section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
     merger or consolidation, a written demand for appraisal of his shares. Such
   demand will be sufficient if it reasonably informs the corporation of the
 identity of the stockholder and that the stockholder intends thereby to
   demand the appraisal of his shares. A proxy or vote against the merger or
     consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein    
provided. Within 10 days after the effective date of such merger or   
 consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become 
effective; or                                                         

        (2) If the merger or consolidation was approved pursuant to sec. 228
     or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days   
 thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that  
appraisal rights are available for any or all of the shares of the    
  constituent corporation, and shall include in such notice a copy of this
   section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it  
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the 
   notice, demand in writing from the surviving or resulting corporation the
  appraisal of his shares. Such demand will be sufficient if it reasonably
 informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.    

 (e) Within 120 days after the effective date of the merger or
  consolidation, the surviving or resulting corporation or any stockholder
   who has complied with subsections (a) and (d) hereof and who is otherwise
    entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such       
 stockholders. Notwithstanding the foregoing, at any time within 60 days
  after the effective date of the merger or consolidation, any stockholder
     shall have the right to withdraw his demand for appraisal and to accept the
   terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (b) hereof, upon
written request, shall be entitled to receive from the corporation    
surviving the merger or resulting from the consolidation a statement  
     setting for the aggregate number of shares not voted in favor of the merger
    or consolidation and with respect to which demands for appraisal have been
   received and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after his 
written request or such a statement is received by the surviving or   
    resulting corporation or within 10 days after expiration of the period for
     delivery of demands for appraisal under subsection (d) hereof, whichever is
later.                                                                

         (f) Upon the filing of any such petition by a stockholder, service of
   a copy thereof shall be made upon the surviving or resulting corporation,
 which shall within 20 days after such service file in the office of the
   Register in Chancery in which the petition was filed a duly verified list
  containing the names and addresses of all stockholders who have demanded
    payment for their shares and with whom agreements as to the value of their
    shares have not been reached by the surviving or resulting corporation. If
    the petition shall be filed by the surviving or resulting corporation, the
     petition shall be accompanied by such a duly verified list. The Register in
 Chancery, if so ordered by the Court, shall give notice of the time and
 place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
   shown on the list at the addresses therein stated. Such notice shall also
  be given by one or more publications at least one week before the day of
     the hearing, in a newspaper of general circulation published in the City of
     Wilmington, Delaware, or such publication as the Court deems advisable. The
  forms of the notices by mail and by publication shall be approved by the
   Court, and the costs thereof shall be borne by the surviving or resulting
corporation.                                                          

      (g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become  
entitled to appraisal rights. The Court may require the               

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   stockholders who have demanded an appraisal for their shares and who hold
    stock represented by certificates to submit their certificates of stock to
the Register in Chancery for notation thereon of the pendency of the  
 appraisal proceedings; and if any stockholder fails to comply with such
  direction, the Court may dismiss the proceedings as to such stockholder.

        (h) After determining the stockholders entitled to an appraisal, the
    Court shall appraise the shares, determining their fair value exclusive of
    any element of value arising from the accomplishment or expectation of the
    merger or consolidation, together with a fair rate of interest, if any, to
 be paid upon the amount determined to be the fair value. In determining
     such fair value, the Court shall take into account all relevant factors. In
    determining the fair rate of interest, the Court may consider all relevant
  factors, including the rate of interest which the surviving or resulting
  corporation would have had to pay to borrow money during the pendency of
    the proceeding. Upon application by the surviving or resulting corporation
    or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial  
    proceedings and may proceed to trial upon the appraisal prior to the final
    determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting    
corporation pursuant to subsection (f) of this section and who has    
     submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceeds until it is finally   
    determined that he is not entitled to appraisal rights under this section.

   (i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting 
     corporation to the stockholders entitled thereto. Interest may be simple or
  compound, as the Court may direct. Payment shall be so made to each such
    stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the    
   surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of   
   Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.                       

      (j) The costs of the proceeding may be determined by the Court and
   taxed upon the parties as the Court deems equitable in the circumstances.
    Upon application of a stockholder, the Court may order all or a portion of
   the expenses incurred by any stockholder in connection with the appraisal
   proceeding, including, without limitation, reasonable attorney's fees and
    the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.                           

         (k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in   
     subsection (d) of this section shall be entitled to vote such stock for any
  purpose or to receive payment of dividends or other distributions on the
  stock (except dividends or other distributions payable to stockholder of
 record at a date which is prior to the effective date for the merger or
 consolidation); provided, however, that if no petition for an appraisal
    shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting    
corporation a written withdrawal of his demand for an appraisal and an
    acceptance of the merger or consolidation, either within 60 days after the
     effective date of the merger or consolidation as provided in subsection (e)
     of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.       
Notwithstanding the foregoing no appraisal proceeding in the Court of 
   Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.                                                     

         (l) The shares of the surviving or resulting Corporation to which the
  shares of such objecting stockholders would have been converted had they
     assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.        

