SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 24, 1999
SILICON GAMING, INC
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(Exact name of registrant as specified in its charter)
California 0-28294 77-0357939
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2800 W. Bayshore Road, Palo Alto, California 94303
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 842-9000
Not Applicable
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
On November 24, 1999, Silicon Gaming, Inc. (the "Company") completed a financial
restructuring with the holders of its $47.25 million of outstanding Senior
Discount Notes (the "Notes").
As a result of the restructuring, $39.75 million of Notes were exchanged for
non-voting preferred stock that is convertible into 174,285,127 shares of common
stock of the Company, or approximately a 57% common equity interest in the
Company. The terms of the remaining $7.5 million of outstanding Notes were
modified to reduce the interest rate from 12.5% to 10% per annum (effective July
15, 1999) and to provide for interest to be payable in-kind at the Company's
option and subject to certain coverage ratio tests. The Notes will mature 5
years following the effective date of the restructuring. Accrued and unpaid
interest on the $7.5 million of Notes remaining outstanding following the
restructuring was forgiven through July 15, 1999.
As a part of the restructuring, the holders of the Notes have agreed to make an
additional investment in the Company of up to $5.0 million in the form of senior
secured notes (the "New Notes"). The New Notes are not convertible and bear cash
interest at the rate of 10% per annum and in-kind interest at the rate of 3% per
annum. The New Notes mature in five years and are issuable in tranches. The
first $2.0 million was issued at the closing of the restructuring. To the extent
required by the Company, the remaining $3.0 million of New Notes will be issued
upon the achievement of certain financial and operating milestones, as
determined by the holders of the Notes.
Effective upon closing of the restructuring, a majority of the members of the
Board of Directors of the Company resigned and two new members were appointed.
The Board of Directors now consists of Andrew Pascal (the President and Chief
Executive Officer of the Company), Robert Reis (a consultant to the Company) and
Stanford Springel.
In addition, the Company intends to conduct an Exchange Offer whereby holders of
common stock as of November 24, 1999 who elect to participate may exchange their
shares of common stock for units consisting of a share of common stock and a
warrant to purchase 3.59662 additional shares of common stock. The exercise
price of the warrants will be at a premium to fair market value and will be
based on an enterprise value for the Company of $70 million. In addition, the
warrants would only be exercisable after the first anniversary of issuance and
would terminate four years from their issuance. The warrants could terminate
prior to their scheduled expiration if the Company's enterprise value, as
measured on the Nasdaq National Market or a national securities exchange,
exceeds $100 million. Holders of the warrants would have 180 days to exercise
prior to such termination.
The Company has allocated 38% of its equity (calculated prior to issuance of the
out-of-the-money warrants described above) as of the effective date of the
Restructuring to be issued as incentive compensation to employees. Of the
116,190,084 shares of common stock issuable as incentive, 15,657,490 shares were
authorized for issuance on November 24, 1999.
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Copies of the Restructuring Agreement and various other documents relating to
the Restructuring are filed as Exhibits to this report. For additional
discussion regarding the Restructuring, see also the Company's press release
regarding the same, filed as Exhibit 99.1 to this report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Exhibit No Description
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4.1 Form of Certificate of Determination for Series D Preferred Stock
4.2 Form of Certificate of Determination for Series E Preferred Stock
4.3 Series E Warrant Agreement
10.1 Restructuring Agreement
10.2 Amendment No. 2 to Securities Purchase Agreement
10.3 Amended Note
10.4 Securities Purchase Agreement
10.5 New Note
10.6 1999 Management Incentive Plan (including forms of Stock Option
Agreement and Restricted Stock Agreement)
10.7 Stockholders Agreement
10.8 Amended and Restated Security Agreement (Silicon Gaming, Inc.)
10.9 Form of Amended and Restated Security Agreement (Subsidiaries)
99.1 Press Release
3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SILICON GAMING, INC.
Date: December 6, 1999 By: /s/ Andrew Pascal
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Andrew Pascal
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No Description
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4.1 Form of Certificate of Determination for Series D Preferred Stock
4.2 Form of Certificate of Determination for Series E Preferred Stock
4.3 Series E Warrant Agreement
10.1 Restructuring Agreement
10.2 Amendment No. 2 to Securities Purchase Agreement
10.3 Amended Note
10.4 Securities Purchase Agreement
10.5 New Note
10.6 1999 Management Incentive Plan (including forms of Stock Option
Agreement and Restricted Stock Agreement)
10.7 Stockholders Agreement
10.8 Amended and Restated Security Agreement (Silicon Gaming, Inc.)
10.9 Form of Amended and Restated Security Agreement (Subsidiaries)
99.1 Press Release
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CERTIFICATE OF DETERMINATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS
OF
SERIES D CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
SILICON GAMING, INC.
Pursuant to Section 401 of the
General Corporation Law of the State of California
Silicon Gaming, Inc. (the "COMPANY"), a Company organized and existing
under the laws of the State of California, by execution of this certificate
(this "CERTIFICATE OF DETERMINATION") does hereby certify and affirm, that
pursuant to the authority contained in Article III of its Amended and Restated
Articles of Incorporation (the "ARTICLES OF INCORPORATION") and in accordance
with the provisions of Section 401 of the General Corporation Law of the State
of California, the Board of Directors of the Company on November __, 1999 duly
approved and adopted the following resolution which resolution remains in full
force and effect on the date hereof:
1. RESOLVED, that the Board of Directors of the Company does hereby designate,
create, authorize and provide for the issuance of Series D Convertible
Redeemable Preferred Stock (the "SERIES D PREFERRED STOCK"), par value $0.001
per share, consisting of 39,750 shares, having the following voting powers,
preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof as follows:
2. SERIES D PREFERRED STOCK. All capitalized terms not defined herein shall have
the meanings ascribed to them in Appendix 1 attached hereto and hereby
incorporated by this reference. Any reference to the conversion or
convertibility of the Series D Preferred Stock made throughout this Certificate
<PAGE>
of Determination (including Appendix 1), other than an actual conversion,
includes the assumption that (i) all necessary filings and all necessary
approvals for conversion of the Series D Preferred Stock into Common Stock have
been made or obtained, (ii) all conversions of Series D Preferred Stock are into
Common Stock, and (iii) all conversions of Series D Preferred Stock into Common
Stock are in accordance with Section 2(e) of this Certificate of Determination.
(a) DIVIDENDS.
(1) The holders of outstanding Series D Preferred Stock shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor,
non-cumulative dividends in cash at a rate per share as declared by the Board of
Directors, and as adjusted for any consolidations, combinations, stock
distributions, stock dividends, stock splits or similar events (collectively a
"RECAPITALIZATION EVENT"). No cash dividends shall be paid on any share of
Common Stock unless a cash dividend (including the amount of any dividends paid
pursuant to the above provisions of this Section 2(a)(1)) is paid with respect
to all outstanding shares of Series D Preferred Stock in an amount for each such
share of Series D Preferred Stock equal to or greater than the aggregate amount
of such cash dividends for all shares of Common Stock into which each such share
of Series D Preferred Stock could then be converted. The right to dividends on
Series D Preferred Stock shall not be cumulative and no right shall accrue to
holders of Series D Preferred Stock by reason of the fact that distributions on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid distribution bear or accrue interest.
(2) Each holder of shares of Series D Preferred Stock shall be deemed
to have consented, for purposes of sections 502, 503 and 506 of the General
Corporation Law of the State of California, to distributions made by the Company
in connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for such repurchase under the terms of
the Company's 1999 Long-Term Compensation Plan.
(b) PREFERENCE ON LIQUIDATION.
(1) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up, of the Company (a "LIQUIDATION EVENT"), the assets
and funds of the Company available for distribution to shareholders shall be
distributed as follows (the amount distributable to the holders of the Series D
Preferred Stock, and payable in connection with a Change of Control pursuant to
Section 2(c)(2) below, is hereinafter referred to as the "SERIES D LIQUIDATION
PREFERENCE"):
(i) prior to the filing with and acceptance by with the
California Secretary of State of the Authorized Common Stock Amendment, each
holder of shares of the Series D Preferred Stock shall be entitled to payment
out of the assets of the Company available for distribution of an amount equal
to the greater of (A) $1,000 per share of Series D Preferred Stock held by such
holder before any distribution is made to the holders of Common Stock of the
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Company, and any other class of capital stock of the Company ranking junior to
the Series D Preferred Stock and (B) the amount per share that the holders of
the Series D Preferred Stock would receive if the Series D Preferred Stock held
by such holder were converted as of the liquidation date and the holder were to
receive assets and funds of the Company available for distribution to the
holders of Common Stock. If the amount the holder would receive under this
Section 2(b)(1)(I) is based on subsection (B) hereof, the holder shall not be
required to convert their shares of Series D Preferred Stock in order to receive
the benefit of this subsection.
(ii) After the filing with and acceptance by the California
Secretary of State of the Authorized Common Stock Amendment, the holders of
shares of the Series D Preferred Stock shall be entitled to receive, in the
aggregate, out of the assets of the Company available for distribution, subject
to subsection (D) hereof, an amount equal to:
(A) if the Aggregate Transaction Proceeds are less than or
equal to $20 million, then 100% of the Available Transaction Proceeds; or
(B) if the Aggregate Transaction Proceeds are in excess of
$20 million but not more than $30 million, then that percentage of the Available
Transaction Proceeds determined by the following equation:
X = 100% - [(100%-Y) x ((Z - $20 million) / $10 million)]
WHERE:
X = the percentage of Available Transaction Proceeds to be paid to
the holders of Series D Preferred Stock in the aggregate;
Y = the Fully Diluted Percentage of Equity Interest of the Company
then held by the holders of Series D Preferred Stock; and
Z = the Aggregate Transaction Proceeds;
or
(C) if the Aggregate Transaction Proceeds are greater than
or equal to $30 million then the holders of the Series D Preferred Stock,
together with the holders of the Series E Preferred Stock outstanding (or which
may then be acquired upon exercise of the Series E Warrant held by such holder),
shall receive in the aggregate that portion of the Available Transaction
Proceeds equal to the amount that would be paid if such holders' Series D
Preferred Stock and any shares of Series E Preferred Stock held by such holders
(or which may then be acquired upon exercise of any Series E Warrant held by
such holder) were converted into Common Stock immediately prior to the relevant
Liquidation Event or Change of Control and such shares of Common Stock were
purchased or participated in such Change of Control or received a distribution
upon such Liquidation Event.
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(D) Notwithstanding any provision in this Section 2(b), in
no event will the holders of the Series D Preferred Stock receive an amount in
excess of $1,000 per share of Series D Preferred Stock as a result of a
Liquidation Event.
(2) Upon a Liquidation Event, the Company shall, within three (3)
business days after the date the Board of Directors approves such action, or
twenty (20) days prior to any shareholders' meeting called to approve such
action, or five (5) business days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series D
Preferred Stock written notice of the proposed action. Such written notice shall
describe the material terms and conditions of such proposed action, including a
description of the stock, cash and property to be received by the holders of
shares of Series D Preferred Stock upon consummation of the proposed action and
the date of delivery thereof. If any material change in the facts set forth in
the initial notice shall occur, the Company shall promptly give written notice
to each holder of shares of Series D Preferred Stock of such material change.
(3) The Company shall not consummate any Liquidation Event before the
expiration of thirty (30) days after the mailing of the initial written notice
or ten (10) business days after the mailing of any subsequent written notice,
whichever is later; provided that any such 30 day or 10 day period may be
shortened upon the written consent of the holders of a majority of the
outstanding shares of Series D Preferred Stock.
(4) Upon a Liquidation Event which will involve the distribution of
assets other than cash, the Company shall promptly engage competent independent
appraisers to determine the value of the assets to be distributed to the holders
of shares of Series D Preferred Stock and the holders of shares of Common Stock
(it being understood that with respect to the valuation of securities, the
Company shall engage such appraiser as shall be approved by the holders of a
majority of shares of the Company's outstanding Series D Preferred Stock). The
Company shall, upon receipt of such appraiser's valuation, give prompt written
notice to each holder of shares of Series D Preferred Stock.
(c) REDEMPTION.
(1) The Company may redeem the outstanding Series D Preferred Stock,
in whole or in part, at any time for cash at a redemption price equal to the
greater of (A) $1,000 per share of Series D Preferred Stock or (B) an amount per
share of Series D Preferred Stock equal to the Fair Market Value of the shares
of Common Stock into which a share of Series D Preferred Stock could be
converted as of the date of such redemption (the "VOLUNTARY REDEMPTION AMOUNT").
The Company need not establish any sinking fund for redemption of the Series D
Preferred Stock.
(2) In the event of a Change of Control the holders of at least a
majority of the shares of Series D Preferred Stock then outstanding taken
together as a series may require the Company to redeem the outstanding shares of
Series D Preferred Stock by delivering a Redemption Notice (as defined in
<PAGE>
Section 2(c)(4)) within the ninety (90) day period following the Change of
Control. The shares of Series D Preferred Stock will be redeemed at an amount
(the "Series D Redemption Amount") equal to the greater of (A) the Series D
Liquidation Preference and (B) the Fair Market Value of the Common Stock into
which the Series D Preferred Stock held by such holders could be converted as of
the date of such Change of Control, and no payment shall be made to the holders
of the Common Stock or any Capital Stock ranking junior to the Series D
Preferred Stock unless such amount is paid in full. If the amount the holders
would receive under this Section 2(c)(2) is based on subsection (B) hereof, the
holders shall not be required to convert their shares of Series D Preferred
Stock in order to receive the benefit of this subsection.
(3) In the case of any partial redemption effected pursuant to Section
2(c)(1), selection of the shares of Series D Preferred Stock for redemption
shall be made by the Company on a PRO RATA basis, by lot or by such other method
as the Company in its sole discretion shall deem to be fair and appropriate;
PROVIDED, that if a partial redemption is made with proceeds of an offering of
equity securities or after a Change of Control, selection of the shares of
Series D Preferred Stock or portion of such shares of Series D Preferred Stock
for redemption shall be made by the Company only on a PRO RATA basis, unless
such method is otherwise prohibited by law.
(4) The Company or the holders of the Series D Preferred Stock shall
give notice to the other party of their election to redeem the Series D
Preferred Stock (each a "REDEMPTION NOTICE"), that sets forth the date on which
the Redemption is to occur (the "REDEMPTION DATE"). The Redemption Date shall in
no event be fewer than twenty (20) days nor more than sixty (60) days after the
date of the Redemption Notice. Within three (3) business days of the Redemption
Notice, the Company shall give written notice by mail, postage prepaid, to each
holder of record (at the close of business on the business day next preceding
the day on which notice is deposited in the mail) of the shares of Series D
Preferred Stock to be redeemed, at the address last shown on the records of the
Company for such holder or given by the holder to the Company for the purpose of
notice, or if no such address appears or is given, at the place where the
principal executive office of the Company is located, notifying such holder of
the redemption to be effected. Except as provided in Section 2(c)(5) below, on
or after such Redemption Date, each holder of shares of Series D Preferred Stock
to be redeemed shall surrender to this corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the applicable Series D Redemption
Amount or Voluntary Redemption Amount of such shares shall be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof and each surrendered certificate shall be canceled. In the
event fewer than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
A Redemption Notice sent by or on behalf of the Company shall be sent by first
class mail, postage prepaid, to all holders of record of the Series D Preferred
Stock at their last addresses as they shall appear on the books of the Company;
PROVIDED, that no failure to give such notice or any defect therein or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of Series D Preferred Stock except as to the holder to whom the
Company has failed to give notice or except as to the holder to whom notice was
defective. In addition to any information required by law or by the applicable
rules of any exchange upon which Series D Preferred Stock may be listed or
admitted to trading, any Redemption Notice shall state: (i) the Redemption Date;
<PAGE>
(ii) the Series D Redemption Amount or Voluntary Redemption Amount then
applicable; (iii) the number of shares of Series D Preferred Stock to be
redeemed and, if less than all shares held by such holder are to be redeemed,
the number of such holder's shares to be redeemed; and (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price, including any procedures applicable to redemptions to be
accomplished through book-entry transfers. Upon the mailing of any such
Redemption Notice the Company shall become obligated to redeem at the Redemption
Date specified therein all shares called for redemption. Notwithstanding the
foregoing, the holders of the Series D Preferred Stock shall have the right
until the Redemption Date to convert their shares of Series D Preferred Stock
into Common Stock in accordance with Section 2(e) in lieu of redemption
hereunder.
(5) If notice has been mailed in accordance with paragraph (4) above
and provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption have been set aside by the Company, separate
and apart from its other funds in trust for the PRO RATA benefit of the holders
of the shares so called for redemption, so as to be, and to continue to be
available therefor, then, from and after the Redemption Date said shares shall
no longer be deemed to be outstanding and shall not have the status of shares of
Series D Preferred Stock, and all rights of the holders thereof as holders of
the Series D Preferred Stock of the Company (except the right to receive from
the Company the applicable redemption price of the Series D Preferred Stock)
shall cease. Upon surrender, in accordance with said notice, of the certificates
for any shares so redeemed (properly endorsed or assigned for transfer, if the
Company shall so require and the notice shall so state), such shares shall be
redeemed by the Company at the applicable redemption price. In case fewer than
all the shares represented by any such certificate are redeemed, a new
certificate or certificates shall be issued representing the unredeemed shares
without cost to the holder thereof.
(6) Any funds deposited with a bank or trust company for the purpose
of redeeming shares of Series D Preferred Stock shall be irrevocable, except
that:
(i) the Company shall be entitled to receive from such bank or
trust company the interest or other earnings, if any, earned on any money so
deposited in trust, and the holders of any shares redeemed shall have no claim
to such interest or other earnings; and
(ii) any balance of monies so deposited by the Company and
unclaimed by the holders of the Series D Preferred Stock entitled thereto at the
expiration of two years from the applicable Redemption Date shall be repaid,
together with any interest or other earnings earned thereon, to the Company, and
after any such repayment, the holders of the shares entitled to the funds so
repaid to the Company shall look only to the Company for payment without
interest or other earnings.
(7) No shares of Series D Preferred Stock may be redeemed except with
funds legally available for the purpose. The Company shall take all actions
required or permitted under applicable law to permit any such redemption.
(8) All shares of Series D Preferred Stock redeemed pursuant to this
Section 2(c) shall be restored to the status of authorized and unissued shares
of preferred stock, without designation as to series and may thereafter be
reissued as shares of any series of Preferred Stock other than shares of Series
D Preferred Stock.