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APPENDIX D-2

CHAPTER 13 OF THE 
CALIFORNIA GENERAL CORPORATION LAW

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APPENDIX D-2

CHAPTER 13
GENERAL CORPORATION LAW OF CALIFORNIA 
DISSENTERS RIGHTS 

SECTION 1300. Right to Require Purchase; "Dissenting Shares" and      
"Dissenting Shareholder" Defined.                                               

(a) If the approval of the outstanding shares (Section 152) of a      
corporation is required for a reorganization under subdivisions (a) and (b) or  
subdivision (e) of Section 1201, each shareholder of such corporation entitled  
to vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation  
in which the shareholder holds shares to purchase for cash at their fair market 
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day     
before the first announcement of the terms of the proposed reorganization or    
short-form merger, excluding any appreciation or depreciation in consequence of 
the proposed action. but adjusted for any stock split or share dividend which   
becomes effective thereafter.                                                   

  (b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:                                       

 (1) Which were not immediately prior to the reorganization or
 short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (0) of
    Section 25100 or (B) listed on the list of OTC margin stocks issued by the
     Board of Governors of the Federal Reserve System, and the notice of meeting
    of shareholders to act upon the reorganization summarizes this section and
    Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any   
restriction on transfer imposed by the corporation or by any law or   
  regulation; and provided, further, that this provision does not apply to
 any class of shares described in subparagraph (A) or (B) if demands for
   payment are filed with respect to five percent or more of the outstanding
shares of that class.                                                 

   (2) Which were outstanding on the date for the determination of
    shareholders entitled to vote on the reorganization and (A) were not voted
    in favor of the reorganization or, (B) if described in subparagraph (A) or
  (B) of paragraph (1) (without regard to the provisos in that paragraph),
    were voted against the reorganization, or which were held of record on the
effective date of a short-form merger-. provided, however, that       
    subparagraph (A) rather than subparagraph (B) of this paragraph applies in
   any case where the approval required by Section 1201 is sought by written
consent rather than at a meeting.                                     

          (3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301. 

          (4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1301.                                         

(c) As used in this chapter, "dissenting shareholder" means the       
recordholder of dissenting shares and includes a transferee of record.          

SECTION 1301.  Demand for Purchase.                                   

    (a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and  
(4) of subdivision (b) thereof, to require the corporation to purchase their    
shares for cash, such corporation shall mail to each such shareholder a notice  
of the approval of the reorganization by its outstanding shares (Section 152)   
within ten (10) days alter the date of such approval accompanied by a copy of   
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price      
determined by the corporation to represent the fair market value of the         
dissenting shares, and a brief description of the procedure to be followed if   
the shareholder desires to exercise the shareholder's fight under such sections.
The statement of price constitutes an offer by the corporation to purchase at   
the price stated any                                                            

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dissenting shares as defined in subdivision (b) of Section 1300, unless they    
lose their status as dissenting shares under Section 1309.                      

    (b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the          
corporation to purchase such shares shall make written demand upon the          
corporation for the purchase of such shares and payment to the shareholder in   
cash of their fair market value. The demand is not effective for any purpose    
unless it is received by the corporation or any transfer agent thereof (1) in   
the case of shares described in clause (i) or (ii) of paragraph (1) of          
subdivision (b) of Section 1300 (without regard to the provisos in that         
paragraph), not later than the date of the shareholders' meeting to vote upon   
the reorganization, or (2) in any other case within thirty (30) days after the  
date on which the notice of the approval by the outstanding shares pursuant to  
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was   
mailed to the shareholder.                                                      

(c) The demand shall state the number and class of the shares held of 
record by the shareholder which the shareholder demands that the corporation    
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the  
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.       

SECTION 1302.  Endorsement of Shares.                                 

   Within thirty (30) days after the date on which notice of the approval by
the outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder. the shareholder shall submit to the corporation  
at its principal office or at the office of any transfer agent thereof, (a) if  
the shares are certificated securities, the shareholder's certificates          
representing any shares which the shareholder demands that the corporation      
purchase, to be stamped or endorsed with a statement that the shares are        
dissenting shares or to be exchanged for certificates of appropriate            
denomination so stamped or endorsed or (b) if the shares are uncertificated     
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting      
shares on the books of the corporation, the new certificates, initial           
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the 
shares.                                                                         

SECTION 1303.  Agreed Price; Time for Payment.                        

(a) If the corporation and the shareholder agree that the shares are  
dissenting shares and agree upon the price of the shares, the dissenting        
shareholder is entitled to the agreed price with interest thereon at the legal  
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.                   

   (b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within thirty (30) days after the      
amount thereof has been agreed or within thirty (30) days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is later, 
and in the case of certificated securities, subject to surrender of the         
certificates therefor, unless provided otherwise by agreement.                  