<PAGE>
(9) If, at a Redemption Date, the Company is prohibited under the
California General Corporation Law from redeeming all shares of Series D
Preferred Stock for which redemption is required hereunder, then it shall redeem
such shares on a pro-rata basis among the holders of Series D Preferred Stock in
proportion to the full respective redemption amounts to which they are entitled
hereunder to the extent possible and shall redeem the remaining shares to be
redeemed as soon as the Company is not prohibited from redeeming some or all of
such shares under the California General Corporation Law. The shares of Series D
Preferred Stock not redeemed shall remain outstanding and entitled to all of the
rights and preferences provided in herein. In the event that the Company fails
to redeem shares for which redemption is required hereunder, including, without
limitation, due to a prohibition of such redemption under the California General
Corporation Law, then during the period from the applicable Redemption Date
through the date on which such shares are redeemed, the applicable Series D
Redemption Amount of such shares shall increase at the rate of fifteen percent
(15%) per annum of the applicable Series D Redemption Amount, with such increase
to accrue daily in arrears and to be compounded annually; PROVIDED, however,
that in no event shall such interest exceed the maximum permitted rate of
interest under applicable law (the "MAXIMUM PERMITTED RATE"). In the event that
fulfillment of any provision hereof results in such rate of interest being in
excess of the Maximum Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to eliminate such excess; PROVIDED, HOWEVER, that, to
the extent permitted by law, any subsequent increase in the Maximum Permitted
Rate shall be retroactively effective to the applicable Redemption Date.
(10) From and after the Redemption Date, no shares of Series D
Preferred Stock subject to redemption shall be entitled to any further dividends
pursuant to Section 2(a)(1) hereof; PROVIDED, HOWEVER, that in the event that
shares of Series D Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section 2(c)(9), such shares shall continue to be
entitled to dividends (if any) and interest thereon until the date on which such
shares are actually redeemed by the Company.
(d) VOTING RIGHTS. The holders of the Series D Preferred Stock will have
the right to vote the number of shares of Common Stock into which all of such
holders' shares of Series D Preferred Stock are convertible under Section 2(e),
as a class with the other holders of Common Stock, but not as a separate class,
only if such holder has first received all prior approvals required under
applicable Gaming Laws for conversion of all of the shares of Series D Preferred
Stock held by such holder and complied with any filing requirements prerequisite
to such holder's conversion of all of the shares of Series D Preferred Stock
held by such holder.
(e) CONVERSION RIGHTS. The holders of Series D Preferred Stock shall have
conversion rights as follows:
<PAGE>
(1) Upon the filing with and acceptance by the California Secretary of
State of the Authorized Common Stock Amendment, the Series D Preferred Stock, as
a class, is convertible, subject to adjustments as set forth herein, into
174,285,127 shares of Common Stock. Each share of Series D Preferred Stock shall
be convertible, without obtaining any additional consideration from the holder
thereof, at the option of the holder thereof at any time into fully paid and
nonassessable shares of Common Stock of the Company on the terms and subject to
the conditions set forth in this subsection (e).
(2) The number of shares of Common Stock into which each share of
Series D Preferred Stock may be converted is 4,384.53149701 which is equal to
the per share Conversion Value of the Series D Preferred Stock divided by the
per share Conversion Price. The per share "Conversion Value" of the Series D
Preferred Stock shall be equal to $1,000 and the per share "Conversion Price" of
the Series D Preferred Stock shall be initially equal to $0.22807453902 subject
to adjustments as provided in Section 2(f) below. Upon conversion of a share of
Series D Preferred Stock to Common Stock, all declared or accrued but unpaid
dividends on each such share of Series D Preferred Stock so converted shall be
paid to the holder thereof in cash or additional shares of Common Stock, at the
sole option of the Company.
(3) The holder of any shares of Series D Preferred Stock may exercise
the conversion rights as to such shares or any part thereof by delivering to the
Company during regular business hours, at the office of any transfer agent of
the Company for the Series D Preferred Stock, or at the principal office of the
Company or at such other place as may be designated by the Company, the
certificate or certificates for the shares to be converted, duly endorsed for
transfer to the Company (if required by it), with written notice that the holder
elects to convert such shares into Common Stock. Conversion shall be deemed to
have been effected on the later of:
(i) if the total number of shares of Common Stock held by such
holder after giving effect to such conversion is 4.9% or less of the total
outstanding voting Common Stock of the Company, the date that is 3 business days
following delivery of any notice required under Section 2(e)(1) above; or
(ii) if the total number of shares of Common Stock held by such
holder after giving effect to such conversion exceeds 4.9% of the total
outstanding voting Common Stock of the Company, the date that is 65 days
following delivery of any notice required under Section 2(e)(1) above.
Such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter the Company shall issue and deliver to or upon the
written order of such holder, at such office or other place designated by the
Company, a certificate or certificates for the number of full shares of Common
Stock, to which such holder is entitled ("CONVERSION SHARES") and a check for
cash with respect to any fractional interest in a share of Common Stock as
provided in Section 2(e)(4) below. The holder shall be deemed to have become a
shareholder of record of Conversion Stock on the applicable Conversion Date
unless the transfer books of the Company are closed on the date, in which event
the holder shall be deemed to have become a shareholder of record on the next
succeeding date on which the transfer books are open, but the Conversion Rate
shall be that in effect on the Conversion Date. Upon conversion of only a
portion of the number of shares of Series D Preferred Stock represented by a
<PAGE>
certificate surrendered for conversion, the Company shall issue and deliver to
the holder of the certificate so surrendered for conversion, at the expense of
the Company, a new certificate covering the number of shares of Series D
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(4) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series D Preferred Stock. If more than one share of
Series D Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series D Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series D Preferred Stock, the Company shall pay a cash adjustment in
respect of such fractional interest equal to the Fair Market Value of such
fractional interest rounded up to the nearest cent.
(5) Following the Authorized Common Stock Amendment, the Company shall
pay any and all issue and other taxes that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of Series D Preferred
Stock pursuant hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the Series
D Preferred Stock so converted was registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Company the amount of any such tax, or has established, to the satisfaction of
the Company, that such tax has been paid.
(6) Following the Authorized Common Stock Amendment, the Company shall
at all times reserve and keep available, out of its authorized but unissued
Common Stock, solely for the purpose of effecting the conversion of the Series D
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all Series D Preferred Stock from time to time outstanding. The
Company shall from time to time (subject to obtaining necessary board and
shareholder approval), in accordance with the laws of the State of California,
increase the authorized amount of its Common Stock if at any time the authorized
number of shares of its Common Stock remaining unissued shall not be sufficient
to permit the conversion of all of the shares of Series D Preferred Stock at the
time outstanding.
(7) If any shares of Common Stock or Series D Preferred Stock require
registration or listing with, or approval of, any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise, before such shares may be validly issued or delivered upon
conversion, the Company will in good faith and as expeditiously as possible
endeavor to secure such registration, listing or approval, as the case may be.
(8) All shares of Common Stock issued upon conversion of any shares of
Series D Preferred Stock will upon issuance by the Company be validly issued,
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issuance thereof.
<PAGE>
(9) If:
(i) the Company shall take a record of the holders of its capital
stock for the purpose of entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash or to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or
(ii) there shall occur any capital reorganization of the Company,
reclassification of the capital stock of the Company (other than a subdivision
or combination of its outstanding shares of common stock), consolidation or
merger of the Company with or into another Company or conveyance of all or
substantially all of the assets of the Company to another Company; or
(iii) the voluntary or involuntary dissolution, liquidation or
winding up of the Company shall occur;
then, and in any such case, the Company shall cause to be mailed to the transfer
agent for the Series D Preferred Stock, and to the holders of record of the
outstanding Series D Preferred Stock at the address of record of such
shareholder as set forth on the Company's books, at least thirty (30) days prior
to the date hereinafter specified, a notice stating the material terms of the
proposed transaction and the date (which shall be at least 15 days following the
date of such notice) on which (x) a record is to be taken for the purpose of
such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place and the date, if any is to be fixed, as of which
holders of capital stock of record shall be entitled to exchange their shares of
capital stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(f) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price for the Series D
Preferred Stock from time to time in effect shall be subject to adjustment from
time to time as follows:
(1) In case the Company shall at any time subdivide the outstanding
shares of Common Stock, or shall issue a stock dividend on its outstanding
Common Stock, the Conversion Price in effect immediately prior to such
subdivision or the issuance of such dividend shall be proportionately decreased,
and in case the Company shall at any time combine the outstanding shares of
Common Stock, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased, effective at the close of
business on the date of such subdivision, dividend or combination, as the case
may be.
(2) Upon the issuance by the Company of Equity Securities (as defined
below) at a consideration per share less than the equivalent per share
Conversion Price of the Series D Preferred Stock in effect immediately prior to
the time of such issue or sale other than an issuance of stock or securities
pursuant to Section 2(f)(1) above or the issuance of shares of Common Stock upon
conversion of any shares of Series D Preferred Stock, then forthwith upon such
issue or sale, such Conversion Price shall be reduced to a price determined by
dividing:
<PAGE>
(i) an amount equal to the sum of (x) the number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied by
the Conversion Price in effect immediately prior to such adjustment, (y) the
number of shares of Common Stock issuable upon conversion or exchange of any
obligations or of any securities of the Company outstanding immediately prior to
such issue or sale multiplied by the Conversion Price in effect immediately
prior to such adjustment, and (z) an amount equal to the aggregate
"consideration actually received" by the Company upon such issue or sale; by
(ii) the sum of the number of shares of Common Stock outstanding
immediately after such issue or sale and the number of shares of Common Stock
issuable upon conversion or exchange of any obligations or of any securities of
the Company outstanding immediately after such issue or sale.
For purposes of this Section 2(f)(2), the following provisions shall be
applicable:
(A) The term "Equity Securities" shall mean any shares of
Common Stock, or any obligation, any share of stock or other security of the
Company convertible into or exchangeable for Common Stock, except for shares of
Common Stock or options to purchase Common Stock in the aggregate (as adjusted
for stock splits, stock dividends, etc.) issued or granted to officers,
directors, employees or consultants of the Company and its subsidiaries pursuant
to the Management Incentive Plan, the Units, the Old Equity Warrants, Common
Stock issued upon exercise of the Old Equity Warrants, the Series E Preferred
Stock, the Series E Warrant, or Common Stock issued upon exercise of the Series
E Warrant.
(B) In the case of an issue or sale of Equity Securities for
cash the "consideration actually received" by the Company therefor shall be
deemed to be the amount of cash received, before deducting therefrom any
commissions or expenses paid by the Company.
(C) In case of the issuance (otherwise than upon conversion
or exchange of obligations or shares of stock of the Company) of additional
shares of Common Stock for a consideration other than cash or a consideration
partly other than cash, the amount of the consideration other than cash received
by the Company for such shares shall be deemed to be the Fair Market Value of
such consideration.
(D) In case of the issuance by the Company in any manner of
any rights to subscribe for or to purchase shares of Equity Securities, or any
options for the purchase of shares of Equity Securities or stock convertible
into Equity Securities, all shares of Equity Securities or stock convertible
into Equity Securities to which the holders of such rights or options shall be
entitled to subscribe for or purchase pursuant to such rights or options shall
be deemed "outstanding" as of the date of the offering of such rights or the
granting of such options, as the case may be, and the minimum aggregate
consideration named in such rights or options for the shares of Equity
Securities or stock convertible into Equity Securities covered thereby, plus the
consideration, if any, received by the Company for such rights or options, shall
be deemed to be the "consideration actually received" by the Company (as of the
date of the offering of such rights or the granting of such options, as the case
may be) for the issuance of such shares.
<PAGE>
(E) In case of the issuance or issuances by the Company in
any manner of any obligations or of any shares of stock of the Company that
shall be convertible into or exchangeable for Equity Securities, all shares of
Equity Securities issuable upon the conversion or exchange of such obligations
or shares shall be deemed issued as of the date such obligations or shares are
issued, and the amount of the "consideration actually received" by the Company
for such additional shares of Equity Securities shall be deemed to be the total
of (x) the amount of consideration received by the Company upon the issuance of
such obligations or shares, as the case may be, plus (y) the minimum aggregate
consideration, if any, other than such obligations or shares, receivable by the
Company upon such conversion or exchange, except in adjustment of dividends.
(F) The amount of the "consideration actually received" by
the Company upon the issuance of any rights or options referred to in subsection
(D) above or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in subsection (E) above, and the amount
of the consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Company upon the exercise,
conversion or exchange thereof shall be determined in the same manner provided
in subsections (B) and (C) above with respect to the consideration received by
the Company in case of the issuance of additional shares of Equity Securities;
provided, however, that if such obligations or shares of stock so convertible or
exchangeable are issued in payment or satisfaction of any dividend upon any
stock of the Company other than Common Stock, the amount of the "consideration
actually received" by the Company upon the original issuance of such obligations
or shares or stock so convertible or exchangeable shall be deemed to be the
value of such obligations or shares of stock, as of the date of the adoption of
the resolution declaring such dividend, as determined by the Board of Directors
at or as of that date. On the expiration of any rights or options referred to in
subsection (C), or the termination of any right of conversion or exchange
referred to in subsection (D), or any change in the number of shares of Common
Stock deliverable upon exercise of such options or rights or upon conversion of
or exchange of such convertible or exchangeable securities, the Conversion Rate
then in effect shall forthwith be readjusted to such Conversion Rate as would
have obtained had the adjustments made upon the issuance of such option, right
or convertible or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually delivered or to
be delivered upon the exercise of such rights or options or upon the conversion
or exchange of such securities.
(G) In the event the Company shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Company or other persons or options or rights not referred to in this Section
2(f)(2), then, in each such case, the holders of the Series D Preferred Stock
shall be entitled to the distributions as if such holders had converted their
shares of Series D Preferred Stock immediately prior to such declaration, and no
adjustment to the Conversion Price provided for in this Section 2(f) shall be
applicable.
(3) Subject to the right of the Company to amend this Certificate of
Determination upon obtaining necessary approvals required by this Certificate of
Determination and applicable law, the Company will not, by amendment of its
Articles or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this Company, but will at all times in good
<PAGE>
faith assist in the carrying out of all the provisions of this Section 2(f) and
in the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of Series D Preferred Stock against
impairment.
(4) Upon the occurrence of each adjustment or readjustment of the
Conversion Price pursuant to this Section 2(f), the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof, and shall prepare and furnish to each holder of Series D Preferred Stock
affected thereby a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request at any time of any holder of any
shares of Series D Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment or readjustment, (B)
the Conversion Price of such series at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of such holders' shares.
(g) Covenants.
So long as there remain outstanding at least 100 shares of Series D
Preferred Stock:
(1) LIMITATION ON CERTAIN ACTIONS. The Company shall not, without the
prior written consent of the holders of a majority of the then outstanding
Series D Preferred Stock:
(i) authorize or issue any dividends on any of its outstanding
securities unless required to do so by the Certificate of Determination or other
governing instrument of such security as in effect on the Closing Date;
(ii) issue any Capital Stock or debt with a preference to or PARI
PASSU with the Series D Preferred Stock, the Series E Preferred Stock, the New
Notes (or interest thereon whether deferred or paid-in-kind) or Amended Notes;
(iii) issue any additional Capital Stock or equity securities,
including options, warrants or other derivative securities other than the Series
D Preferred Stock, the Common Stock to be issued upon conversion of the Series D
Preferred Stock, the Units, the Old Equity Warrants, the Common Stock to be
issued upon exercise of the Old Equity Warrants, the Series E Warrant, the
Series E Preferred Stock to be issued upon exercise of the Series E Warrant, the
Common Stock to be issued upon exercise of the Series E Warrant, or, unless
issued to an officer, employee, director or consultant of the Company under the
Management Incentive Plan;
(iv) acquire assets not in the ordinary course of business in an
aggregate value that exceeds $100,000 for any calendar year;
(v) make capital investments in any other entity in an aggregate
amount that exceeds $100,000;
<PAGE>
(vi) enter into any agreement or arrangement, not in the ordinary
course of business, which obligates the Company to present or future commitments
during the term of the agreement in excess of $100,000;
(vii) make capital expenditures in an aggregate value that
exceeds $500,000 for any calendar year;
(viii) liquidate, dissolve or wind-up operations, effect a
recapitalization or reorganization, or take steps to file for bankruptcy; or
(ix) amend its Charter Documents or by-laws other than as
contemplated in the Restructuring Agreement or the Transaction Documents.
(2) Limitation on Indebtedness. Without the prior written consent of
the holders of a majority of the then outstanding shares of Series D Preferred
Stock:
(i) Except as set forth in this Section 2(g)(2), the Company
shall not, and shall not permit any Subsidiary, after the date hereof, directly
or indirectly, to Incur any Indebtedness (including Acquired Indebtedness)
without the prior written consent of the holders of a majority of the then
outstanding Series D Preferred Stock. For purposes of this Agreement,
Indebtedness of any Acquired Person that is not a Subsidiary, which Indebtedness
is outstanding at the time such Person is acquired by the Company or a
Subsidiary or becomes, or is merged into or consolidated with, a Subsidiary,
shall be deemed to have been Incurred by the Company or the acquiring Subsidiary
at the time such Acquired Person becomes, or is merged into or consolidated
with, a Subsidiary.
(ii) Notwithstanding Section 2(g)(2)(i) the Company and its
Subsidiaries may Incur, after the date hereof, any of the following
Indebtedness:
(A) Indebtedness outstanding as of the Closing Date of the
Restructuring Agreement, Indebtedness evidenced by the Amended Notes and the New
Notes, including any Indebtedness evidenced by notes issued as payment-in-kind
for interest payments due and payable under the Amended Notes and the New Notes;
(B) Indebtedness to any Wholly-Owned Subsidiary of the
Company or Indebtedness of any Subsidiary to the Company (provided that such
Indebtedness is at all times held by the Company or a Wholly-Owned Subsidiary of
the Company); PROVIDED, HOWEVER, that for purposes of this Section 2(g)(2), upon
either (A) the transfer or other disposition by any such Wholly-Owned Subsidiary
of any Indebtedness so permitted to a Person other than the Company or another
Wholly-Owned Subsidiary of the Company or (B) the issuance, sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger) of such Wholly-Owned Subsidiary to a Person other than
the Company or another such Wholly-Owned Subsidiary, the provisions of this
clause (ii) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred by the Company at the time of
such transfer or other disposition;
(C) Refinancing Indebtedness with respect to Indebtedness
that was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this Agreement;
<PAGE>
PROVIDED, HOWEVER, that (i) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount (or accreted value, in the
case of Indebtedness issued at a discount) of the Indebtedness so extended,
refinanced, renewed, replaced, substituted, defeased or refunded (plus the
amount of fees, costs and expenses incurred and the amount of any premium,
penalties, breakage costs and other similar amounts required to be paid in
connection with such refinancing pursuant to the terms of the instrument
governing the Indebtedness so extended, refinanced, renewed, replaced,
substituted, defeased or refunded or the amount of any premium reasonably
determined by the Company as necessary to accomplish a refinancing by means of a
tender offer or privately negotiated repurchase, which determination shall be
supported by a fairness opinion from an Independent Financial Advisor, plus the
fees, costs and expenses of such tender offer or repurchase); and (ii) the
Refinancing Indebtedness shall (1) have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, substituted,
defeased or refunded; (2) not have a final scheduled maturity earlier than the
final scheduled maturity of the Indebtedness being extended, refinanced,
replaced, renewed, substituted, defeased or refunded; (3) not permit redemption
at the option of the holder earlier than the earliest date of redemption at the
option of the holder of the Indebtedness being extended, refinanced, renewed,
replaced, substituted, defeased or refunded; and (4) rank no more senior or be
at least as subordinated, as the case may be, in right of payment to the Series
D Preferred Stock, the Notes and the New Notes as the Indebtedness being
extended, refinanced, replaced, renewed, substituted, defeased or refunded; and
(D) Senior Indebtedness of the Company not to exceed an
aggregate of $4,000,000 (inclusive of amounts outstanding as of the date of the
Restructuring Agreement), including without limitation, Indebtedness owed to
Silicon Valley Bank under the Company's secured credit facility.