SECTION 1304.  Dissenter's Action to Enforce Payment.                 

     (a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the 
shares, then the shareholder demanding purchase of such shares as dissenting    
shares or any interested corporation, within six (6) months after the date on   
which notice of the approval by the outstanding shares (Section 152) or notice  
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but  
not thereafter, may file a complaint in the superior court of the proper county 
praying the court to determine whether the shares are dissenting shares or the  
fair market value of the dissenting shares or both or may intervene in any      
action pending on such a complaint.                                             

     (b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be            
consolidated.                                                                   

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  (c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in   
issue, the court shall determine, or shall appoint one or more impartial        
appraisers to determine, the fair market value of the shares.                   

SECTION 1305.  Appraiser's Report; Payment; Costs.                    

  (a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report  
in the office of the clerk of the court. Thereupon, on the motion of any party, 
the report shall be submitted to the court and considered on such evidence as   
the court considers relevant. If the court finds the report reasonable, the     
court may confirm it.                                                           

(b) If a majority of the appraisers appointed fail to make and file a 
report within ten (10) days from the date of their appointment or within such   
further time as may be allowed by the court or the report is not confirmed by   
the court, the court shall determine the fair market value of the dissenting    
shares.                                                                         

   (c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value 
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to    
require the corporation to purchase, with interest thereon at the legal rate    
from the date on which judgment was entered.                                    

(d) Any such judgment shall be payable forthwith with respect to      
uncertificated securities and, with respect to certificated securities, only    
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.       

(e) The costs of the action, including reasonable compensation to the 
appraisers to be fixed by the court, shall be assessed or apportioned as the    
court considers equitable, but, if the appraisal exceeds the price offered by   
the corporation, the corporation shall pay the costs (including in the          
discretion of the court attorneys' fees, fees of expert witnesses and interest  
at the legal rate on judgments from the date of compliance with Sections 1300,  
1301 and 1302 if the value awarded by the court for the shares is more than 125 
percent of the price offered by the corporation under subdivision (a) of Section
1301).                                                                          

SECTION 1306.  Dissenting Shareholder's Status as Creditor.           

   To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become      
creditors of the corporation for the amount thereof together with interest at   
the legal rate on judgments until the date of payment, but subordinate to all   
other creditors in any liquidation proceeding, such debt to be payable when     
permissible under the provisions of Chapter 5.                                  

SECTION 1307.  Dividends Paid as Credit Against Payment.              

 Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding      
shares (Section 152) and prior to payment for the shares by the corporation     
shall be credited against the total amount to be paid by the corporation        
therefor.                                                                       

     SECTION 1308.  Continuing Rights and Privileges of Dissenting Shareholders.

   Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until  
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation        
consents thereto.                                                               

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SECTION 1309.  Termination of Dissenting Shareholder Status.          

  Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require 
the corporation to purchase their shares upon the happening of any of the       
following:                                                                      

        (a) The corporation abandons the reorganization. Upon abandonment of
   the reorganization, the corporation shall pay on demand to any dissenting
    shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable    
attorneys' fees.                                                      

(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for    
  conversion into shares of another class in accordance with the articles.

        (c) The dissenting shareholder and the corporation do not agree upon
     the status of the shares as dissenting shares or upon the purchase price of
     the shares, and neither files a complaint or intervenes in a pending action
    as provided in Section 1304, within six (6) months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.        

        (d) The dissenting shareholder, with the consent of the corporation,
   withdraws the shareholder's demand for purchase of the dissenting shares.

  SECTION 1310.  Suspension of Proceedings for Payment Pending Litigation.

  If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such     
litigation.                                                                     

SECTION 1311.  Exempt Shares.                                         

This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in      
respect to such shares in the event of a reorganization or merger.              

SECTION 1312.  Attacking Validity of Reorganization or Merger.        

   (a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any    
right at law or in equity to attack the validity of the reorganization or       
short-form merger, or to have the reorganization or short-form merger set aside 
or rescinded, except in an action to test whether the number of shares required 
to authorize or approve the reorganization have been legally voted in favor     
thereof, but any holder of shares of a class whose terms and provisions         
specifically set forth the amount to be paid in respect to them in the event of 
a reorganization or short-form merger is entitled to payment in accordance with 
those terms and provisions or, if the principal terms of the reorganization are 
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in 
accordance with the terms and provisions of the approved reorganization.        

(b) If one of the parties to a reorganization or short-form merger is 
directly or indirectly controlled by, or under common control with, another     
party to the reorganization or short-form merger, subdivision (a) shall not     
apply to any shareholder of such party who has not demanded payment of cash for 
such shareholder's shares pursuant to this chapter, but if the shareholder      
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or          
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any 
action attacking the validity of the reorganization or short-form merger or to  
have the reorganization or short-form merger set aside or rescinded shall not   
restrain or enjoin the consummation of the transaction except upon ten (10)     
days' prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or  
the class of shareholders of which such shareholder is a member.                