(3) LIMITATION ON TRANSACTIONS WITH AFFILIATES. Without the prior
written consent of the holders of a majority of the then outstanding shares of
Series D Preferred Stock:
(i) Neither the Company nor any of its Subsidiaries shall enter
into any transaction or series of transactions to sell, lease, transfer,
exchange or otherwise dispose of any of its properties or assets to or to
purchase any property or assets from, or for the direct or indirect benefit of,
an Affiliate of the Company or of any Subsidiary of the Company, make any
Investment in or enter into any contract, agreement, understanding, loan,
advance or Guarantee with, or for the direct or indirect benefit of, an
Affiliate of the Company or of any Subsidiary of the Company (each, including
any series of transactions with one or more Affiliates, an "AFFILIATE
TRANSACTION"), unless (x) the Board of Directors of the Company or the relevant
Subsidiary determines, as evidenced by a Board Resolution, that the terms of
such Affiliate Transaction are fair and reasonable to the Company and no less
favorable to the Company or the relevant Subsidiary than those that could have
been obtained at that time in a comparable arms-length transaction by the
Company or such Subsidiary with an unrelated Person (y) such Affiliate
Transaction has been approved by a majority of the Board of Directors of the
Company or the relevant Subsidiary who have no direct or indirect interest in
the Affiliate Transaction or in the Affiliate that is a party to the Affiliate
Transaction, or in any other party that is an Affiliate of any such Affiliate,
<PAGE>
and (z) the Company shall have delivered to the holders of the Series D
Preferred Stock an Officer's Certificate certifying that the conditions set
forth in clauses (x) and (y) above have been satisfied.
(ii) Neither the Company nor any of its Subsidiaries shall enter
into an Affiliate Transaction involving or having a potential aggregate value of
more than $1,000,000 unless, in addition to the requirements of (i) above, the
Board of Directors of the Company or the relevant Subsidiary shall first have
received a written opinion from an Independent Financial Advisor for the benefit
of the Company and the holders of the Series D Preferred Stock, which firm is
not receiving any contingent fee or other consideration directly or indirectly
related to the successful completion of the Affiliate Transaction, to the effect
that the proposed Affiliate Transaction is fair to the Company from a financial
point of view.
(iii) The provisions of this Section 2(g)(3) shall not apply to
(w) any Restricted Payment that is made in compliance with the provisions of
Section 2(g)(8), (x) the reasonable and customary fees and compensation paid to
or indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or such Subsidiary or the senior management thereof in
good faith, (y) transactions exclusively between or among the Company and any
Wholly-Owned Subsidiary or exclusively between or among Wholly-Owned
Subsidiaries provided such transactions are not otherwise prohibited by this
Agreement, or (z) any Affiliate Transaction contemplated by the Restructuring
Agreement (including without limitation, the Management Incentive Plan) or in
existence as of the Restructuring Closing Date.
(4) LIMITATION ON LIENS. Without the prior written consent of the
holders of a majority of the then outstanding shares of Series D Preferred
Stock, the Company shall not, and shall not permit any of its Subsidiaries to,
Incur, assume, suffer to exist, create or otherwise cause to be effective any
Lien on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom to secure
any Indebtedness except: (a) Permitted Liens, (b) Liens existing as of the date
hereof (and any extension, renewal or replacement Liens upon the same Property
subject to such Liens, provided the principal amount of Indebtedness secured by
each Lien constituting such an extension, renewal or replacement Lien shall not
exceed the principal amount of Indebtedness secured by the Lien theretofore
existing, plus amounts described in Section 2(g)(2)(ii)(C)(i) with respect to
permitted Refinancing Indebtedness), and (c) Liens replacing, extending or
renewing, in whole or in part, any Lien described in the foregoing clauses (a)
and (b), including in connection with any refinancing of the Indebtedness, in
whole or in part, secured by any such Lien effected in accordance with Section
2(g)(2), provided that if any such clauses limit the amount secured by or the
Property or assets subject to such Liens, no such replacement, extension or
renewal shall increase the amount of Indebtedness or the Property or assets
subject to such Liens.
(5) LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK OF
SUBSIDIARIES. Without the prior written consent of the holders of a majority of
the then outstanding shares of Series D Preferred Stock, the Company (a) shall
not, and shall not permit any Subsidiary to, transfer, convey, sell, or
otherwise dispose of any Capital Stock, or securities convertible into or
exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, Capital Stock of a Subsidiary to any Person (other
than the Company or a Wholly-Owned Subsidiary) unless such transfer, conveyance,
<PAGE>
sale, lease or other disposition is of 100% of the Capital Stock of such
Subsidiary held by the Company and is in compliance with Section 2(g)(6) below
and (b) shall not permit any Subsidiary to issue shares of its Capital Stock
(other than directors' qualifying shares), or securities convertible into or
exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, its Capital Stock to any Person.
(6) LIMITATION ON SALE OF ASSETS. Without the prior written consent of
the holders of a majority of the then outstanding shares of Series D Preferred
Stock the Company shall not, and shall not permit any of its Subsidiaries to,
undertake any Asset Disposition.
(7) CHANGE OF CONTROL. The Company will not merge or consolidate with
any other entity, or enter into any transaction which would constitute or have
the effect of a Change of Control without the consent of a majority of the
holders of the then outstanding shares of Series D Preferred Stock.
(8) LIMITATION ON RESTRICTED PAYMENTS. Without the prior written
consent of the holders of a majority of the then outstanding shares of Series D
Preferred Stock:
(i) The Company shall not, and shall not permit any Subsidiary
to, directly or indirectly, make any Restricted Payment, except payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not Incurred in violation of Section 2(g)(2).
(ii) Notwithstanding Section 2(g)(8)(i), the following Restricted
Payments may be made: (A) the redemption of the Series D Preferred Stock, the
Series E Preferred Stock, the Amended Notes and the New Notes under the terms
and provisions of the relevant agreement controlling each instrument; (B) the
repurchase of any Common Stock pursuant to the provisions of the Management
Incentive Plan at a redemption price no greater than the price at which such
shares were originally sold; (C) the issuance of the Units; and (D) the issuance
of the Series E Warrant.
(9) RESTRICTIONS AGAINST LIMITATIONS ON UPSTREAM PAYMENTS. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction or other encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make loans or advances to the Company or a Subsidiary of the
Company, or (c) transfer any of its Properties or assets to the Company or any
Subsidiary of the Company, except for such Payment Restrictions or encumbrances
existing under or by reason of: (i) applicable law; (ii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was Incurred in contemplation of or in connection
with such acquisition), provided, that such restriction is not applicable to any
Person, or the Property or assets of any Person, other than the Acquired Person;
(iii) non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (iv) instruments governing purchase
<PAGE>
money Indebtedness for Property acquired in the ordinary course of business that
only impose restrictions on the Property so acquired; (v) any agreement for the
sale or disposition of the Capital Stock or assets of such Subsidiary, provided
that such restriction is only applicable to such Subsidiary or assets, as
applicable; or (vi) Refinancing Indebtedness permitted under this Agreement with
respect to Indebtedness described in clauses (ii), (iii) or (iv), provided that
the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instrument governing the Indebtedness being refinanced immediately prior to
such refinancing.
(10) MANAGEMENT INCENTIVE PLAN. The Company will not amend the
Management Incentive Plan (or the Exhibits thereto) without the prior written
approval of the holders of a majority of the Series D Preferred Stock.
(11) STAY, EXTENSION AND USURY LAWS. The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that might affect the covenants or the performance of its obligations
under this Certificate of Determination; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power granted to any holder pursuant to this
Certificate of Determination, but will suffer and permit the execution of every
such power as though no such law has been enacted.
(h) STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares of
Series D Preferred Stock shall be redeemed or converted pursuant to Section 2(d)
or Section 2(f) above or otherwise acquired by the Company, the shares so
converted or redeemed or acquired shall be canceled and shall not be issuable by
the Company, and this Certificate of Determination shall be appropriately
amended to effect the corresponding reduction in the Company's authorized
capital stock.
(i) GAMING LAWS.
(1) Notwithstanding anything to the contrary contained herein, the
issuance of Series D Preferred Stock and the Common Stock into which the Series
D Preferred Stock is convertible is subject to all applicable provisions of the
Gaming Laws.
(2) Notwithstanding anything to the contrary contained herein or in
the Transaction Documents, it is understood and agreed that to become effective,
the Gaming Subsidiaries Stock Restrictions require the approvals described in
the definition thereof (the "Gaming Subsidiaries Stock Restrictions Requisite
Gaming Approvals").
<PAGE>
(3) Notwithstanding anything to the contrary contained herein or in
the Transaction Documents, unless and until the relevant Gaming Subsidiaries
Stock Restrictions Requisite Gaming Approvals have been obtained, the Gaming
Subsidiaries Stock Restrictions contained in Sections 2(g)(4), (5) and (6) shall
not apply or be effective.
3. The foregoing Certificate of Determination has been duly approved by the
Board of Directors of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The undersigned have executed this Series D Certificate of Determination on
November ___, 1999.
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
President and Chief Executive Officer
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
Acting Chief Financial Officer and Secretary
Each of the undersigned declares under penalty of perjury under the laws of
the State of California that he has read the foregoing Certificate of
Determination and knows the contents thereof and that the same is true of his
own knowledge.
Executed at Palo Alto, California, on November ___, 1999.
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
President and Chief Executive Officer
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
Acting Chief Financial Officer and Secretary
<PAGE>
APPENDIX 1
DEFINITIONS AND ACCOUNTING TERMS
In addition to any terms defined elsewhere in this Certificate of
Determination, unless otherwise specifically provided herein, the following
terms shall have the following meanings for all purposes when used in this
Certificate of Designation:
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of an Acquired Person existing at the time of such acquisition,
including Indebtedness issued in connection with, or in contemplation of, such
acquisition, and (b) Indebtedness incurred by such Person or its Subsidiaries
(i) the proceeds of which have been used to finance an Investment in a Related
Business, and (ii) which is secured by a Lien solely on the assets or Property
constituting such an Investment in a Related Business.
"Acquired Person" means, with respect to any specified Person, any other
Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
(a) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (b) that directly or
indirectly owns more than 10% of the voting securities of such Person. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Transaction" has the meaning ascribed thereto in Section
2(g)(3)(i) hereof.
"Aggregate Transaction Proceeds" means:
(i) in the case of a Liquidation Event all cash and non-cash consideration
received by the Company or its stockholders as a result of a Liquidation Event
minus the amount required to repay all debts of the Company other than the
Amended Note and the New Notes; or
(ii) in the case of a Change of Control, an amount equal to the aggregate
value of all outstanding Capital Stock of the Company as determined with
reference to and at the time of such Change of Control plus the total
outstanding principal of and unpaid interest on the Amended Notes and the New
Notes;
and, in each case, plus the applicable exercise price or other amounts
payable in connection with the exercise of all options, warrants and other
convertible securities the per share exercise price of which is less than the
amount to which a share of Common Stock would be entitled in the relevant
Liquidation Event or the value thereof as determined in the relevant Change of
<PAGE>
Control; provided that if the aggregate value of all outstanding Capital Stock
determined in clause (ii) above is less than the Fair Market Value, or if such
Change in Control constitutes a Change in Control described in clause (e) of the
definition of Change of Control, such amount shall be the Fair Market Value of
such Capital Stock.
"Agreement" means the Securities Purchase Agreement by and between the
Company and the Purchaser, dated as of September 30, 1997, as amended, modified
or supplemented from time to time, together with any exhibits, schedules or
other attachments thereto.
"Amended Note" means the promissory notes issued by the Company to the
Purchaser in replacement of and full substitution for Senior Discount Notes No.
1 and No. B-1 in accordance with the Restructuring Agreement and the transaction
contemplated thereby.
"Amendment No. 2 to the Securities Purchase Agreement" means that certain
Amendment No. 2 to the Securities Purchase Agreement dated initially entered
into and dated September 30, 1997, and as amended by Amendment No. 1 to the
Securities Purchase Agreement dated July 8, 1998, by and between the Company and
B III Capital Partners, L.P.
"Approvals" means each and every approval, consent, filing or registration
by, or with any Governmental Body, or any creditor or shareholder of the
Company, necessary (a) to authorize or permit the execution, delivery or
performance by the Company of the Transaction Documents, and (b) for the
validity or enforceability of any of such Transaction Documents against the
Company.
"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (in one transaction or a series of related transactions), including
any such disposition by means of a merger, consolidation or similar transaction,
of shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), Property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries, but
excluding the following: (a) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (b) a disposition of
tangible property or assets which have become obsolete or are otherwise not used
or useful, so long as such disposition is at fair market value (as determined by
the Company in good faith) in the ordinary course of business, (c) a disposition
that constitutes a Restricted Payment, in each case so long as effected in
accordance with all applicable provisions of this Agreement, and (d) a
disposition of inventory in the ordinary course of business, in each case so
long as effected in accordance with all applicable provisions of this Agreement.
"Authorized Common Stock Amendment" means the Amendment to the Articles of
Incorporation of the Company approved by the Board of Directors of the Company
to increase the number of authorized shares of Common Stock of the Company from
50,000,000 to 750,000,000.
"Available Transaction Proceeds" means the Aggregate Transaction Proceeds
minus all amounts due under the Amended Note and the New Notes.
<PAGE>
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" of any Person means any and all shares of, or interests,
rights, participations, and/or other equivalents in (however designated),
corporate stock or equity securities of such Person, including each class of
common stock and preferred stock of such Person and partnership or limited
liability company interests, whether general or limited, of such Person, and
including any securities convertible into or exercisable or exchangeable for, or
any right to acquire, any equity interest in such Person.
"Change of Control" means any transaction or series of transactions which
occur following the Closing Date and in which any of the following occurs: (a)
any Person or group (within the meaning of Rule 13d-3 under the Exchange Act and
Sections 13(d) and 14(d) of the Exchange Act) becomes the direct or indirect
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 25% or
more of the issued and outstanding shares of Capital Stock entitled to vote in
the election of directors of the Company; (b) a merger or consolidation of the
Company with or into another corporation in which less than a majority of the
outstanding voting power of the surviving or consolidated corporation
immediately following such event is held by persons or entities who were
stockholders of the Company immediately prior to such event; (c) the sale or
transfer of all or substantially all of the properties and assets of the Company
and its subsidiaries; (d) the redemption or repurchase of shares representing a
majority of the voting power of the outstanding shares of capital stock of the
Company; or (e) individuals who at the Closing constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a majority of the directors of the
Company then still in office who were either directors at the Closing or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; provided however, that a conversion of Series D Preferred Stock into
Common Stock, an issuance of Common Stock under the Management Incentive Plan,
issuance of the Units, an issuance of Old Equity Warrants, an issuance of Common
Stock upon exercise of Old Equity Warrants, issuance of the Series E Warrant, an
issuance of Series E Preferred Stock upon exercise of the Series E Warrant, and
an issuance of Common Stock upon conversion of the Series E Preferred Stock,
shall not, individually or in the aggregate, in and of itself, constitute a
Change of Control.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Company" means the party named as such above until a successor replaces it
and thereafter means the successor.
<PAGE>
"Default" means any event which is, or after notice or passage of time or
both would be, an event of default, under the terms and provisions of the
relevant agreement or understanding.
"Dollars" and "$" mean lawful currency of the United States of America.
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties would change
hands between a willing buyer and a willing seller, within a commercially
reasonable time, each having reasonable knowledge of the relevant facts, neither
being under a compulsion to sell or buy, as such amount is reasonably determined
by (a) the Board of Directors of the Company acting reasonably and in good faith
or (b) at the request of a majority of the outstanding Series D Preferred Stock
an appraisal or valuation firm of national or regional standing selected by the
Company (with the reasonable consent of a majority of the outstanding Series D
Preferred Stock), with experience in the appraisal or valuation of properties or
assets of the type for which Fair Market Value is being determined; PROVIDED,
HOWEVER, that if the Common Stock is traded on the Nasdaq National Market or the
NYSE (or successor thereof), the Fair Market Value of the Common Stock shall be
the average of the closing prices for the 10 trading days immediately prior to
the date of determination.
"Fully Diluted Percentage of Equity Interest" of the Company with respect
to a Liquidation Event or a Change in Control shall mean the product of (x) a
fraction, the NUMERATOR of which is the number of shares of Common Stock of the
Company into which all of the outstanding shares of Series D Preferred Stock are
then convertible and the DENOMINATOR of which is the total number of shares of
Common Stock then outstanding (including shares issuable upon conversion of the
Series D Preferred Stock and all other outstanding warrants, options and other
convertible securities the per share exercise price of which is less than the
amount to which a share of Common Stock would be entitled in the relevant
Liquidation Event or the value thereof as determined in the relevant Change of
Control) MULTIPLIED BY (y) 100.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, as in
effect from time to time.
"Gaming Laws" means, collectively, (a) the Nevada Gaming Control Act, as
codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to
time, together with the regulations of the Nevada Gaming Commission promulgated
thereunder, as amended from time to time, (b) the Mississippi Gaming Control
Act, as codified in Chapter 76 of the Mississippi Code Annotated, as amended
from time to time, together with the regulations of the Mississippi Gaming
Commission promulgated thereunder, as amended from time to time, and (c) all
other laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over any activities conducted by the
Company or its Gaming Subsidiaries within its jurisdiction.
<PAGE>
"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), suffer to exist, assume, Guarantee or otherwise become liable in
respect of such Indebtedness or other obligation, including by way of merger or
acquisition of another Person, or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing).