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(c) If one of the parties to a reorganization or short-form merger is 
directly or indirectly controlled by or under common control with, another party
to the reorganization or short-form merger, in any action to attack the validity
of the reorganization or short-form merger or to have the reorganization or     
short-form merger set aside or rescinded, (1) a party to a reorganization or    
short-form merger which controls another party to the reorganization or         
short-form merger shall have the burden of proving that the transaction is just 
and reasonable as to the shareholders of the controlled party, and (2) a person 
who controls two or more parties to a reorganization shall have the burden of   
proving that the transaction is just and reasonable as to the shareholders of   
any party so controlled.                                                        

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PART II 

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS                             

   Under Section 145 of the Delaware General Corporation Law, the Registrant
will have broad powers to indemnify its directors and officers against          
liabilities they may incur in such capacities, including liabilities under the  
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's     
Bylaws will provide that the Registrant will indemnify its directors and        
executive officers and may indemnify other officers to the fullest extent       
permitted by law. Under its Bylaws, indemnified parties will be entitled to     
indemnification for negligence, gross negligence and otherwise to the fullest   
extent permitted by law. The Bylaws also will require the Registrant to advance 
litigation expenses in the case of stockholder derivative actions or other      
actions, against an undertaking by the indemnified party to repay such advances 
if it is ultimately determined that the indemnified party is not entitled to    
indemnification.                                                                

 In addition, the Registrant's Certificate of Incorporation will provide
that, pursuant to Delaware law, its directors shall not be liable for monetary  
damages for breach of the directors' fiduciary duty of care to the Registrant   
and its stockholders. This provision in the Certificate of Incorporation will   
not eliminate the duty of care, and in appropriate circumstances equitable      
remedies such as injunctive or other forms of non-monetary relief will remain   
available under Delaware law. In addition, each director will continue to be    
subject to liability for breach of the director's duty of loyalty to the        
Registrant for acts or omissions not in good faith or involving intentional     
misconduct, for knowing violation of law, for actions leading to improper       
personal benefit to the director, and for payment of dividends or approval of   
stock repurchases or redemptions that are unlawful under Delaware law. The      
provision also will not affect a director's responsibilities under any other    
law, such as the federal securities laws or state or federal environmental laws.

The Registrant has entered into indemnity agreements with each of its 
directors and executive officers. Such indemnity agreements contain provisions  
that are in some respects broader than the specific indemnification provisions  
contained in Delaware law.                                                      

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ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                            

(a) Exhibits                                                          

                                                        [Enlarge/Download Table]

EXHIBIT                                                                                       
NUMBER                                                                                        
-------                                                                                       
                                                                                              
 2.1    --  Amended and Restated Agreement and Plan of Reorganization, dated April 8, 1996,   
            between JTS and Atari                                                             
 2.2(a) --  Form of Agreement of Merger of JTS Corporation and Atari Corporation              
 2.2(b) --  Form of Articles of Merger Merging Atari Corporation With and Into JTS Corporation
 3.1    --  Restated Certificate of Incorporation, as amended, JTS Corporation                
 3.2    --  Form of Amended and Restated Certificate of Incorporation to be filed immediately 
            prior to the consummation of the Merger of JTS Corporation                        
 3.3    --  Bylaws of JTS Corporation                                                         
 3.4    --  Form of Amended and Restated Bylaws of JTS Corporation                            
 4.1    --  Form of Specimen Common Stock Certificate of JTS Corporation                      
 4.2    --  Form of Amended and Restated Registration Rights Agreement                        
 4.3    --  Atari and Security Pacific National Bank Indenture, dated April 29, 1987          
 4.4    --  Federated Group/Security Pacific National Bank Indenture, dated April 15, 1985    
 4.5    --  First Supplemental Federated Group/Security Pacific National Bank Indenture, dated
            September 24, 1987                                                                
 4.6    --  Warrant to Purchase 450,000 shares of JTS Common Stock, dated March 25, 1994,     
            issued to Venture Lending & Leasing, Inc.                                         
 4.7    --  Warrant to Purchase 50,000 shares of JTS Common Stock, dated December 18, 1995,   
            issued to Silicon Valley Bank                                                     
 4.8    --  Warrant to Purchase up to 750,000 shares of JTS Common Stock, dated April 4, 1996,
            issued to Lunenburg S.A.                                                          
 5.1    --  Opinion of Cooley Godward Castro Huddleson & Tatum as to legality of securities   
            being registered                                                                  
 8.1    --  Opinion of Cooley Godward Castro Huddleson & Tatum as to certain tax matters,     
            dated July 12, 1996                                                               
 8.2    --  Opinion of Wilson Sonsini Goodrich & Rosati as to certain tax matters, dated July 
            12, 1996                                                                          
 9.1    --  Forms of Voting Agreement and irrevocable proxy regarding the voting of shares    
            between JTS and certain stockholders of Atari                                     
 9.2    --  Forms of Voting Agreement and irrevocable proxy regarding the voting of shares    
            between Atari and certain stockholders of JTS                                     
10.1    --  Amended and Restated 1995 Stock Option Plan and forms of stock option agreements  
10.2    --  1996 Non-Employee Directors' Plan and form of stock option agreement              
10.3    --  401(k) Plan, adopted March 15, 1996                                               
10.4    --  Form of Indemnity Agreement                                                       
10.5    --  Employment Contract of Kenneth D. Wing, dated June 15, 1995                       
10.6    --  Consulting Agreement of Roger W. Johnson, dated April 1, 1996                     
10.7    --  Restricted Stock Purchase Agreement, dated January 2, 1996, between JTS and David 
            T. Mitchell and related Promissory Note                                           
10.8    --  Restricted Stock Purchase Agreement, dated March 6, 1996, between JTS and David T.
            Mitchell and related Promissory Note                                              
10.9    --  Restricted Stock Purchase Agreement, dated March 6, 1996, between JTS and Sirjang 
            Lal Tandon and related Promissory Note                                            
10.10   --  Restricted Stock Purchase Agreement, dated January 2, 1996, between JTS and       
            Kenneth D. Wing and related Promissory Note                                       
10.11   --  Restricted Stock Purchase Agreement, dated January 5, 1996, between JTS and W.    
            Virginia Walker and related Promissory Note                                       

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                                                        [Enlarge/Download Table]

EXHIBIT                                                                                       
NUMBER                                                                                        
-------                                                                                       
                                                                                              
10.12   --  Restricted Stock Purchase Agreement dated January 2, 1996, between JTS and David  
            Pearce and related Promissory Note                                                
10.13   --  Form of convertible promissory note between JTS and certain principal stockholders
            of JTS                                                                            
10.14   --  Form of promissory note between JTS and certain principal stockholders of JTS     
10.15   --  Subordinated Secured Convertible Promissory Note, dated February 13, 1996, and    
            related Security Agreement dated February 13, 1996, between JTS and Atari         
10.16   --  Stock Purchase Agreement, dated April 4, 1996, between JTS and Lunenburg S.A.     
10.17   --  Technical Know-How License Agreement, dated June 14, 1996, between JTS and Moduler
10.18   --  Lease, dated June 15, 1995, between JTS and Cilker Revocable Trust                
10.19   --  Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as Borrower and The  
            Industrial Credit and Investment Corporation of India Limited as Lenders, dated   
            September 15, 1992                                                                
10.20   --  Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as Borrower and The  
            Industrial Credit and Investment Corporation of India Limited as Lenders, dated   
            October 11, 1994                                                                  
10.21   --  Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as Borrower and The  
            Industrial Credit and Investment Corporation of India Limited as Lenders, dated   
            March 18, 1996                                                                    
10.22   --  Agreed Order Compromising Controversies, dated February 4, 1994, as amended       
            January 26, 1995                                                                  
10.23   --  TEAC Master Agreement, dated February 4, 1994                                     
10.24+  --  TEAC License Agreement, dated February 4, 1994, as amended on February 3, 1995    
10.25+  --  Development Agreement, dated June 16, 1994, between JTS and Compaq, as amended on 
            February 3, 1995 and December 5, 1995                                             
10.26+  --  Purchase Manufacturing Agreement, dated June 16, 1994, between JTS and Compaq     
10.27+  --  Technology Transfer and License Agreement, dated February 3, 1995, between JTS and
            Western Digital                                                                   
10.28+  --  Agreement between JTS and Pont Peripherals Corporation, dated January 31, 1995,   
            between JTS and Pont                                                              
10.29+  --  Business Loan Agreement, Promissory Note and Collateral, Assignment, Patent       
            Mortgage and Security Agreement, dated December 18, 1995, between JTS and Silicon 
            Valley Bank                                                                       
10.30   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as Borrower and the  
            State Bank of Hyderabad as Lender, dated February 1994.                           
10.31   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as Borrower and SCICI
            Limited as Lender, dated June 13, 1996.                                           
10.32   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as Borrower and the  
            State Bank of Travancore as Lender, dated November 11, 1995.                      
10.33   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as Borrower and the  
            State Bank of India as Lender, dated September 5, 1995.                           
21.1    --  List of Subsidiaries                                                              
23.1    --  Consent of Arthur Andersen LLP                                                    
23.2    --  Consent of Deloitte & Touche LLP                                                  
23.3    --  Consent of Counsel. Reference is made to Exhibits 5.1, 8.1 and 8.2                
23.4    --  Consent of Montgomery Securities. Reference is made to Appendix C.                
24.1    --  Powers of Attorney. Reference is made to page II-6.                               
27.1    --  Financial Data Schedule                                                           
99.1    --  Form of JTS Proxy                                                                 
99.2    --  Form of Atari Proxy                                                               

---------------                                                                 

+ Exhibits for which confidential treatment has been requested                  

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(b) Financial Statement Schedules                                     

JTS Corporation:                                                      

Schedule II: Valuation and Qualifying Accounts                        

Schedules not listed above have been omitted because they are not     
applicable or are not required or the information required to be set forth      
therein is included in the consolidated financial statements or notes thereto.  
No financial statement schedules are required of Atari Corporation.             