"Indebtedness" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof and whether short-term or long-term, secured or unsecured),
(ii) evidenced by bonds, notes, debentures, drafts accepted or similar
instruments or letters of credit (including such liabilities representing the
balance deferred and unpaid of the purchase price of any property, other than
any such liability that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business in connection with obtaining goods,
materials or services, which account is not overdue according to the original
terms of sale, unless such account payable is being contested in good faith),
(iii) for the payment of money relating to Capital Lease Obligations; or (iv)
under the terms of any amendment, renewal, extension or refunding of any
liability of the types referred to in the preceding clauses (i), (ii) or (iii);
(b) the maximum fixed repurchase price of all Disqualified Capital Stock of such
Person or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (c) outstanding reimbursement obligations of such Person with respect
to letters of credit or bankers' acceptances issued for the benefit of such
Person; (d) net obligations of such Person with respect to Interest Rate or
Currency Protection Agreements; (e) all liabilities of others of the kind
described in the preceding clause (a), (b), (c) or (d) that such Person has
Guaranteed or that is otherwise its legal liability; and (f) all obligations of
others secured by a Lien to which any of the Property or assets of such Person
are subject (other than obligations of a lessor under any operating lease
pursuant to which the Company or any of its Subsidiaries leases Property, if
such lessor grants a Lien on such lease to secure such lessor's Indebtedness),
whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability (PROVIDED that if the
obligations so secured have not been assumed by such Person or are not otherwise
such Person's legal liability, such obligations shall be deemed to be in an
amount equal to the fair market value of such Properties or assets, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Agreement, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution. For purposes hereof, Indebtedness incurred by any Person that
is a general partnership (other than non-recourse Indebtedness) shall be deemed
to have been incurred by the general partners of such partnership pro rata in
<PAGE>
accordance with their respective interests in the liabilities of such
partnership unless any such general partner shall, in the reasonable
determination of the Board of Directors of the Company, be unable to satisfy its
pro rata share of the liabilities of the partnership, in which case the pro rata
share of any Indebtedness attributable to such partner shall be deemed to be
incurred at such time by the remaining general partners on a pro rata basis in
accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to the Company and its Affiliates.
"Investment" means any investment by any Person in any other Person,
whether by a purchase of assets, in any transaction or series of related
transactions, individually or in the aggregate, purchase of Capital Stock,
capital contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, and other similar
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other Person, and any Guarantee of Indebtedness of such other Person.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); PROVIDED that in no event shall an operating lease (as
opposed to a Capital Lease Obligation) or a license with respect to any
intangible asset with any Person who is not an Affiliate be deemed to constitute
a Lien hereunder.
"Liquidation Event" has the meaning ascribed to it in Section 2(b)(1)
hereof.
"Management Incentive Plan" means the Silicon Gaming, Inc. 1999 Long-Term
Compensation Plan adopted by the Board of Directors of the Company,
contemporaneously with the Closing, under which grants and sales of up to
116,190,084 shares of Common Stock and options to purchase the Common Stock of
the Company may be made.
"Management Shares" means the shares issued under the Management Incentive
Plan or upon exercise of the options granted under that plan.
"Material Adverse Effect" means a material adverse effect on the business,
Property, operations or condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole.
<PAGE>
"New Notes" means the 13% Senior Secured Notes issued by the Company in an
aggregate principal amount of up to $5,000,000 as contemplated by the
Restructuring Agreement and the Securities Purchase Agreement, dated ________,
1999, by and between the Company and the Purchaser (as defined therein).
"Officer" means, with respect to any Person, the Chairman of the Board (if
an officer), the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer or the Secretary of such Person.
"Old Equity Warrants" means the warrants to purchase the Common Stock of
the Company issuable to the stockholders of the Company as of the Record Date
set pursuant to the Restructuring Agreement and issued as a part of the Units,
and the terms and provisions of which are set forth in the Warrant Agreement by
and between the Company and the Warrant Agent (as defined in the Warrant
Agreement).
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (a) such Subsidiary
to (i) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (ii) make loans or advances to such Person or
any other Subsidiary of such Person, or (iii) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (b) such Person
or any other Subsidiary of such Person to receive or retain any such (i)
dividends, distributions or payments, (ii) loans or advances, or (iii) transfers
of properties or assets.
"Permitted Liens" shall mean (a) Liens for Taxes, assessments, and similar
governmental charges to the extent (1) not delinquent or (2) being contested in
good faith by appropriate proceedings and as to which reserves have been set
aside on the books of the Company to the extent required by GAAP; (b) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen, or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
on the books of the Company; (c) pledges or deposits in the ordinary course of
business to secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or other social security benefits; (d)
Liens to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (e) zoning restrictions, easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (f) Liens in respect of purchase money or similar acquisition
Indebtedness Incurred to acquire furniture, fixtures, equipment or other
operating assets, provided that the principal amount of the Indebtedness secured
by such Lien does not exceed the acquisition cost of such assets; (g) Liens
securing Indebtedness which secures assets leased pursuant to Capital Lease
Obligations; (h) Liens on any assets of any Acquired Person securing Acquired
<PAGE>
Indebtedness which assets or Acquired Person are acquired by the Company or a
Subsidiary subsequent to the date of the Agreement, and which Liens were in
existence on or prior to the acquisition of such assets or Acquired Person (to
the extent that such Liens were not created in connection with or in
contemplation of such acquisition), provided that such Liens are limited to the
assets or Acquired Person so acquired and the proceeds thereof; and (j) Liens in
favor of B III Capital Partners, LP imposed in connection with the transactions
contemplated by the Restructuring Agreement (i) Liens imposed pursuant to
condemnation or eminent domain or substantially similar proceedings; provided
that in the case of clauses (f), (g) and (h), any Indebtedness secured by such
Liens was not Incurred in violation of Section 2(g)(2) of this Certificate of
Determination.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, or Governmental Body.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a debt security means the principal of the security
including the premium, if any, on the security.
"Property" or "property" means any assets or property of any kind or nature
whatsoever, real, personal, or mixed (including fixtures), whether tangible or
intangible.
"Purchaser" means B III Capital Partners, LP.
"Refinancing Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries Incurred or given in exchange for, or the proceeds of which are
used to, extend, refinance, renew, replace, substitute, defease or refund any
other Indebtedness of the Company or any of its Subsidiaries (and related
interest, premium, penalties, breakage costs, fees, expenses and other amounts
owing in respect of such Indebtedness, to the extent permitted to be Incurred by
Section 2(g)(3)(ii)(C) of this Certificate of Determination) Incurred in
accordance with the terms of this Certificate of Determination, including
Section 2(g)(3) of this Certificate of Determination.
"Restricted Payment" means, with respect to any Person, without
duplication: (a) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock (other than (i) in the case of the Company, dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or options,
warrants or other rights to acquire Qualified Capital Stock of the Company and
(ii) any dividends, distributions or other payments in respect of any Capital
Stock made by any Subsidiary to the Company or a Wholly-Owned Subsidiary), or
the making by such Person or any of its Subsidiaries of any other distribution
in respect of such Person's Capital Stock or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than
exchangeable or convertible Indebtedness of such person); (b) the redemption,
repurchase, retirement or other acquisition for value by such Person or any of
its Subsidiaries, directly or indirectly, of such Person's Capital Stock (and,
<PAGE>
in the case of a Subsidiary, Capital Stock of the Company) other than Capital
Stock owned by the Company or a Wholly-Owned Subsidiary, or any warrants, rights
or options to purchase or acquire shares of any class of such Capital Stock
(other than exchangeable or convertible Indebtedness of such Person), and other
than, in the case of the Company, through the issuance in exchange therefor
solely of Qualified Capital Stock of the Company; (c) any payment to purchase,
redeem, defease or otherwise acquire or retire for value any PARI PASSU
Indebtedness or Subordinated Indebtedness (other than with the proceeds of
Refinancing Indebtedness permitted under this Agreement), except in accordance
with the mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness; and (d) any Investment other than
Permitted Investments.
"Restructuring Agreement" means the Restructuring Agreement, dated ______,
1999, by and between the Company and the Purchaser (as defined therein).
"Restructuring Closing Date" means the closing date for the Restructuring
Agreement
"Sale" means any sale, lease, conveyance, exchange, transfer, assignment,
pledge, hypothecation or other disposition of any Property.
"Senior Indebtedness" means and includes all principal of, premium and
interest (including Post-Petition Interest) on and other Obligations with
respect to any Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the date hereof or hereafter Incurred,
other than the Amended Notes and New Notes; PROVIDED, HOWEVER, that the
following shall not constitute Senior Indebtedness: (a) any Indebtedness which
by the terms of the instrument creating or evidencing the same is PARI PASSU,
subordinated or junior in right of payment to the Amended Notes and New Notes in
any respect; (b) that portion of any Indebtedness Incurred in violation of this
Agreement; (c) any Preferred Stock; or (d) any Indebtedness of the Company which
is subordinated to or junior in right of payment in any respect to any other
Indebtedness of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Amended Notes
and New Notes, (ii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, (iii) any liability for foreign, Federal, state, local
or other Taxes owed or owing by the Company, (iv) Indebtedness of the Company to
the extent such liability constitutes Indebtedness to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (v)
Indebtedness for the purchase of goods or materials in the ordinary course of
business or (vi) Indebtedness owed by the Company for compensation to employees
or for services.
"Series D Certificate of Determination" means the Certificate of
Determination for the Company's Series D Preferred Stock.
"Series D Preferred Stock" means the Series D Convertible Redeemable
Preferred Stock of the Company.
"Series E Certificate of Determination" means the Certificate of
Determination for the Company's Series E Preferred Stock.
<PAGE>
"Series E Preferred Stock" means the Series E Convertible Redeemable
Preferred Stock of the Company.
"Series E Warrant" means the Warrant to purchase shares of Series E
Preferred Stock initially issued to B III Capital Partners, L.P. pursuant to the
Restructuring Agreement.
"Subsidiary" of any Person means any other Person with respect to which
either (i) more than 50% of the interests having ordinary voting power to elect
a majority of the directors or individuals having similar functions of such
other Person (irrespective of whether at the time interests of any other class
or classes of such Person shall or might have voting power upon the occurrence
of any contingency), or (ii) more than 50% of the equity interests of such other
Person is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries. When used herein without reference to any
Person, Subsidiary means a Subsidiary of the Company.
"Taxes" any present or future federal, state, county, local, foreign or
other income, Property, excise, franchise, sales, use, value added, employees'
income withholding, social security, unemployment and other taxes, of any nature
whatsoever now or hereafter imposed, levied, collected, withheld, or assessed by
any Governmental Body, which have become due or payable by the Company or any of
its Subsidiaries, or by any predecessors thereto, including any fines or
penalties with respect thereto or interest thereon, whether disputed or not.
"Transaction Documents" means, collectively, the Restructuring Agreement,
the Amended Notes, the Amendment No. 2 to the Securities Purchase Agreement, the
New Notes, the Securities Purchase Agreement for the New Notes, the Series D
Certificate of Determination, the Series E Certificate of Determination, the
Series E Warrant, the Management Incentive Plan, the Warrant Agreement, the Old
Equity Warrants, and any and all agreements, certificates, instruments and other
documents contemplated thereby or executed and delivered in connection
therewith.
"Warrant Agent" has the meaning ascribed to it in the Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement between the Company and the
Warrant Agent (as defined in the Warrant Agreement) which sets forth the terms
and provisions of the Old Equity Warrants.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
100% of the equity interests in which (however measured) are owned by such
Person or a Wholly-Owned Subsidiary of such Person or such Person and one or
more Wholly-Owned Subsidiaries of such Person taken together, except in any case
for the minimum equity interest required to be held by directors, if any, to
satisfy the requirements of any applicable statute requiring that directors own
qualifying shares.
CERTIFICATE OF DETERMINATION, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS
OF
SERIES E CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
SILICON GAMING, INC.
Pursuant to Section 401 of the
General Corporation Law of the State of California
Silicon Gaming, Inc. (the "COMPANY"), a Company organized and existing
under the laws of the State of California, by execution of this certificate
(this "CERTIFICATE OF DETERMINATION") does hereby certify and affirm, that
pursuant to the authority contained in Article III of its Amended and Restated
Articles of Incorporation (the "ARTICLES OF INCORPORATION") and in accordance
with the provisions of Section 401 of the General Corporation Law of the State
of California, the Board of Directors of the Company on November ___, 1999 duly
approved and adopted the following resolution which resolution remains in full
force and effect on the date hereof:
1. RESOLVED, that the Board of Directors of the Company does hereby designate,
create, authorize and provide for the issuance of Series E Cumulative
Convertible Redeemable Preferred Stock (the "SERIES E PREFERRED STOCK"), par
value $0.001 per share, consisting of Sixty-One Thousand (61,000) shares, having
the following voting powers, preferences and relative, participating, optional
and other special rights, and qualifications, limitations and restrictions
thereof as follows:
2. SERIES E PREFERRED STOCK. All capitalized terms not defined herein shall have
the meanings ascribed to them in Appendix 1 attached hereto and hereby
incorporated by this reference. Any reference to the conversion or
convertibility of the Series E Preferred Stock made throughout this Certificate
of Determination (including Appendix 1), other than an actual conversion,
includes the assumption that (i) all necessary filings and all necessary
approvals for conversion of the Series E Preferred Stock into Common Stock have
been made or obtained, (ii) all conversions of Series E Preferred Stock are into
Common Stock, and (iii) all conversions of Series E Preferred Stock into Common
Stock are in accordance with Section 2(e) of this Certificate of Determination.
<PAGE>
(a) DIVIDENDS.
(1) The holders of outstanding Series E Preferred Stock shall be
entitled to receive in any fiscal year, when, as and if declared by the Board of
Directors, out of any assets at the time legally available therefor,
non-cumulative dividends in cash at a rate per share as declared by the Board of
Directors, and as adjusted for any consolidations, combinations, stock
distributions, stock dividends, stock splits or similar events (collectively a
"RECAPITALIZATION EVENT"). No cash dividends shall be paid on any share of
Common Stock unless a cash dividend (including the amount of any dividends paid
pursuant to the above provisions of this Section (a)(1)) is paid with respect to
all outstanding shares of Series E Preferred Stock in an amount for each such
share of Series E Preferred Stock equal to or greater than the aggregate amount
of such cash dividends for all shares of Common Stock into which each such share
of Series E Preferred Stock could then be converted. The right to dividends on
Series E Preferred Stock shall not be cumulative and no right shall accrue to
holders of Series E Preferred Stock by reason of the fact that distributions on
said shares are not declared in any prior year, nor shall any undeclared or
unpaid distribution bear or accrue interest.
(2) Each holder of shares of Series E Preferred Stock shall be deemed
to have consented, for purposes of sections 502, 503 and 506 of the General
Corporation Law of the State of California, to distributions made by the Company
in connection with the repurchase of shares of Common Stock issued to or held by
employees, directors or consultants upon termination of their employment or
services pursuant to agreements providing for such repurchase.
(b) PREFERENCE ON LIQUIDATION.
(1) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Company (a "LIQUIDATION EVENT"), the assets
and funds of the Company available for distribution to shareholders shall be
distributed as follows (the "LIQUIDATION PREFERENCE"): each holder of shares of
the Series E Preferred Stock shall be entitled to payment out of the assets of
the Company available for distribution of an amount equal to the amount per
share that the holders of the Series E Preferred Stock would receive if the
Series E Preferred Stock held by such holder were converted as of the
liquidation date and the holder were to receive assets and funds of the Company
available for distribution to the holders of Common Stock. A holder shall not be
required to convert such holder's shares of Series E Preferred Stock in order to
receive the benefit of this subsection.
<PAGE>
(2) Upon a Liquidation Event the Company shall, within three (3)
business days after the date the Board of Directors approves such action, or
twenty (20) business days prior to any shareholders' meeting called to approve
such action, or five (5) business days after the commencement of any involuntary
proceeding, whichever is earlier, give each holder of shares of Series E
Preferred Stock written notice of the proposed action. Such written notice shall
describe the material terms and conditions of such proposed action, including a
description of the stock, cash and property to be received by the holders of
shares of Series E Preferred Stock upon consummation of the proposed action and
the date of delivery thereof. If any material change in the facts set forth in
the initial notice shall occur, the Company shall promptly give written notice
to each holder of shares of Series E Preferred Stock of such material change.
(3) The Company shall not consummate any Liquidation Event before the
expiration of thirty (30) days after the mailing of the initial written notice
or ten (10) business days after the mailing of any subsequent written notice,
whichever is later; provided that any such 30 day or 10 day period may be
shortened upon the written consent of the holders of a majority of the
outstanding shares of Series E Preferred Stock.
(4) Upon a Liquidation Event which will involve the distribution of
assets other than cash, the Company shall promptly engage competent independent
appraisers to determine the value of the assets to be distributed to the holders
of shares of Preferred Stock and the holders of shares of Common Stock. The
Company shall, upon receipt of such appraiser's valuation, give prompt written
notice to each holder of shares of Series E Preferred Stock of the appraiser's
valuation.
(c) REDEMPTION.
(1) In the event of a Change of Control the holders of at least a
majority of the shares of Series E Preferred Stock then outstanding taken
together as a series may require the Company to redeem the outstanding Series E
Preferred Stock by delivering a Redemption Notice (as defined in Section
2(c)(3)) within the ninety (90) day period following the Change of Control. The
shares of Series E Preferred Stock will be redeemed at an amount (the
"REDEMPTION PRICE") equal to the greater of (A) that portion of the Available
Transaction Proceeds equal to the amount that would be paid if such shares were
converted into Common Stock immediately prior to the relevant Change of Control
and such shares of Common Stock were purchased or participated in such Change of
Control, or (B) the Fair Market Value of the Common Stock into which the Series
E Preferred Stock held by such holders could be converted as of the Change of
Control date, and no payment shall be made to the holders of the Common Stock or
any Capital Stock ranking junior to the Series E Preferred Stock unless such
amount is paid in full. If the amount the holders would receive under this
Section 2(c)(2) is based on subsection (B) hereof, the holders shall not be
required to convert their shares of Series D Preferred Stock in order to receive
the benefit of this subsection.
<PAGE>
(2) In the case of any partial redemption pursuant to Section 2(a)(1),
selection of the shares of Series E Preferred Stock for redemption shall be made
by the Company on a PRO RATA basis, by lot or by such other method as the
Company in its sole discretion shall deem to be fair and appropriate; PROVIDED,
that if a partial redemption is made with proceeds of an offering of equity
securities or after a Change of Control, selection of the shares of Series E
Preferred Stock or portion of such shares of Series E Preferred Stock for
redemption shall be made by the Company only on a PRO RATA basis, unless such
method is otherwise prohibited by law.
(3) The Company and the holders shall give notice to the other party
of their election to redeem the Series E Preferred Stock (each a "REDEMPTION
NOTICE"), that sets forth the date on which the Redemption is to occur (the
"REDEMPTION DATE"). The Redemption Date shall in no event be fewer than twenty
(20) days nor more than sixty (60) days after the date of the Redemption Notice.
Within three (3) business days of the Redemption Notice, the Company shall give
written notice by mail, postage prepaid, to each holder of record (at the close
of business on the business day next preceding the day on which notice is
deposited in the mail) of the shares of Series E Preferred Stock to be redeemed,
at the address last shown on the records of the Company for such holder or given
by the holder to the Company for the purpose of notice, or if no such address
appears or is given, at the place where the principal executive office of the
Company is located, notifying such holder of the redemption to be effected.
Except as provided in Section 2(c)(4) below, on or after such Redemption Date,
each holder of shares of Series E Preferred Stock to be redeemed shall surrender
to this corporation the certificate or certificates representing such shares, in
the manner and at the place designated in the Redemption Notice, and thereupon
the applicable Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In the event fewer
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. A Redemption
Notice sent by or on behalf of the Company shall be sent by first class mail,
postage prepaid, to all holders of record of the Series E Preferred Stock at
their last addresses as it shall appear on the books of the Company; PROVIDED,
that no failure to give such notice or any defect therein or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series E Preferred Stock except as to the holder to whom the Company
has failed to give notice or except as to the holder to whom notice was
defective. In addition to any information required by law or by the applicable
rules of any exchange upon which Series E Preferred Stock may be listed or
admitted to trading, any Redemption Notice shall state: (i) the Redemption Date;
(ii) the Redemption Price then applicable; (iii) the number of shares of Series
E Preferred Stock to be redeemed and, if less than all shares held by such
holder are to be redeemed, the number of such holder's shares to be redeemed;
and (iv) the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price, including any procedures
applicable to redemptions to be accomplished through book-entry transfers. Upon
the mailing of any such Redemption Notice, the Company shall become obligated to
redeem at the Redemption Date specified therein all shares called for
redemption. Notwithstanding the foregoing, the holders of the Series E Preferred
Stock shall have the right until the Redemption Date to convert their shares of
Series E Preferred Stock into Common Stock in accordance with Section 2(e) in
lieu of redemption hereunder.
(4) If notice has been mailed in accordance with paragraph (3) above
and provided that on or before the Redemption Date specified in such notice, all
funds necessary for such redemption shall have been set aside by the Company,
<PAGE>
separate and apart from its other funds in trust for the PRO RATA benefit of the
holders of the shares so called for redemption, so as to be, and to continue to
be available therefor, then, from and after the Redemption Date said shares
shall no longer be deemed to be outstanding and shall not have the status of
shares of Series E Preferred Stock, and all rights of the holders thereof as
stockholders of the Company (except the right to receive from the Company the
applicable Redemption Price) shall cease. Upon surrender, in accordance with
said notice, of the certificates for any shares so redeemed (properly endorsed
or assigned for transfer, if the Company shall so require and the notice shall
so state), such shares shall be redeemed by the Company at the applicable
Redemption Price. In case fewer than all the shares represented by any such
certificate are redeemed, a new certificate or certificates shall be issued
representing the unredeemed shares without cost to the holder thereof.
(5) Any funds deposited with a bank or trust company for the purpose
of redeeming shares of Series E Preferred Stock shall be irrevocable, except
that:
(i) the Company shall be entitled to receive from such bank or
trust company the interest or other earnings, if any, earned on any money so
deposited in trust, and the holders of any shares redeemed shall have no claim
to such interest or other earnings; and
(ii) any balance of monies so deposited by the Company and
unclaimed by the holders of the Series E Preferred Stock entitled thereto at the
expiration of two years from the applicable Redemption Date shall be repaid,
together with any interest or other earnings earned thereon, to the Company, and
after any such repayment, the holders of the shares entitled to the funds so
repaid to the Company shall look only to the Company for payment without
interest or other earnings.
(6) No shares of Series E Preferred Stock may be redeemed except with
funds legally available for the purpose. The Company shall take all actions
required or permitted under applicable law to permit any such redemption.
(7) All shares of Series E Preferred Stock redeemed pursuant to this
Section 2(c) shall be restored to the status of authorized and unissued shares
of preferred stock, without designation as to series and may thereafter be
reissued as shares of any series of Preferred Stock other than shares of Series
E Preferred Stock.
(8) If, at a Redemption Date, the Company is prohibited under the
California General Corporation Law from redeeming all shares of Series E
Preferred Stock for which redemption is required hereunder, then it shall redeem
such shares on a pro-rata basis among the holders of Series E Preferred Stock in
proportion to the full respective redemption amounts to which they are entitled
hereunder to the extent possible and shall redeem the remaining shares to be
redeemed as soon as the Company is not prohibited from redeeming some or all of
such shares under the California General Corporation Law. The shares of Series E
Preferred Stock not redeemed shall remain outstanding and entitled to all of the
rights and preferences provided herein. In the event that the Company fails to
redeem shares for which redemption is required hereunder including, without
limitation, due to a prohibition of such redemption under the California General
Corporation Law, then during the period from the applicable Redemption Date
<PAGE>
through the date on which such shares are redeemed, the applicable Redemption
Price of such shares shall increase at the rate of fifteen percent (15%) per
annum of the applicable Redemption Price, with such increase to accrue daily in
arrears and to be compounded annually; PROVIDED, HOWEVER, that in no event shall
such interest exceed the maximum permitted rate of interest under applicable law
(the "MAXIMUM PERMITTED RATE"). In the event that fulfillment of any provision
hereof results in such rate of interest being in excess of the Maximum Permitted
Rate, the obligation to be fulfilled shall automatically be reduced to eliminate
such excess; PROVIDED, HOWEVER, that, to the extent permitted by law, any
subsequent increase in the Maximum Permitted Rate shall be retroactively
effective to the applicable Redemption Date.
(9) DIVIDEND AFTER REDEMPTION DATE. From and after the Redemption
Date, no shares of Series E Preferred Stock subject to redemption shall be
entitled to any further dividends pursuant to Section 2(a)(1) hereof; PROVIDED,
HOWEVER, that in the event that shares of Series E Preferred Stock are unable to
be redeemed and continue to be outstanding in accordance with Section 2(c)(8),
such shares shall continue to be entitled to dividends and interest thereon
until the date on which such shares are actually redeemed by the Company.
(d) VOTING RIGHTS. The holders of the Series E Preferred Stock will have
the right to vote the number of shares of Common Stock into which all of such
holders' shares of Series E Preferred Stock are convertible under Section 2(e),
as a class with the other holders of Common Stock, but not as a separate class,
only if such holder has first received all prior approvals required under
applicable Gaming Laws for conversion of all of the shares of Series E Preferred
Stock held by such holder and complied with any filing requirements prerequisite
to such holder's conversion of all of the shares of Series E Preferred Stock
held by such holder.
(e) CONVERSION RIGHTS. The holders of Series E Preferred Stock shall have
conversion rights as follows:
(1) Upon the filing with and acceptance by the California Secretary of
State of the Authorized Common Stock Amendment, each share of Series E Preferred
Stock shall be convertible, without obtaining any additional consideration from
the holder thereof, at the option of the holder thereof at any time into fully
paid and nonassessable shares of Common Stock of the Company on the terms and
subject to the conditions set forth in this subsection (e).
(2) The number of shares of Common Stock into which each share of
Series E Preferred Stock may be converted is One Thousand (1,000) (the
"CONVERSION NUMBER"). The Conversion Number is subject to adjustment as provided
in Section 2(f) below. Upon conversion of a share of Series E Preferred Stock to
Common Stock, all declared or accrued but unpaid dividends on each such share of
Series E Preferred Stock so converted shall be paid to the holder thereof in
cash of additional shares of Common Stock, at the sole option of the Company.
(3) The holder of any shares of Series E Preferred Stock may exercise
the conversion rights as to such shares or any part thereof by delivering to the
Company during regular business hours, at the office of any transfer agent of
the Company for the Series E Preferred Stock, or at the principal office of the
Company or at such other place as may be designated by the Company, notice of
<PAGE>
its election to convert shares of Series E Preferred Stock along with the
certificate or certificates for the shares to be converted, duly endorsed for
transfer to the Company (if required by it). Conversion shall be deemed to have
been effected on later of:
(i) if the total number of shares of Common Stock held by such
holder after giving effect to such conversion is 4.9% or less of the total
outstanding voting Common Stock of the Company, the date that is 3 days
following delivery of a notice of conversion; or
(ii) if the total number of shares of Common Stock held by such
holder after giving effect to such conversion exceeds 4.9% of the total
outstanding voting Common Stock of the Company, the date that is 65 days
following delivery of a notice of conversion.
Such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter the Company shall issue and deliver to or upon the
written order of such holder, at such office or other place designated by the
Company, a certificate or certificates for the number of full shares of Common
Stock, to which such holder is entitled ("CONVERSION STOCK") and a check for
cash with respect to any fractional interest in a share of Common Stock as
provided in Section 2(e)(4) below. The holder shall be deemed to have become a
shareholder of record of Conversion Stock on the applicable Conversion Date
unless the transfer books of the Company are closed on the date, in which event
it shall be deemed to have become a shareholder of record on the next succeeding
date on which the transfer books are open, but the Conversion Rate shall be that
in effect on the Conversion Date. Upon conversion of only a portion of the
number of shares of Series E Preferred Stock represented by a certificate
surrendered for conversion, the Company shall issue and deliver to the holder of
the certificate so surrendered for conversion, at the expense of the Company, a
new certificate covering the number of shares of Series E Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(4) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series E Preferred Stock. If more than one share of
Series E Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series E Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series E Preferred Stock, the Company shall pay a cash adjustment in
respect of such fractional interest equal to the fair market value of such
fractional interest as determined by the Company's Board of Directors.
(5) Following the filing with and acceptance by the California
Secretary of State of the Authorized Common Stock Amendment, the Company shall
pay any and all issue and other taxes that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of Series E Preferred
Stock pursuant hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the Series
E Preferred Stock so converted was registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Company the amount of any such tax, or has established, to the satisfaction of
the Company, that such tax has been paid.
<PAGE>
(6) Following the filing with and acceptance by the California
Secretary of State of the Authorized Common Stock Amendment, the Company shall
at all times reserve and keep available, out of its authorized but unissued
Common Stock, solely for the purpose of effecting the conversion of the Series E
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all Series E Preferred Stock from time to time outstanding. The
Company shall from time to time (subject to obtaining necessary board and
shareholder approval), in accordance with the laws of the State of California,
increase the authorized amount of its Common Stock if at any time the authorized
number of shares of its Common Stock remaining unissued shall not be sufficient
to permit the conversion of all of the shares of Series E Preferred Stock at the
time outstanding.
(7) If any shares of Common Stock or Series E Preferred Stock require
registration or listing with, or approval of, any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise, before such shares may be validly issued or delivered upon
conversion, the Company will in good faith and as expeditiously as possible
endeavor to secure such registration, listing or approval, as the case may be.
(8) All shares of Common Stock issued upon conversion of any shares of
Series E Preferred Stock will upon issuance by the Company be validly issued,
fully paid and non-assessable and free from all taxes, liens and charges with
respect to the issuance thereof.
(9) If:
(i) the Company shall take a record of the holders of its Capital
Stock for the purpose of entitling them to receive a dividend, or any other
distribution, payable otherwise than in cash or to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or
(ii) there shall occur any capital reorganization of the Company,
reclassification of the Capital Stock of the Company (other than a subdivision
or combination of its outstanding shares of Common Stock), consolidation or
merger of the Company with or into another Company or conveyance of all or
substantially all of the assets of the Company to another Company; or
(iii) the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, and in any such case, the Company shall cause to be mailed to the transfer
agent for the Series E Preferred Stock, and to the holders of record of the
outstanding Series E Preferred Stock at the address of record of such
shareholder as set forth on the Company's books, at least thirty (30) days prior
to the date hereinafter specified, a notice stating the material terms of the
proposed transaction and the date (which shall be at least 15 days following the
date of such notice) on which (x) a record is to be taken for the purpose of
such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place and the date, if any is to be fixed, as of which
holders of Capital Stock of record shall be entitled to exchange their shares of
Capital Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
<PAGE>
(f) ADJUSTMENT OF CONVERSION NUMBER. The Conversion Number for the Series E
Preferred Stock from time to time in effect shall be subject to adjustment from
time to time as follows:
(1) In case the Company shall at any time subdivide the outstanding
shares of Common Stock the Conversion Number in effect immediately prior to such
subdivision or the issuance of such dividend shall be proportionately increased,
and in case the Company shall at any time combine the outstanding shares of
Common Stock, the Conversion Number in effect immediately prior to such
combination shall be proportionately decreased, effective at the close of
business on the date of such subdivision or combination, as the case may be.
(2) Upon an adjustment to the Conversion Price (as defined in the
Series D Certificate of Determination) under Section 2(f)(2) of the Series D
Certificate of Determination (a "SERIES D CONVERSION PRICE ADJUSTMENT"), the
Conversion Number shall forthwith upon such Series D Conversion Price Adjustment
be adjusted to a number determined by multiplying (i) the Conversion Number in
effect immediately prior to such adjustment by (ii) a fraction the NUMERATOR of
which is equal to the number of shares of Common Stock into which each share of
Series D Preferred Stock is convertible immediately after such Series D
Conversion Price Adjustment and the DENOMINATOR of which is equal to the number
of shares of Common Stock into which each share of Series D Preferred Stock was
convertible immediately prior to such Series D Conversion Price Adjustment.
(3) Subject to the right of the Company to amend this Certificate of
Determination upon obtaining necessary approvals required by this Certificate of
Determination and applicable law, the Company will not, by amendment of its
Articles or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by this Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 2(f) and
in the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of Series E Preferred Stock against
impairment.
(4) Upon the occurrence of each adjustment or readjustment of the
Conversion Number pursuant to this Section 2(f), the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof, and shall prepare and furnish to each holder of Series E Preferred
Stock affected thereby a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of any shares of Series E Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustment or
readjustment, (B) the Conversion Number of such series at the time in effect,
and (C) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of such
holders' shares.
<PAGE>
(g) COVENANTS.
So long as there remain outstanding at least 200 shares of Series E
Preferred Stock:
(1) LIMITATION ON CERTAIN ACTIONS. The Company shall not, without the
prior written consent of the holders of a majority of the then outstanding
Series E Preferred Stock:
(i) authorize or issue any dividends on any of its outstanding
securities unless required to do so by the Certificate of Determination or other
governing instrument of such security as in effect on the Closing Date;
(ii) issue any Capital Stock or debt with a preference to or PARI
PASSU with the Series D Preferred Stock, the Series E Preferred Stock, the New
Notes (or interest thereon whether deferred or paid-in-kind) or the Amended
Notes;
(iii) issue any additional Capital Stock or equity securities,
including options, warrants or other derivative securities other than the Series
D Preferred Stock, the common stock to be issued upon conversion of the Series D
Preferred Stock, the Units, the Old Equity Warrants, the Common Stock to be
issued upon exercise of the Old Equity Warrants, the Series E Warrant, the
Series E Preferred Stock to be issued upon exercise of the Series E Warrant, the
Common Stock to be issued upon exercise of the Series E Warrant, or, unless
issued to an officer, employee, director or consultant of the Company under the
Management Incentive Plan;
(iv) acquire assets not in the ordinary course of business in an
aggregate value that exceeds $100,000 for any calendar year;
(v) make capital investments in any other entity in an aggregate
amount that exceeds $100,000;
(vi) enter into any agreement or arrangement, not in the ordinary
course of business, which obligates the Company to present or future commitments
during the term of the agreement in excess of $100,000;
(vii) make capital expenditures in an aggregate value that
exceeds $500,000 for any calendar year;
(viii) liquidate, dissolve or wind-up operations, effect a
recapitalization or reorganization, or take steps to file for bankruptcy; or
(ix) amend its Charter Documents or by-laws other than as
contemplated in the Restructuring Agreement or the Transaction Documents.
(2) LIMITATION ON INDEBTEDNESS. Without the prior written consent of
the holders of a majority of the then outstanding shares of Series E Preferred
Stock:
<PAGE>
(i) Except as set forth in this Section 2(g)(2), the Company
shall not, and shall not permit any Subsidiary, after the date hereof, directly
or indirectly, to Incur any Indebtedness (including Acquired Indebtedness)
without the prior written consent of the holders of a majority of the then
outstanding Series E Preferred Stock. For purposes of this Agreement,
Indebtedness of any Acquired Person that is not a Subsidiary, which Indebtedness
is outstanding at the time such Person is acquired by the Company or a
Subsidiary or becomes, or is merged into or consolidated with, a Subsidiary,
shall be deemed to have been Incurred by the Company or the acquiring Subsidiary
at the time such Acquired Person becomes, or is merged into or consolidated
with, a Subsidiary.
(ii) Notwithstanding Section 2(g)(2)(i) the Company and its
Subsidiaries may Incur, after the date hereof, any of the following
Indebtedness:
(A) Indebtedness outstanding as of the Closing Date of the
Restructuring Agreement, Indebtedness evidenced by the Amended Notes and the New
Notes, including any Indebtedness evidenced by notes issued as payment-in-kind
for interest payments due and payable under the Amended Notes and the New Notes;
(B) Indebtedness to any Wholly-Owned Subsidiary of the
Company or Indebtedness of any Subsidiary to the Company (provided that such
Indebtedness is at all times held by the Company or a Wholly-Owned Subsidiary of
the Company); PROVIDED, HOWEVER, that for purposes of this Section 2(g)(2), upon
either (A) the transfer or other disposition by any such Wholly-Owned Subsidiary
of any Indebtedness so permitted to a Person other than the Company or another
Wholly-Owned Subsidiary of the Company or (B) the issuance, sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger) of such Wholly-Owned Subsidiary to a Person other than
the Company or another such Wholly-Owned Subsidiary, the provisions of this
clause (ii) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred by the Company at the time of
such transfer or other disposition;
(C) Refinancing Indebtedness with respect to Indebtedness
that was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this Agreement;
PROVIDED, HOWEVER, that (i) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount (or accreted value, in the
case of Indebtedness issued at a discount) of the Indebtedness so extended,
refinanced, renewed, replaced, substituted, defeased or refunded (plus the
amount of fees, costs and expenses incurred and the amount of any premium,
penalties, breakage costs and other similar amounts required to be paid in
connection with such refinancing pursuant to the terms of the instrument
governing the Indebtedness so extended, refinanced, renewed, replaced,
substituted, defeased or refunded or the amount of any premium reasonably
determined by the Company as necessary to accomplish a refinancing by means of a
tender offer or privately negotiated repurchase, which determination shall be
supported by a fairness opinion from an Independent Financial Advisor, plus the
fees, costs and expenses of such tender offer or repurchase); and (ii) the
Refinancing Indebtedness shall (1) have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, substituted,
defeased or refunded; (2) not have a final scheduled maturity earlier than the
final scheduled maturity of the Indebtedness being extended, refinanced,
<PAGE>
replaced, renewed, substituted, defeased or refunded; (3) not permit redemption
at the option of the holder earlier than the earliest date of redemption at the
option of the holder of the Indebtedness being extended, refinanced, renewed,
replaced, substituted, defeased or refunded; and (4) rank no more senior or be
at least as subordinated, as the case may be, in right of payment to the Series
E Preferred Stock, the Notes and the New Notes as the Indebtedness being
extended, refinanced, replaced, renewed, substituted, defeased or refunded; and
(D) Senior Indebtedness of the Company not to exceed an
aggregate of $4,000,000 (inclusive of amounts outstanding as of the date of the
Restructuring Agreement), including without limitation, Indebtedness owed to
Silicon Valley Bank under the Company's secured credit facility.