(c) Item 4(b) Reports                                                 

See Appendix C to the Joint Proxy Statement/Prospectus.       

ITEM 22.  UNDERTAKINGS                                                          

   (1) The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus   
which is a part of this Registration Statement, by any person or party who is   
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant   
undertakes that such reoffering prospectus will contain the information called  
for by the applicable registration form with respect to reofferings by persons  
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.                                             

(2) The Registrant undertakes that every prospectus (i) that is filed 
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet  
the requirements of Section 10(a)(3) of the Act and is used in connection with  
an offering of securities subject to Rule 415, will be filled as a part of an   
amendment to the Registration Statement and will not be used until such         
amendment is effective, and that, for purposes of determining any liability     
under the Securities Act of 1933, each such post-effective amendment shall be   
deemed to be a new registration statement relating to the securities offered    
therein, and the offering of such securities at that time shall be deemed to be 
the initial bona fide offering thereof.                                         

     (3) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Joint Proxy Statement/Prospectus     
pursuant to Items 4,10(b), 11 or 13 of Form S-4, within one business day of     
receipt of such request, and to send the incorporated documents by first class  
mail or other equally prompt means. This includes information contained in      
documents filed subsequent to the effective date of the Registration Statement  
through the date of responding to the request.                                  

     (4) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being       
acquired involved therein, that was not the subject of and included in the      
Registration Statement when it became effective.                                

     (5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and 
controlling persons of the Registrant pursuant to the Certificate of            
Incorporation and the Bylaws of the Registrant and the Delaware General         
Corporation Law, the Registrant has been advised that in the opinion of the     
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a   
claim for indemnification against such liabilities (other than the payment by   
the Registrant of expenses incurred or paid by a director, officer or           
controlling person of the Registrant in a successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in   
connection with the securities being registered, the Registrant will, unless in 
the opinion of its counsel the question has been settled by controlling         
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and 
will be governed by the final adjudication of such issue.                       

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SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, JTS
Corporation has duly caused this Amendment No. 2 to the Registration Statement  
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Jose, County of Santa Clara, State of California, on the 12th day of
July, 1996.                                                                     

                   JTS Corporation

                                    By        /s/ W. Virginia Walker
                          W. Virginia Walker
                                         Executive Vice President, Finance
             and
                                          Administration and Chief Financial
                 Officer

    Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following      
persons on behalf of the Registrant and in the capacities and on the dates      
indicated.                                                                      

                                                        [Enlarge/Download Table]

              SIGNATURE                                 TITLE                         DATE     
-------------------------------------  ----------------------------------------  --------------
                                                                                               
                 /s/ DAVID T.          President, Chief Executive                July 12, 1996 
               MITCHELL*               Officer and Director                                    
          David T. Mitchell            (Principal Executive Officer)                           
           /s/ W. VIRGINIA WALKER      Executive Vice President, Finance         July 12, 1996 
         W. Virginia Walker            and Administration, Chief                               
                                       Financial Officer and                                   
                                       Secretary (Principal                                    
                                       Financial and Accounting                                
                                       Officer)                                                
          /s/ SIRJANG LAL TANDON*      Chairman of the Board and                 July 12, 1996 
         Sirjang Lal Tandon            Corporate Technical Strategist                          
                 /s/ JEAN D.           Director                                  July 12, 1996 
               DELEAGE*                                                                        
           Jean D. Deleage                                                                     
                    /s/ LIP-BU         Director                                  July 12, 1996 
                 TAN*                                                                          
             Lip-Bu Tan                                                                        
                 /s/ ALAIN L.          Director                                  July 12, 1996 
                 AZAN*                                                                         
            Alain L. Azan                                                                      
            /s/ ROGER W. JOHNSON*      Director                                  July 12, 1996 
          Roger W. Johnson                                                                     
   *By      /s/ W. VIRGINIA WALKER                                                             
         W. Virginia Walker                                                                    

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

   We have audited in accordance with generally accepted auditing standards,
the financial statements of JTS Corporation included in this registration       
statement, and have issued our report thereon dated April 4, 1996. Our audit was
made for the purpose forming an opinion on those statements taken as a whole.   
The schedule listed in the index above is the responsibility of the Company's   
management and is presented for purposes of complying with the Securities and   
Exchange Commission's rules and is not part of the basic financial statements.  
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all     
material respects the financial data required to be set forth therein in        
relation to the basic financial statements taken as a whole.                    