(3) LIMITATION ON TRANSACTIONS WITH AFFILIATES. Without the prior
written consent of the holders of a majority of the then outstanding shares of
Series E Preferred Stock:
(i) Neither the Company nor any of its Subsidiaries shall enter
into any transaction or series of transactions to sell, lease, transfer,
exchange or otherwise dispose of any of its properties or assets to or to
purchase any property or assets from, or for the direct or indirect benefit of,
an Affiliate of the Company or of any Subsidiary of the Company, make any
Investment in or enter into any contract, agreement, understanding, loan,
advance or Guarantee with, or for the direct or indirect benefit of, an
Affiliate of the Company or of any Subsidiary of the Company (each, including
any series of transactions with one or more Affiliates, an "AFFILIATE
TRANSACTION"), unless (x) the Board of Directors of the Company or the relevant
Subsidiary determines, as evidenced by a Board Resolution, that the terms of
such Affiliate Transaction are fair and reasonable to the Company and no less
favorable to the Company or the relevant Subsidiary than those that could have
been obtained at that time in a comparable arms-length transaction by the
Company or such Subsidiary with an unrelated Person (y) such Affiliate
Transaction has been approved by a majority of the Board of Directors of the
Company or the relevant Subsidiary who have no direct or indirect interest in
the Affiliate Transaction or in the Affiliate that is a party to the Affiliate
Transaction, or in any other party that is an Affiliate of any such Affiliate,
and (z) the Company shall have delivered to the holders of the Series E
Preferred Stock an Officer's Certificate certifying that the conditions set
forth in clauses (x) and (y) above have been satisfied.
(ii) Neither the Company nor any of its Subsidiaries shall enter
into an Affiliate Transaction involving or having a potential aggregate value of
more than $1,000,000 unless, in addition to the requirements of (i) above, the
Board of Directors of the Company or the relevant Subsidiary shall first have
received a written opinion from an Independent Financial Advisor for the benefit
of the Company and the holders of the Series E Preferred Stock, which firm is
not receiving any contingent fee or other consideration directly or indirectly
related to the successful completion of the Affiliate Transaction, to the effect
that the proposed Affiliate Transaction is fair to the Company from a financial
point of view.
(iii) The provisions of this Section 2(g)(3) shall not apply to
(w) any Restricted Payment that is made in compliance with the provisions of
Section 2(g)(8), (x) the reasonable and customary fees and compensation paid to
or indemnity provided on behalf of, officers, directors, employees or
<PAGE>
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or such Subsidiary or the senior management thereof in
good faith, (y) transactions exclusively between or among the Company and any
Wholly-Owned Subsidiary or exclusively between or among Wholly-Owned
Subsidiaries provided such transactions are not otherwise prohibited by this
Agreement, or (z) any Affiliate Transaction contemplated by the Restructuring
Agreement (including without limitation, the Management Incentive Plan) or in
existence as of the Restructuring Closing Date.
(4) LIMITATION ON LIENS. Without the prior written consent of the
holders of a majority of the then outstanding shares of Series E Preferred
Stock, the Company shall not, and shall not permit any of its Subsidiaries to,
Incur, assume, suffer to exist, create or otherwise cause to be effective any
Lien on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom to secure
any Indebtedness except: (a) Permitted Liens, (b) Liens existing as of the date
hereof (and any extension, renewal or replacement Liens upon the same Property
subject to such Liens, provided the principal amount of Indebtedness secured by
each Lien constituting such an extension, renewal or replacement Lien shall not
exceed the principal amount of Indebtedness secured by the Lien theretofore
existing, plus amounts described in Section 2(g)(2)(ii)(C)(i) with respect to
permitted Refinancing Indebtedness), and (c) Liens replacing, extending or
renewing, in whole or in part, any Lien described in the foregoing clauses (a)
and (b), including in connection with any refinancing of the Indebtedness, in
whole or in part, secured by any such Lien effected in accordance with Section
2(g)(2), provided that if any such clauses limit the amount secured by or the
Property or assets subject to such Liens, no such replacement, extension or
renewal shall increase the amount of Indebtedness or the Property or assets
subject to such Liens.
(5) LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK OF
SUBSIDIARIES. Without the prior written consent of the holders of a majority of
the then outstanding shares of Series E Preferred Stock, the Company (a) shall
not, and shall not permit any Subsidiary to, transfer, convey, sell, or
otherwise dispose of any Capital Stock, or securities convertible into or
exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, Capital Stock of a Subsidiary to any Person (other
than the Company or a Wholly-Owned Subsidiary) unless such transfer, conveyance,
sale, lease or other disposition is of 100% of the Capital Stock of such
Subsidiary held by the Company and is in compliance with Section 2(g)(6) below
and (b) shall not permit any Subsidiary to issue shares of its Capital Stock
(other than directors' qualifying shares), or securities convertible into or
exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, its Capital Stock to any Person.
(6) LIMITATION ON SALE OF ASSETS. Without the prior written consent of
the holders of a majority of the then outstanding shares of Series E Preferred
Stock the Company shall not, and shall not permit any of its Subsidiaries to,
undertake any Asset Disposition.
(7) CHANGE OF CONTROL. The Company will not merge or consolidate with
any other entity, or enter into any transaction which would constitute or have
the effect of a Change of Control without the consent of a majority of the
holders of the then outstanding shares of Series E Preferred Stock.
<PAGE>
(8) LIMITATION ON RESTRICTED PAYMENTS. Without the prior written
consent of the holders of a majority of the then outstanding shares of Series E
Preferred Stock:
(i) The Company shall not, and shall not permit any Subsidiary
to, directly or indirectly, make any Restricted Payment, except payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not Incurred in violation of Section 2(g)(2).
(ii) Notwithstanding Section 2(g)(8)(i), the following Restricted
Payments may be made: (A) the redemption of the Series D Preferred Stock, the
Series E Preferred Stock, the Amended Notes and the New Notes under the terms
and provisions of the relevant agreement controlling each instrument; (B) the
repurchase of any Common Stock pursuant to the provisions of the Management
Incentive Plan at a redemption price no greater than the price at which such
shares were originally sold; (C) the issuance of the Units; and (D) the issuance
of the Series E Warrant.
(9) RESTRICTIONS AGAINST LIMITATIONS ON UPSTREAM PAYMENTS. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction or other encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make loans or advances to the Company or a Subsidiary of the
Company, or (c) transfer any of its Properties or assets to the Company or any
Subsidiary of the Company, except for such Payment Restrictions or encumbrances
existing under or by reason of: (i) applicable law; (ii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was Incurred in contemplation of or in connection
with such acquisition), provided, that such restriction is not applicable to any
Person, or the Property or assets of any Person, other than the Acquired Person;
(iii) non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (iv) instruments governing purchase
money Indebtedness for Property acquired in the ordinary course of business that
only impose restrictions on the Property so acquired; (v) any agreement for the
sale or disposition of the Capital Stock or assets of such Subsidiary, provided
that such restriction is only applicable to such Subsidiary or assets, as
applicable; or (vi) Refinancing Indebtedness permitted under this Agreement with
respect to Indebtedness described in clauses (ii), (iii) or (iv), provided that
the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instrument governing the Indebtedness being refinanced immediately prior to
such refinancing.
(10) MANAGEMENT INCENTIVE PLAN. The Company will not amend the
Management Incentive Plan (or the Exhibits thereto) without the prior written
approval of the holders of a majority of the Series E Preferred Stock.
(11) STAY, EXTENSION AND USURY LAWS. The Company covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
<PAGE>
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that might affect the covenants or the performance of its obligations
under this Certificate of Determination; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power granted to any holder pursuant to this
Certificate of Determination, but will suffer and permit the execution of every
such power as though no such law has been enacted.
(h) STATUS OF CONVERTED OR REDEEMED STOCK. In the event any shares of
Series E Preferred Stock shall be redeemed or converted pursuant to Section 2(c)
or Section 2(e) above or otherwise acquired by the Company, the shares so
converted or redeemed or acquired shall be canceled and shall not be issuable by
the Company, and this Certificate of Determination shall be appropriately
amended to effect the corresponding reduction in the Company's authorized
capital stock.
(i) GAMING LAWS.
(1) Notwithstanding anything to the contrary contained herein, the
issuance of Series E Preferred Stock and the Common Stock into which the Series
E Preferred Stock is convertible is subject to all applicable provisions of the
Gaming Laws.
(2) Notwithstanding anything to the contrary contained herein or in
the Transaction Documents, it is understood and agreed that to become effective,
the Gaming Subsidiaries Stock Restrictions require the approvals described in
the definition thereof (the "GAMING SUBSIDIARIES STOCK RESTRICTIONS REQUISITE
GAMING APPROVALS").
(4) Notwithstanding anything to the contrary contained herein or in
the Transaction Documents, unless and until the relevant Gaming Subsidiaries
Stock Restrictions Requisite Gaming Approvals have been obtained, the Gaming
Subsidiaries Stock Restrictions contained in this Certificate of Determination
shall not apply or be effective.
3. The foregoing Certificate of Determination has been duly approved by the
Board of Directors of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The undersigned have executed this Series E Certificate of Determination on
November ___, 1999.
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
President and Chief Executive Officer
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
Acting Chief Financial Officer and Secretary
Each of the undersigned declares under penalty of perjury under the laws of
the State of California that he has read the foregoing Certificate of
Determination and knows the contents thereof and that the same is true of his
own knowledge.
Executed at Palo Alto, California, on November ___, 1999.
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
President and Chief Executive Officer
/s/ Andrew Pascal
--------------------------------------------
Andrew Pascal
Acting Chief Financial Officer and Secretary
<PAGE>
APPENDIX 1
DEFINITIONS AND ACCOUNTING TERMS
In addition to any terms defined elsewhere in this Certificate of
Determination, unless otherwise specifically provided herein, the following
terms shall have the following meanings for all purposes when used in this
Certificate of Designation:
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of an Acquired Person existing at the time of such acquisition,
including Indebtedness issued in connection with, or in contemplation of, such
acquisition, and (b) Indebtedness incurred by such Person or its Subsidiaries
(i) the proceeds of which have been used to finance an Investment in a Related
Business, and (ii) which is secured by a Lien solely on the assets or Property
constituting such an Investment in a Related Business.
"Acquired Person" means, with respect to any specified Person, any other
Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
(a) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (b) that directly or
indirectly owns more than 10% of the voting securities of such Person. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Transaction" has the meaning ascribed thereto in Section
2(g)(3)(i) hereof.
"Aggregate Transaction Proceeds" means:
(i) in the case of a Liquidation Event all cash and non-cash consideration
received by the Company or its stockholders as a result of a Liquidation Event
minus the amount required to repay all debts of the Company other than the
Amended Note and the New Notes; or
(ii) in the case of a Change of Control, an amount equal to the aggregate
value of all outstanding Capital Stock of the Company as determined with
reference to and at the time of such Change of Control plus the total
outstanding principal of and unpaid interest on the Amended Notes and the New
Notes;
and, in each case, plus the applicable exercise price or other amounts
payable in connection with the exercise of all options, warrants and other
convertible securities the per share exercise price of which is less than the
amount to which a share of Common Stock would be entitled in the relevant
Liquidation Event or the value thereof as determined in the relevant Change of
<PAGE>
Control; provided that if the aggregate value of all outstanding Capital Stock
determined in clause (ii) above is less than the Fair Market Value, or if such
Change in Control constitutes a Change in Control described in clause (e) of the
definition of Change of Control, such amount shall be the Fair Market Value of
such Capital Stock.
"Agreement" means the Securities Purchase Agreement by and between the
Company and the Purchaser, dated as of September 30, 1997, as amended, modified
or supplemented from time to time, together with any exhibits, schedules or
other attachments thereto.
"Amended Note" means the promissory notes issued by the Company to the
Purchaser in replacement of and full substitution for Senior Discount Notes No.
1 and No. B-1 in accordance with the Restructuring Agreement and the transaction
contemplated thereby.
"Amendment No. 2 to the Securities Purchase Agreement" means that certain
Amendment No. 2 to the Securities Purchase Agreement dated initially entered
into and dated September 30, 1997, and as amended by Amendment No. 1 to the
Securities Purchase Agreement dated July 8, 1998, by and between the Company and
B III Capital Partners, L.P.
"Approvals" means each and every approval, consent, filing or registration
by, or with any Governmental Body, or any creditor or shareholder of the
Company, necessary (a) to authorize or permit the execution, delivery or
performance by the Company of the Transaction Documents, and (b) for the
validity or enforceability of any of such Transaction Documents against the
Company.
"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (in one transaction or a series of related transactions), including
any such disposition by means of a merger, consolidation or similar transaction,
of shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), Property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries, but
excluding the following: (a) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (b) a disposition of
tangible property or assets which have become obsolete or are otherwise not used
or useful, so long as such disposition is at fair market value (as determined by
the Company in good faith) in the ordinary course of business, (c) a disposition
that constitutes a Restricted Payment, in each case so long as effected in
accordance with all applicable provisions of this Agreement, and (d) a
disposition of inventory in the ordinary course of business, in each case so
long as effected in accordance with all applicable provisions of this Agreement.
"Authorized Common Stock Amendment" means the Amendment to the Articles of
Incorporation of the Company approved by the Board of Directors of the Company
to increase the number of authorized shares of Common Stock of the Company from
50,000,000 to 750,000,000.
"Available Transaction Proceeds" means the Aggregate Transaction Proceeds
minus all amounts due under the Amended Note and the New Notes.
<PAGE>
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Stock" of any Person means any and all shares of, or interests,
rights, participations, and/or other equivalents in (however designated),
corporate stock or equity securities of such Person, including each class of
common stock and preferred stock of such Person and partnership or limited
liability company interests, whether general or limited, of such Person, and
including any securities convertible into or exercisable or exchangeable for, or
any right to acquire, any equity interest in such Person.
"Change of Control" means any transaction or series of transactions which
occur following the Closing Date and in which any of the following occurs: (a)
any Person or group (within the meaning of Rule 13d-3 under the Exchange Act and
Sections 13(d) and 14(d) of the Exchange Act) becomes the direct or indirect
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of 25% or
more of the issued and outstanding shares of Capital Stock entitled to vote in
the election of directors of the Company; (b) a merger or consolidation of the
Company with or into another corporation in which less than a majority of the
outstanding voting power of the surviving or consolidated corporation
immediately following such event is held by persons or entities who were
stockholders of the Company immediately prior to such event; (c) the sale or
transfer of all or substantially all of the properties and assets of the Company
and its subsidiaries; (d) the redemption or repurchase of shares representing a
majority of the voting power of the outstanding shares of capital stock of the
Company; or (e) individuals who at the Closing constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a majority of the directors of the
Company then still in office who were either directors at the Closing or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; provided however, that a conversion of Series D Preferred Stock into
Common Stock, an issuance of Common Stock under the Management Incentive Plan,
issuance of the Units, an issuance of the Old Equity Warrants, an issuance of
Common Stock upon exercise of Old Equity Warrants, issuance of the Series E
Warrant, an issuance of Series E Preferred Stock upon exercise of the Series E
Warrant, and an issuance of Common Stock upon conversion of the Series E
Preferred Stock, shall not, individually or in the aggregate, in and of itself,
constitute a Change of Control.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Company" means the party named as such above until a successor replaces it
and thereafter means the successor.
<PAGE>
"Default" means any event which is, or after notice or passage of time or
both would be, an event of default, under the terms and provisions of the
relevant agreement or understanding.
"Dollars" and "$" mean lawful currency of the United States of America.
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties would change
hands between a willing buyer and a willing seller, within a commercially
reasonable time, each having reasonable knowledge of the relevant facts, neither
being under a compulsion to sell or buy, as such amount is reasonably determined
by (a) the Board of Directors of the Company acting reasonably and in good faith
or (b) at the request of a majority of the outstanding Series D Preferred Stock
an appraisal or valuation firm of national or regional standing selected by the
Company (with the reasonable consent of a majority of the outstanding Series D
Preferred Stock), with experience in the appraisal or valuation of properties or
assets of the type for which Fair Market Value is being determined; PROVIDED,
HOWEVER, that if the Common Stock is traded on the Nasdaq National Market or the
NYSE (or successor thereof), the Fair Market Value of the Common Stock shall be
the average of the closing prices for the 10 trading days immediately prior to
the date of determination.
"Fully Diluted Percentage of Equity Interest" of the Company with respect
to a Liquidation Event or a Change in Control shall mean the product of (x) a
fraction, the NUMERATOR of which is the number of shares of Common Stock of the
Company into which all of the outstanding shares of Series D Preferred Stock are
then convertible and the DENOMINATOR of which is the total number of shares of
Common Stock then outstanding (including shares issuable upon conversion of the
Series D Preferred Stock and all other outstanding warrants, options and other
convertible securities the per share exercise price of which is less than the
amount to which a share of Common Stock would be entitled in the relevant
Liquidation Event or the value thereof as determined in the relevant Change of
Control) MULTIPLIED BY (y) 100.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, as in
effect from time to time.
"Gaming Laws" means, collectively, (a) the Nevada Gaming Control Act, as
codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to
time, together with the regulations of the Nevada Gaming Commission promulgated
thereunder, as amended from time to time, (b) the Mississippi Gaming Control
Act, as codified in Chapter 76 of the Mississippi Code Annotated, as amended
from time to time, together with the regulations of the Mississippi Gaming
Commission promulgated thereunder, as amended from time to time, and (c) all
other laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over any activities conducted by the
Company or its Gaming Subsidiaries within its jurisdiction.
<PAGE>
"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), suffer to exist, assume, Guarantee or otherwise become liable in
respect of such Indebtedness or other obligation, including by way of merger or
acquisition of another Person, or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing).
"Indebtedness" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof and whether short-term or long-term, secured or unsecured),
(ii) evidenced by bonds, notes, debentures, drafts accepted or similar
instruments or letters of credit (including such liabilities representing the
balance deferred and unpaid of the purchase price of any property, other than
any such liability that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business in connection with obtaining goods,
materials or services, which account is not overdue according to the original
terms of sale, unless such account payable is being contested in good faith),
(iii) for the payment of money relating to Capital Lease Obligations; or (iv)
under the terms of any amendment, renewal, extension or refunding of any
liability of the types referred to in the preceding clauses (i), (ii) or (iii);
(b) the maximum fixed repurchase price of all Disqualified Capital Stock of such
Person or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (c) outstanding reimbursement obligations of such Person with respect
to letters of credit or bankers' acceptances issued for the benefit of such
Person; (d) net obligations of such Person with respect to Interest Rate or
Currency Protection Agreements; (e) all liabilities of others of the kind
described in the preceding clause (a), (b), (c) or (d) that such Person has
Guaranteed or that is otherwise its legal liability; and (f) all obligations of
others secured by a Lien to which any of the Property or assets of such Person
are subject (other than obligations of a lessor under any operating lease
pursuant to which the Company or any of its Subsidiaries leases Property, if
such lessor grants a Lien on such lease to secure such lessor's Indebtedness),
whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability (PROVIDED that if the
obligations so secured have not been assumed by such Person or are not otherwise
such Person's legal liability, such obligations shall be deemed to be in an
amount equal to the fair market value of such Properties or assets, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Agreement, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution. For purposes hereof, Indebtedness incurred by any Person that
is a general partnership (other than non-recourse Indebtedness) shall be deemed
to have been incurred by the general partners of such partnership pro rata in
<PAGE>
accordance with their respective interests in the liabilities of such
partnership unless any such general partner shall, in the reasonable
determination of the Board of Directors of the Company, be unable to satisfy its
pro rata share of the liabilities of the partnership, in which case the pro rata
share of any Indebtedness attributable to such partner shall be deemed to be
incurred at such time by the remaining general partners on a pro rata basis in
accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to the Company and its Affiliates.
"Investment" means any investment by any Person in any other Person,
whether by a purchase of assets, in any transaction or series of related
transactions, individually or in the aggregate, purchase of Capital Stock,
capital contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, and other similar
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other Person, and any Guarantee of Indebtedness of such other Person.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); PROVIDED that in no event shall an operating lease (as
opposed to a Capital Lease Obligation) or a license with respect to any
intangible asset with any Person who is not an Affiliate be deemed to constitute
a Lien hereunder.
"Liquidation Event" has the meaning ascribed to it in Section 2(b)(1)
hereof.
"Management Incentive Plan" means the Silicon Gaming, Inc. 1999 Long-Term
Compensation Plan adopted by the Board of Directors of the Company,
contemporaneously with the Closing, under which grants and sales of up to
116,190,084 shares of Common Stock and options to purchase shares of Common
Stock of the Company may be made.
"Management Shares" means the shares issued under the Management Incentive
Plan or upon exercise of the options granted under that plan.
"Material Adverse Effect" means a material adverse effect on the business,
Property, operations or condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole.
<PAGE>
"New Notes" means the 13% Senior Secured Notes issued by the Company in an
aggregate principal amount of up to $5,000,000 as contemplated by the
Restructuring Agreement and the Securities Purchase Agreement, dated ________,
1999, by and between the Company and the Purchaser (as defined therein).
"Officer" means, with respect to any Person, the Chairman of the Board (if
an officer), the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer or the Secretary of such Person.
"Old Equity Warrants" means the warrants to purchase the Common Stock of
the Company issuable to the stockholders of the Company as of the Record Date
set pursuant to the Restructuring Agreement and issued as a part of the Units,
and the terms and provisions of which are set forth in the Warrant Agreement by
and between the Company and the Warrant Agent (as defined in the Warrant
Agreement).
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (a) such Subsidiary
to (i) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (ii) make loans or advances to such Person or
any other Subsidiary of such Person, or (iii) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (b) such Person
or any other Subsidiary of such Person to receive or retain any such (i)
dividends, distributions or payments, (ii) loans or advances, or (iii) transfers
of properties or assets.
"Permitted Liens" shall mean (a) Liens for Taxes, assessments, and similar
governmental charges to the extent (1) not delinquent or (2) being contested in
good faith by appropriate proceedings and as to which reserves have been set
aside on the books of the Company to the extent required by GAAP; (b) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen, or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
on the books of the Company; (c) pledges or deposits in the ordinary course of
business to secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or other social security benefits; (d)
Liens to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (e) zoning restrictions, easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (f) Liens in respect of purchase money or similar acquisition
Indebtedness Incurred to acquire furniture, fixtures, equipment or other
operating assets, provided that the principal amount of the Indebtedness secured
by such Lien does not exceed the acquisition cost of such assets; (g) Liens
securing Indebtedness which secures assets leased pursuant to Capital Lease
Obligations; (h) Liens on any assets of any Acquired Person securing Acquired
<PAGE>
Indebtedness which assets or Acquired Person are acquired by the Company or a
Subsidiary subsequent to the date of the Agreement, and which Liens were in
existence on or prior to the acquisition of such assets or Acquired Person (to
the extent that such Liens were not created in connection with or in
contemplation of such acquisition), provided that such Liens are limited to the
assets or Acquired Person so acquired and the proceeds thereof; and (j) Liens in
favor of B III Capital Partners, LP imposed in connection with the transactions
contemplated by the Restructuring Agreement (i) Liens imposed pursuant to
condemnation or eminent domain or substantially similar proceedings; provided
that in the case of clauses (f), (g) and (h), any Indebtedness secured by such
Liens was not Incurred in violation of Section 2(g)(2) of this Certificate of
Determination.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, or Governmental Body.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a debt security means the principal of the security
including the premium, if any, on the security.
"Property" or "property" means any assets or property of any kind or nature
whatsoever, real, personal, or mixed (including fixtures), whether tangible or
intangible.
"Purchaser" means B III Capital Partners, LP.
"Refinancing Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries Incurred or given in exchange for, or the proceeds of which are
used to, extend, refinance, renew, replace, substitute, defease or refund any
other Indebtedness of the Company or any of its Subsidiaries (and related
interest, premium, penalties, breakage costs, fees, expenses and other amounts
owing in respect of such Indebtedness, to the extent permitted to be Incurred by
Section 2(g)(2)(ii)(C) of this Certificate of Determination) Incurred in
accordance with the terms of this Certificate of Determination, including
Section 2(g)(2) of this Certificate of Determination.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date hereof and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses. Without limiting the generality of
the foregoing, Related Business shall include the design, development,
production, marketing and sale of interactive slot machines.
"Restricted Payment" means, with respect to any Person, without
duplication: (a) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock (other than (i) in the case of the Company, dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or options,
warrants or other rights to acquire Qualified Capital Stock of the Company and
(ii) any dividends, distributions or other payments in respect of any Capital
<PAGE>
Stock made by any Subsidiary to the Company or a Wholly-Owned Subsidiary), or
the making by such Person or any of its Subsidiaries of any other distribution
in respect of such Person's Capital Stock or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than
exchangeable or convertible Indebtedness of such person); (b) the redemption,
repurchase, retirement or other acquisition for value by such Person or any of
its Subsidiaries, directly or indirectly, of such Person's Capital Stock (and,
in the case of a Subsidiary, Capital Stock of the Company) other than Capital
Stock owned by the Company or a Wholly-Owned Subsidiary, or any warrants, rights
or options to purchase or acquire shares of any class of such Capital Stock
(other than exchangeable or convertible Indebtedness of such Person), and other
than, in the case of the Company, through the issuance in exchange therefor
solely of Qualified Capital Stock of the Company; (c) any payment to purchase,
redeem, defease or otherwise acquire or retire for value any PARI PASSU
Indebtedness or Subordinated Indebtedness (other than with the proceeds of
Refinancing Indebtedness permitted under this Agreement), except in accordance
with the mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness; and (d) any Investment other than
Permitted Investments.
"Restructuring Agreement" means the Restructuring Agreement, dated ______,
1999, by and between the Company and the Purchaser (as defined therein).
"Restructuring Closing Date" means the closing date for the Restructuring
Agreement
"Sale" means any sale, lease, conveyance, exchange, transfer, assignment,
pledge, hypothecation or other disposition of any Property.
"Senior Indebtedness" means and includes all principal of, premium and
interest (including Post-Petition Interest) on and other Obligations with
respect to any Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the date hereof or hereafter Incurred,
other than the Amended Notes and New Notes; PROVIDED, HOWEVER, that the
following shall not constitute Senior Indebtedness: (a) any Indebtedness which
by the terms of the instrument creating or evidencing the same is PARI PASSU,
subordinated or junior in right of payment to the Amended Notes and New Notes in
any respect; (b) that portion of any Indebtedness Incurred in violation of this
Agreement; (c) any Preferred Stock; or (d) any Indebtedness of the Company which
is subordinated to or junior in right of payment in any respect to any other
Indebtedness of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Amended Notes
and New Notes, (ii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, (iii) any liability for foreign, Federal, state, local
or other Taxes owed or owing by the Company, (iv) Indebtedness of the Company to
the extent such liability constitutes Indebtedness to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (v)
Indebtedness for the purchase of goods or materials in the ordinary course of
business or (vi) Indebtedness owed by the Company for compensation to employees
or for services.
"Series D Certificate of Determination" means the Certificate of
Determination for the Company's Series D Preferred Stock.
<PAGE>
"Series D Preferred Stock" means the Series D Convertible Redeemable
Preferred Stock of the Company.
"Series E Certificate of Determination" means the Certificate of
Determination for the Company's Series E Preferred Stock.
"Series E Preferred Stock" means the Series E Convertible Redeemable
Preferred Stock of the Company.
"Series E Warrant" means the Warrant to purchase shares of Series E
Preferred Stock initially issued to B III Capital Partners, L.P. pursuant to the
Restructuring Agreement.
"Subsidiary" of any Person means any other Person with respect to which
either (i) more than 50% of the interests having ordinary voting power to elect
a majority of the directors or individuals having similar functions of such
other Person (irrespective of whether at the time interests of any other class
or classes of such Person shall or might have voting power upon the occurrence
of any contingency), or (ii) more than 50% of the equity interests of such other
Person is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries. When used herein without reference to any
Person, Subsidiary means a Subsidiary of the Company.
"Taxes" any present or future federal, state, county, local, foreign or
other income, Property, excise, franchise, sales, use, value added, employees'
income withholding, social security, unemployment and other taxes, of any nature
whatsoever now or hereafter imposed, levied, collected, withheld, or assessed by
any Governmental Body, which have become due or payable by the Company or any of
its Subsidiaries, or by any predecessors thereto, including any fines or
penalties with respect thereto or interest thereon, whether disputed or not.
"Transaction Documents" means, collectively, the Restructuring Agreement,
the Amended Notes, the Amendment No. 2 to the Securities Purchase Agreement, the
New Notes, the Securities Purchase Agreement for the New Notes, the Series D
Certificate of Determination, the Series E Certificate of Determination, the
Series E Warrant, the Management Incentive Plan, the Warrant Agreement, the Old
Equity Warrants, and any and all agreements, certificates, instruments and other
documents contemplated thereby or executed and delivered in connection
therewith.
"Warrant Agent" has the meaning ascribed to it in the Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement between the Company and the
Warrant Agent (as defined in the Warrant Agreement) which sets forth the terms
and provisions of the Old Equity Warrants.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
100% of the equity interests in which (however measured) are owned by such
Person or a Wholly-Owned Subsidiary of such Person or such Person and one or
more Wholly-Owned Subsidiaries of such Person taken together, except in any case
for the minimum equity interest required to be held by directors, if any, to
satisfy the requirements of any applicable statute requiring that directors own
qualifying shares.
WARRANT AGREEMENT
BY AND BETWEEN
SILICON GAMING, INC.
AND
THE PURCHASER NAMED HEREIN
DATED AS OF NOVEMBER 24, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I WARRANT CERTIFICATES.................................................1
Section 1.1 Forms of Warrant Certificates...............................1
Section 1.2 Execution of Warrant Certificates...........................2
Section 1.3 Registration of Warrant Certificates........................2
Section 1.4 Exchange and Transfer of Warrant Certificates...............2
Section 1.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates...2
Section 1.6 Cancellation of Warrant Certificates........................3
ARTICLE II WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS.....................3
Section 2.1 Exercise Price..............................................3
Section 2.2 Registration of Warrants and Conversion Shares..............3
Section 2.3 Exercise and Expiration of Warrants.........................3
Section 2.4 Procedure for Exercise of Warrants..........................4
Section 2.5 Issuance of Series E Preferred Stock........................5
Section 2.6 Certificates for Unexercised Warrants.......................5
Section 2.7 Reservation of Shares.......................................5
Section 2.8 No Impairment...............................................6
ARTICLE III MISCELLANEOUS......................................................6
Section 3.1 Covenants of the Company....................................6
Section 3.2 Payment of Taxes and Charges................................6
Section 3.3 Changes to Agreement........................................7
Section 3.4 Assignment..................................................7
Section 3.5 Successor to Company........................................7
Section 3.6 Notices.....................................................7
Section 3.7 Defects in Notice...........................................8
Section 3.8 Governing Law...............................................8
Section 3.9 Standing....................................................8
Section 3.10 Headings....................................................9
Section 3.11 Counterparts................................................9
Section 3.12 Availability of the Agreement...............................9
Section 3.13 Entire Agreement............................................9
WARRANT AGREEMENT COMPANY SIGNATURE PAGE......................................10
WARRANT AGREEMENT PURCHASER SIGNATURE PAGE....................................11
EXHIBIT A - FORM OF WARRANT CERTIFICATE......................................A-1
(i)
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT, dated as of November 24, 1999 (this "Agreement"),
is entered into by and between Silicon Gaming, Inc., a California corporation
(the "Company"), and the undersigned purchaser (the "Purchaser").
WITNESSETH:
WHEREAS, the Company and the Purchaser have entered into the Restructuring
Agreement dated as of November 24, 1999 (the "Restructuring Agreement"), whereby
the Purchaser has agreed to convert $39.75 million of its Senior Discount Notes
to 39,750 shares of Series D Convertible Preferred Stock (the "Series D
Preferred Stock") which is convertible into 57% of the equity of the Company on
a fully-diluted basis (the "Restructuring");
WHEREAS, concurrent with the Restructuring, the Company will conduct an
exchange offer (the "Exchange Offer") with the public holders of the common
stock, par value $.001 per share (the "Common Stock") of the Company offering to
exchange each share of common stock for a unit (the "Units") consisting of one
share of Common Stock and one warrant to purchase 3.59662 shares of Common Stock
(the "Old Equity Warrants") and appoint a warrant agent (the "Warrant Agent")
for the exercise of such Old Equity Warrants;
WHEREAS, the Purchaser and the Company have agreed that the issuance of the
Common Stock upon the exercise of the Old Equity Warrants shall not dilute the
equity represented by the Shares of Series D Preferred Stock then held by the
Purchaser or its successors and assigns; and
WHEREAS, to prevent such dilutive effects of the issuance of the Common
Stock issuable upon exercise of the Old Equity Warrants, the Company has agreed
to issue warrants (the "Warrants") to purchase up to an aggregate of 60,807.731
shares of Series E Preferred Stock (the "Warrant Shares").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
WARRANT CERTIFICATES
Section I.1 FORMS OF WARRANT CERTIFICATES. The Warrant certificates (the
"Warrant Certificates") shall be issued in registered form only and, together
with the form of the election to purchase (the "Election to Purchase"), and
assignment (the "Assignment") to be attached thereto, shall be substantially in
the form of EXHIBIT A attached hereto and, in addition, may have such letters,
numbers or other marks of identification or designation and such legends,
summaries, or endorsements stamped, printed, lithographed or engraved thereon as
2
<PAGE>
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as, in any particular case, may be required in the opinion
of counsel for the Company, to comply with any law or with any rule or
regulation of any regulatory authority or agency, or to conform to customary
usage.
Section I.2 EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by its Chairman or President or any
Vice President and attested to by its Secretary or Assistant Secretary, either
manually or by facsimile signature printed thereon. In case any authorized
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company either before or after delivery
thereof by the Company to any Purchaser, the signature of such person on such
Warrant Certificates shall be valid nevertheless and such Warrant Certificates
may be issued and delivered to those persons entitled to receive the Warrants
represented thereby with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the Company.
Section I.3 REGISTRATION OF WARRANT CERTIFICATES. The Company shall number
and register the Warrant Certificates in a register as necessary. The Company
may deem and treat the registered Holder(s) of the Warrant Certificates as the
absolute owner(s) thereof for all purposes. "Holder" shall, for the purposes of
this Agreement, mean the Purchaser, any transferee or assignee of the Purchaser
and any successive transferee or assignee thereof.
Section I.4 EXCHANGE AND TRANSFER OF WARRANT CERTIFICATES. The Warrants
(and any Warrant Shares issued upon exercise thereof) shall bear such
restrictive legend or legends as may be required by law and shall be
transferable only in accordance with the terms of this Agreement and the
Restructuring Agreement.
The Company may from time to time register the transfer of any outstanding
Warrant Certificates in a warrant register to be maintained by the Company upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Company duly executed by the Holder or Holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee(s).
Warrant Certificates may be exchanged at the option of the Holder(s)
thereof, when surrendered to the Company at the address set forth in Section 4.5
hereof for another Warrant Certificate or Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrant Shares.
Section I.5 LOST, STOLEN, MUTILATED OR DESTROYED WARRANT CERTIFICATES. If
any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue, execute and deliver, in exchange and substitution for and
upon cancellation of a mutilated Warrant Certificate, or in lieu of or in
substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate representing an equivalent number of Warrants or shares of Series E
3
<PAGE>
Preferred Stock. If required by the Company, the Holder of the mutilated, lost,
stolen or destroyed Warrant Certificate must provide indemnity sufficient to
protect the Company from any loss which it may suffer if the Warrant Certificate
is replaced. Any such new Warrant Certificate shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant Certificate shall be at any time
enforceable by anyone.
Section I.6 CANCELLATION OF WARRANT CERTIFICATES. Any Warrant Certificate
surrendered upon the exercise of Warrants or for exchange or transfer, or
purchased or otherwise acquired by the Company, shall be canceled and shall not
be reissued by the Company; and, except as provided in Section 2.6 hereof in the
case of the exercise of less than all of the Warrants evidenced by a Warrant
Certificate or in an exchange or transfer as set forth in Section 1.4 above, no
Warrant Certificate shall be issued hereunder in lieu of such canceled Warrant
Certificate. Any Warrant Certificate so canceled shall be destroyed by the
Company.
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section II.1 EXERCISE PRICE. Each Warrant Certificate shall, when signed by
the Chairman or President or any Vice President and attested to by the Secretary
or Assistant Secretary of the Company, entitle the Holder thereof to purchase
from the Company, subject to the terms and conditions of this Agreement, the
number of fully paid and nonassessable Warrant Shares evidenced thereby at a
purchase price of $0.01 per share (the "Exercise Price"), payable in full in
accordance with Section 2.3 hereof, at the time of exercise of the Warrant.
Section II.2 REGISTRATION OF WARRANTS AND CONVERSION SHARES. The Company
shall secure the effective registration of the shares of Common Stock issuable
upon conversion of the Series E Preferred Stock (the "Conversion Shares") for
resale under the Securities Act upon the terms and subject to the conditions set
forth in the Stockholders Agreement dated as of November 24, 1999 (the
"Stockholders Agreement") by and among the Company, the Purchaser, and certain
other stockholders of the Company. Promptly after a registration statement under
the Securities Act covering the Warrant Shares has become effective, the Company
shall cause notice thereof together with a copy of the prospectus covering the
Warrant Shares to be mailed to each registered Holder.