                       ARTHUR ANDERSEN LLP

San Jose, California                                                            
April 4, 1996                                                                   

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                                                                     SCHEDULE II

JTS CORPORATION 

VALUATION AND QUALIFYING ACCOUNTS 

FOR THE YEAR ENDED JANUARY 28, 1996 AND 
THE PERIOD FROM INCEPTION (FEBRUARY 3, 1994) TO JANUARY 29, 1995
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                 BALANCE AT  CHARGED TO              BALANCE AT
                                                 BEGINNING   COSTS AND                 END OF  
                                                 OF PERIOD    EXPENSES   WRITE-OFFS    PERIOD  
                                                 ----------  ----------  ----------  ----------
                                                                                               
ALLOWANCE FOR DOUBTFUL ACCOUNTS:                                                               
Period ended:                                                                                  
  January 29, 1995..............................    $ --       $    4       $ --       $    4  
  January 28, 1996..............................    $  4       $  726       $ --       $  730  
SALES RETURN RESERVE:                                                                          
Period ended:                                                                                  
  January 29, 1995..............................    $ --       $   --       $ --       $   --  
  January 28, 1996..............................    $ --       $1,088       $ --       $1,088  
ACCRUED WARRANTY:                                                                              
Period ended:                                                                                  
  January 29, 1995..............................    $ --       $  328       $ --       $  328  
  January 28, 1996..............................    $328       $  306       $ --       $  634  

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EXHIBIT INDEX 

                                                        [Enlarge/Download Table]

                                                                               SEQUENTIALLY
EXHIBIT                                                                          NUMBERED  
NUMBER                                 DESCRIPTION                                 PAGE    
------       ----------------------------------------------------------------  ------------
                                                                                           
   2.1   --  Amended and Restated Agreement and Plan of Reorganization, dated              
             April 8, 1996, between JTS and Atari                                          
2.2(a)   --  Form of Agreement of Merger of JTS Corporation and Atari                      
             Corporation                                                                   
2.2(b)   --  Form of Articles of Merger Merging Atari Corporation With and                 
             Into JTS Corporation                                                          
   3.1   --  Restated Certificate of Incorporation, as amended, JTS                        
             Corporation                                                                   
   3.2   --  Form of Amended and Restated Certificate of Incorporation to be               
             filed immediately prior to the consummation of the Merger of JTS              
             Corporation                                                                   
   3.3   --  Bylaws of JTS Corporation                                                     
   3.4   --  Form of Amended and Restated Bylaws of JTS Corporation                        
   4.1   --  Form of Specimen Common Stock Certificate of JTS Corporation                  
   4.2   --  Form of Amended and Restated Registration Rights Agreement                    
   4.3   --  Atari and Security Pacific National Bank Indenture, dated April               
             29, 1987                                                                      
   4.4   --  Federated Group/Security Pacific National Bank Indenture, dated               
             April 15, 1985                                                                
   4.5   --  First Supplemental Federated Group/Security Pacific National                  
             Bank Indenture, dated September 24, 1987                                      
   4.6   --  Warrant to Purchase 450,000 shares of JTS Common Stock, dated                 
             March 25, 1994, issued to Venture Lending & Leasing, Inc.                     
   4.7   --  Warrant to Purchase 50,000 shares of JTS Common Stock, dated                  
             December 18, 1995, issued to Silicon Valley Bank                              
   4.8   --  Warrant to Purchase up to 750,000 shares of JTS Common Stock,                 
             dated April 4, 1996, issued to Lunenburg S.A.                                 
   5.1   --  Opinion of Cooley Godward Castro Huddleson & Tatum as to                      
             legality of securities being registered                                       
   8.1   --  Opinion of Cooley Godward Castro Huddleson & Tatum as to certain              
             tax matters, dated July 12, 1996                                              
   8.2   --  Opinion of Wilson Sonsini Goodrich & Rosati as to certain tax                 
             matters, dated July 12, 1996                                                  
   9.1   --  Forms of Voting Agreement and irrevocable proxy regarding the                 
             voting of shares between JTS and certain stockholders of Atari                
   9.2   --  Forms of Voting Agreement and irrevocable proxy regarding the                 
             voting of shares between Atari and certain stockholders of JTS                
  10.1   --  Amended and Restated 1995 Stock Option Plan and forms of stock                
             option agreements                                                             
  10.2   --  1996 Non-Employee Directors' Plan and form of stock option                    
             agreement                                                                     
  10.3   --  401(k) Plan, adopted March 15, 1996                                           
  10.4   --  Form of Indemnity Agreement                                                   
  10.5   --  Employment Contract of Kenneth D. Wing, dated June 15, 1995                   
  10.6   --  Consulting Agreement of Roger W. Johnson, dated April 1, 1996                 
  10.7   --  Restricted Stock Purchase Agreement, dated January 2, 1996,                   
             between JTS and David T. Mitchell and related Promissory Note                 
  10.8   --  Restricted Stock Purchase Agreement, dated March 6, 1996,                     
             between JTS and David T. Mitchell and related Promissory Note                 
  10.9   --  Restricted Stock Purchase Agreement, dated March 6, 1996,                     
             between JTS and Sirjang Lal Tandon and related Promissory Note                
 10.10   --  Restricted Stock Purchase Agreement, dated January 2, 1996,                   
             between JTS and Kenneth D. Wing and related Promissory Note                   
 10.11   --  Restricted Stock Purchase Agreement, dated January 5, 1996,                   
             between JTS and W. Virginia Walker and related Promissory Note                
 10.12   --  Restricted Stock Purchase Agreement dated January 2, 1996,                    
             between JTS and David Pearce and related Promissory Note                      
 10.13   --  Form of convertible promissory note between JTS and certain                   
             principal stockholders of JTS                                                 
 10.14   --  Form of promissory note between JTS and certain principal                     
             stockholders of JTS                                                           

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                                                        [Enlarge/Download Table]

                                                                               SEQUENTIALLY
EXHIBIT                                                                          NUMBERED  
NUMBER                                 DESCRIPTION                                 PAGE    
------       ----------------------------------------------------------------  ------------
                                                                                           
 10.15   --  Subordinated Secured Convertible Promissory Note, dated February              
             13, 1996, and related Security Agreement dated February 13,                   
             1996, between JTS and Atari                                                   
 10.16   --  Stock Purchase Agreement, dated April 4, 1996, between JTS and                
             Lunenburg S.A.                                                                
 10.17   --  Technical Know-How License Agreement, dated June 14, 1996,                    
             between JTS and Moduler                                                       
 10.18   --  Lease, dated June 15, 1995, between JTS and Cilker Revocable                  
             Trust                                                                         
 10.19   --  Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as               
             Borrower and The Industrial Credit and Investment Corporation of              
             India Limited as Lenders, dated September 15, 1992                            
 10.20   --  Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as               
             Borrower and The Industrial Credit and Investment Corporation of              
             India Limited as Lenders, dated October 11, 1994                              
 10.21   --  Loan Agreement between Moduler Electronics (India) Pvt. Ltd. as               
             Borrower and The Industrial Credit and Investment Corporation of              
             India Limited as Lenders, dated March 18, 1996                                
 10.22   --  Agreed Order Compromising Controversies, dated February 4, 1994,              
             as amended January 26, 1995                                                   
 10.23   --  TEAC Master Agreement, dated February 4, 1994                                 
10.24+   --  TEAC License Agreement, dated February 4, 1994, as amended on                 
             February 3, 1995                                                              
10.25+   --  Development Agreement, dated June 16, 1994, between JTS and                   
             Compaq, as amended on February 3, 1995 and December 5, 1995                   
10.26+   --  Purchase Manufacturing Agreement, dated June 16, 1994, between                
             JTS and Compaq                                                                
10.27+   --  Technology Transfer and License Agreement, dated February 3,                  
             1995, between JTS and Western Digital                                         
10.28+   --  Agreement between JTS and Pont Peripherals Corporation, dated                 
             January 31, 1995, between JTS and Pont                                        
10.29+   --  Business Loan Agreement, Promissory Note and Collateral,                      
             Assignment, Patent Mortgage and Security Agreement, dated                     
             December 18, 1995, between JTS and Silicon Valley Bank                        
 10.30   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as               
             Borrower and the State Bank of Hyderabad as Lender, dated                     
             February 1994.                                                                
 10.31   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as               
             Borrower and SCICI Limited as Lender, dated June 13, 1996.                    
 10.32   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as               
             Borrower and the State Bank of Travancore as Lender, dated                    
             November 11, 1995.                                                            
 10.33   --  Loan Agreement between Modular Electronics (India) Pvt. Ltd. as               
             Borrower and the State Bank of India as Lender, dated September               
             5, 1995.                                                                      
  21.1   --  List of Subsidiaries                                                          
  23.1   --  Consent of Arthur Andersen LLP                                                
  23.2   --  Consent of Deloitte & Touche LLP                                              
  23.3   --  Consent of Counsel. Reference is made to Exhibits 5.1, 8.1 and                
             8.2                                                                           
  23.4   --  Consent of Montgomery Securities. Reference is made to Appendix               
             C.                                                                            
  24.1   --  Powers of Attorney. Reference is made to page II-6.                           
  27.1   --  Financial Data Schedule                                                       
  99.1   --  Form of JTS Proxy                                                             
  99.2   --  Form of Atari Proxy                                                           

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+ Exhibits for which confidential treatment has been requested