Section II.3 EXERCISE AND EXPIRATION OF WARRANTS. (a) The Warrants shall
upon issuance not be exercisable and shall become immediately exercisable solely
upon and to the extent of the exercise of Old Equity Warrants. To the extent
that less than all of the Old Equity Warrants are exercised, than that fraction,
the numerator of which is the number of shares of Common Stock for which the Old
Equity Warrants are exercised and the denominator of which is product of the
total number of shares of Common Stock into which one Old Equity Warrant is
initially exercisable multiplied by the total number of Old Equity Warrants
issued upon the closing of the Exchange Offer, of each Warrant shall become
exercisable by the Holder of the Warrant.
4
<PAGE>
The Warrant Agent (or upon the failure of the Warrant Agent to take the
following actions in accordance with this Section 2.3, the Company) shall within
5 business days after the exercise of any of the Old Equity Warrants, or, the
Company shall in the case of a transaction or series of transactions in which
(i) a merger, reorganization or consolidation in which a majority of the
outstanding voting power of the surviving or consolidated corporation
immediately following such event is held by persons or entities who were not
stockholders of the Company immediately prior to such event, (ii) the sale of
all or substantially all of the assets of the Company and its subsidiaries or
(iii) the redemption or repurchase of shares representing a majority of the
voting power of the outstanding shares of capital stock of (in each case, a
"Change of Control"), not less than 10 nor more than 60 days prior to the
consummation of such Change of Control, give written notice to the Holder(s) of
the Warrants stating (1) that all or some portion of the Old Equity Warrants
have been exercised by the holder(s) thereof or a Change of Control is to occur,
(2) the date upon which the Warrants or a fraction thereof became or are
expected to become exercisable or the date upon which the Change of Control is
to occur, and (3) that number or fraction of Warrants that have or may become
exercisable as a result of such exercise of Old Warrants or Change of Control
(the "Old Equity Exercise Notice").
(b) A Warrant or fraction thereof shall terminate and become void,
with respect to that portion of the Warrant which has become exercisable, as of
the 180th day after which such Warrant or fraction thereof becomes exercisable
in accordance with Section 2.3(a) above (the "Expiration Date"); provided,
however, that if such Warrant or fraction thereof is exercisable for less than
100 shares of Series E Preferred Stock, then such Warrant(s) will remain
exercisable until the 180th day following the date upon which such exercisable
Warrants may be exercised for 100 or more shares of Series E Preferred Stock.
Section II.4 PROCEDURE FOR EXERCISE OF WARRANTS. Warrants may be exercised
prior to the Expiration Date at the Exercise Price in accordance with Section
2.3. The Warrants may be exercised by surrendering the Warrant Certificates
representing such Warrants to the Company at its address set forth in Section
3.5 hereof, together with the Election to Purchase duly completed and executed,
accompanied by payment in full, as set forth below, to the Company of the
Exercise Price for each share of Series E Preferred Stock or fraction thereof in
respect of which such Warrants are being exercised. Such Exercise Price shall be
paid in full by (i) cash or a certified check or a wire transfer in same day
funds in an amount equal to the Exercise Price multiplied by the number of
shares of Series E Preferred Stock or fraction thereof then being purchased or
(ii) delivery to the Company of that number of shares of Common Stock having a
Fair Market Value (as hereinafter defined) equal to the Exercise Price
multiplied by the number of shares of Series E Preferred Stock or fraction
thereof then being purchased. In the alternative, the Holder of a Warrant
Certificate may exercise its right to purchase all or a portion of the shares of
Series E Preferred Stock subject to such Warrant Certificate, on a net basis,
such that, without the exchange of any funds, such Holder receives that number
of shares of Series E Preferred Stock or fraction thereof subscribed to pursuant
to such Warrant Certificate LESS that number of shares of Series E Preferred
Stock convertible into shares of Common Stock having an aggregate Fair Market
Value at the time of exercise equal to the aggregate Exercise Price that would
otherwise have been paid by such Holder for the number of shares of Series E
Preferred Stock or fraction thereof subscribed to pursuant to such Warrant
Certificate (hereinafter, a "Net Cashless Exercise").
5
<PAGE>
As used herein: (a) the term "Fair Market Value," on a per share basis,
means the average of the daily Closing Prices (as hereinafter defined) of the
Common Stock for the five (5) consecutive Trading Days (as hereinafter defined)
ending the Trading Day immediately preceding the Date of Exercise; (b) the term
"Date of Exercise" with respect to any Warrant means the date on which such
Warrant is exercised as provided herein; (c) the term "Closing Price" for any
date shall mean the last sale price reported in THE WALL STREET JOURNAL regular
way or, in case no such reported sale takes place on such date, the average of
the last reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is admitted to
trading or listed if that is the principal market for the Common Stock or, if
not listed or admitted to trading on any national securities exchange or if such
national securities exchange is not the principal market for the Common Stock,
the last sale price as reported on The Nasdaq National Market ("Nasdaq"), the
New York Stock Exchange or a national securities exchange or, if not quoted on
Nasdaq or listed on the New York Stock Exchange or other national securities
exchange, then the average of the high bid and the low ask prices on the
over-the-counter market or, if not so quoted, then the fair value thereof
determined in good faith by the Company's Board of Directors as of a date which
is within 15 days of the date as of which the determination is to be made; and
(d) the term "Trading Days" with respect to the Common Stock means (i) if the
Common Stock is quoted on Nasdaq, the New York Stock Exchange or a national
securities exchange, days on which trades may be made on such system or (ii) if
the Common Stock is listed or admitted for trading on any national securities
exchange, days on which such national securities exchange is open for business.
Section II.5 ISSUANCE OF SERIES E PREFERRED STOCK. Immediately upon the
exercise of any Warrants, the Company shall issue, or cause its transfer agent
to issue, a certificate or certificates for the number of shares of Series E
Preferred Stock or fraction thereof, registered in accordance with the
instructions set forth in the Election to Purchase. All shares of Series E
Preferred Stock or fraction thereof issued upon the exercise of any Warrants
shall be validly authorized and issued, fully paid, non-assessable, free of
preemptive rights and (subject to Section 3.1 hereof) free from all taxes,
liens, charges and security interests in respect of the issuance thereof. Each
person in whose name any such certificate for Series E Preferred Stock or
fraction thereof is issued shall be deemed for all purposes to have become the
holder of record of the Series E Preferred Stock represented thereby on the Date
of Exercise of the Warrants resulting in the issuance of such shares,
irrespective of the date of issuance or delivery of such certificate for shares
of Series E Preferred Stock or fraction thereof.
Section II.6 CERTIFICATES FOR UNEXERCISED WARRANTS. In the event that,
prior to the Expiration Date, a Warrant Certificate is exercised in respect of
fewer than all of the shares of Series E Preferred Stock or fraction thereof
issuable on such exercise, a new Warrant Certificate representing the remaining
shares of Series E Preferred Stock or fraction thereof calculated to the nearest
one-tenthousandth of a share shall be issued and delivered pursuant to the
provisions hereof.
6
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Section II.7 RESERVATION OF SHARES. The Company shall at all times reserve
and keep available, free from preemptive rights, for issuance upon the exercise
of Warrants, the maximum number of its authorized but unissued shares of Series
E Preferred Stock and Common Stock which may then be issuable upon the exercise
in full of all outstanding Warrants and conversion of the Series E Preferred
Stock, respectively.
Section II.8 NO IMPAIRMENT. The Company shall not by any action, including,
without limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holders against impairment. Without limiting the generality of the
foregoing, the Company shall (a) not increase the par value of the Series E
Preferred Stock receivable upon the exercise of the Warrants above the amount
payable therefor upon such exercise immediately prior to such increase in par
value or otherwise amend or alter the terms, rights, preferences and privileges
of the Series E Preferred Stock, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares of Series E Preferred Stock or fraction thereof upon
the exercise of any Warrant, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under the Warrants. Notwithstanding the foregoing paragraph, the
Company shall not be required to issue any Series E Preferred Stock upon the
exercise of any Warrant if such issuance would result in a violation by the
Company of any applicable law.
ARTICLE III
MISCELLANEOUS
Section III.1 COVENANTS OF THE COMPANY. So long as any of the Warrants
remain outstanding, the Company hereby agrees:
(1) to maintain the services of the Warrant Agent with respect to the Old
Equity Warrants and to cause such Warrant Agent to provide notice to
the Holder(s) of the Warrants in accordance with Section 2.3 herein;
(2) to allow the Holder(s), upon reasonable notice, to examine the
register of Old Equity Warrants; and
(3) not to amend the Series E Certificate of Determination or the Series D
Certificate of Determination.
Section III.2 PAYMENT OF TAXES AND CHARGES. The Company will pay all taxes
(other than income taxes) and other government charges in connection with the
issuance or delivery of the Warrants and the initial issuance or delivery of
shares of Series E Preferred Stock upon the exercise of any Warrants and payment
of the Exercise Price. The Company shall not, however, be required to pay any
7
<PAGE>
additional transfer taxes in connection with the subsequent transfer of Warrants
or any transfer involved in the issuance and delivery of shares of Series E
Preferred Stock or fraction thereof in a name other than the name in which the
Warrants to which such issuance relates were registered, and, if any such tax
would otherwise be payable by the Company, no such issuance or delivery shall be
made unless and until the person requesting such issuance has paid to the
Company the amount of any such tax, or it is established to the reasonable
satisfaction of the Company that any such tax has been paid.
Section III.3 CHANGES TO AGREEMENT. The Company, when authorized by its
Board of Directors, with the written consent of Holders of at least a majority
of the outstanding Warrants may amend or supplement this Agreement. The Company
may, without the consent or concurrence of any Holder, by supplemental agreement
or otherwise, make any changes or corrections in this Agreement that the Company
shall have been advised by counsel (a) are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or mistake
or manifest error herein contained, (b) add to the covenants and agreements of
the Company in this Agreement such further covenants and agreements thereafter
to be observed, or (c) result in the surrender of any right or power reserved to
or conferred upon the Company in this Agreement, in each case which changes or
corrections do not and will not adversely affect, alter or change the rights,
privileges or immunities of the Holders.
Section III.4 ASSIGNMENT. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Holders shall bind and
inure to the benefit of their respective successors and assigns.
Section III.5 SUCCESSOR TO COMPANY. In the event that the Company merges or
consolidates with or into any other corporation or sell or otherwise transfers
its property, assets and business substantially as an entirety to a successor
corporation, the Company shall use reasonable commercial efforts to have such
successor corporation assume each and every covenant and condition of this
Agreement to be performed and observed by the Company.
Section III.6 NOTICES. All notices and other communications provided for
herein shall be in writing and shall be deemed to have been duly given,
delivered and received (a) if delivered personally or (b) if sent by facsimile,
registered or certified mail (return receipt requested) postage prepaid, or by
courier guaranteeing next day delivery, in each case to the party to whom it is
directed at the following addresses (or at such other address for any party as
shall be specified by notice given in accordance with the provisions hereof,
provided that notices of a change of address shall be effective only upon
receipt thereof). Notices delivered personally shall be effective on the day so
delivered, notices sent by registered or certified mail shall be effective five
days after mailing, notices sent by facsimile shall be effective when receipt is
acknowledged, and notices sent by courier guaranteeing next day delivery shall
be effective on the earlier of the second business day after timely delivery to
the courier or the day of actual delivery by the courier:
8
<PAGE>
If to the Company:
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
Attn: Vice President--Chief Financial Officer
With a copy to:
Squire, Sanders & Dempsey L.L.P.
Two Renaissance Square
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004-4441
Attn: Christopher D. Johnson, Esq.
If to the Purchaser:
DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, MA 02181
Attn: Wendy Schnipper Clayton, Esq.
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attn: Laura C. Hodges Taylor, P.C.
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made, whether or not
such holder receives the notice, five (5) days after mailing, if sent by
first-class or registered mail, postage prepaid, addressed to such Holder at its
last address as shown on the books of the Company. Otherwise, such notice or
demand shall be deemed given when received by the party entitled thereto.
Section III.7 DEFECTS IN NOTICE. Failure to file any certificate or notice
or to mail any notice, or any defect in any certificate or notice pursuant to
this Agreement shall not affect in any way the rights of any Holder or the
legality or validity of any action taken or to be taken by the Company.
Section III.8 GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be governed by the laws of the State of New York without
regard to principles of conflicts of laws thereof.
Section III.9 STANDING. Nothing in this Agreement expressed and nothing
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company and the Holders of any right, remedy or claim under or by reason of this
9
<PAGE>
Agreement or of any covenant, condition, stipulation, promise or agreement
contained herein; and all covenants, conditions, stipulations, promises and
agreements contained in this Agreement shall be for the sole and exclusive
benefit of the Company and its successors, and the Holders.
Section III.10 HEADINGS. The descriptive headings of the articles and
sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Section III.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
and all of which together shall constitute one and the same instrument.
Section III.12 AVAILABILITY OF THE AGREEMENT. The Company shall keep copies
of this Agreement available for inspection by Holders during normal business
hours. Copies of this Agreement may be obtained upon written request addressed
to the Company at the address set forth in Section 3.5 hereof.
Section III.13 ENTIRE AGREEMENT. This Agreement, including the Exhibits
referred to herein and the other writings specifically identified herein or
contemplated hereby including, without limitation, the Restructuring Agreement,
the Series D Certificate of Determination and the Series E Certificate of
Determination and the Warrant Certificates, is complete, reflects the entire
agreement of the parties with respect to the issuance of the Warrants, and
supersedes all previous written or oral negotiations, commitments and writings.
[The remainder of this page has been intentionally left blank]
10
<PAGE>
WARRANT AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties as of the day and year first above written.
SILICON GAMING, INC.,
a California corporation
By:
-------------------------------------
Name:
Title:
Accepted and Agreed as of the date first written above.
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
By: DDJ CAPITAL III, LLC,
its General Partner
By: DDJ CAPITAL MANAGEMENT, LLC,
its Manager
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A - FORM OF WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN A RESTRUCTURING AGREEMENT DATED
AS OF NOVEMBER 24, 1999 AS AMENDED FROM TIME TO TIME, A COMPLETE AND CORRECT
COPY OF THE FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE.
No. EW-1
SILICON GAMING, INC.
SERIES E PREFERRED STOCK WARRANT CERTIFICATE
Certificate for 60,807.731 Warrants
THIS CERTIFIES that BIII CAPITAL PARTNERS, L.P., a Delaware limited
partnership, or its registered assigns is the registered holder (the "Registered
Holder") of Warrants set forth above, each of which represents the right to
purchase 60,807.731 fully paid and non-assessable share of Series E Convertible
Preferred Stock, par value $.001 per share (the "Series E Preferred Stock"), of
Silicon Gaming, Inc., a California corporation (the "Company"), at the Exercise
Price (as defined in the Warrant Agreement) at the times specified in the
Warrant Agreement, by surrendering this Warrant Certificate, with the form of
Election to Purchase attached hereto duly executed and by paying in full the
Exercise Price. Payment of the Exercise Price shall be made as set forth in the
Warrant Agreement (as hereinafter defined). No Warrant may be exercised after
the earlier of (i) the close of business on the 180th day after the fourth
anniversary of the Issue Date or (ii) the date that such Warrant is exercised.
All Warrants evidenced hereby shall thereafter become void, subject to the terms
of the Warrant Agreement hereinafter referred to.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate, in whole or in
part, upon surrender of this Warrant Certificate at the principal office of the
Company with the form of assignment set forth hereon duly executed. Upon any
such transfer, a new Warrant Certificate or Warrant Certificates representing
the same aggregate number of Warrants to purchase the shares of the Series E
Preferred Stock will be issued in accordance with instructions in the form of
assignment.
Upon the exercise of less than all of the Warrants to purchase the shares
of the Series E Preferred Stock evidenced by this Warrant Certificate, there
shall be issued to the Registered Holder a new Warrant Certificate in respect of
the Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants to purchase the shares of the Series E Preferred Stock, upon
surrender of this Warrant Certificate at the principal office of the Company.
<PAGE>
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of November 24, 1999 (the "Warrant Agreement") by and among
the Company and the Purchaser (as defined in the Warrant Agreement) and is
subject to the terms and provisions contained in the Warrant Agreement. All
capitalized terms not defined herein shall have the meanings given such terms as
set forth in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to any of
the rights of a stockholder of the Company, including, without limitation, the
right to vote, to receive dividends and other distributions, or to attend or
receive any notice of meetings of stockholders or any other proceedings of the
Company other than as set forth in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile corporate seal.
SILICON GAMING, INC.
By:
-------------------------------------
Name:
Title:
[Seal] Attest:
By:
-------------------------------------
Name:
Title: Secretary
<PAGE>
[Form of Assignment]
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants to purchase the shares of the Series E Convertible Preferred Stock set
forth below:
NAME OF ASSIGNEE ADDRESS NO. OF WARRANTS
---------------- ------- ---------------
and does hereby irrevocably constitute and appoint _____________________ true
and lawful Attorney, to make such transfer on the books of Silicon Gaming, Inc.,
maintained for that purpose, with full power of substitution in the premises.
Dated:
----------- ---, ---- ----------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
<PAGE>
[Form of Election To Purchase]
The undersigned hereby irrevocably elects to exercise ____________ of the
Warrants represented by this Warrant Certificate and to purchase the shares of
Series E Convertible Preferred Stock issuable upon the exercise of said
Warrants, and requests that certificates for such shares be issued and delivered
as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at _____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
In full payment of the purchase price with respect to the exercise of
Warrants to purchase shares of the Series E Preferred Stock, the undersigned:
* hereby tenders payment of $________ by cash, certified check,
cashier's check or money order payable in United States currency to
the order of the Company; or
* hereby delivers to the Company that number of shares of Common Stock
having a Fair Market Value (as defined in the Warrant Agreement) equal
to the Exercise Price multiplied by the number of share of Series E
Preferred stock or fraction thereof being purchased; or
* hereby makes a Net Cashless Exercise (as defined in the Warrant
Agreement).
If the number of Warrants to purchase the shares of the Series E
Convertible Preferred Stock hereby exercised is less than all the Warrants
represented by this Warrant Certificate, the undersigned requests that a new
Warrant Certificate representing the number of such Warrants or fraction thereof
not exercised be issued and delivered as follows:
<PAGE>
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at _____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Date: __________ ___, ______
----------------------------------------
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
PLEASE INSERT SOCIAL SECURITY OR TAX
I.D. NUMBER OF HOLDER
----------------------------------------
A-1
RESTRUCTURING AGREEMENT
BY AND BETWEEN
SILICON GAMING, INC.
AND
BIII CAPITAL PARTNERS, LP
DATED NOVEMBER 24, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I RESTRUCTURING TRANSACTIONS...........................................2
1.1 DEFINITIONS...........................................................2
1.2 EXCHANGE OF $39.75 MILLION OF NOTES FOR SERIES D PREFERRED STOCK
AND SERIES E WARRANT..................................................2
1.3 AMENDMENT OF $7.5 MILLION OF NOTES....................................2
1.4 FORBEARANCE BY THE PURCHASER..........................................2
1.5 ISSUANCE OF NEW NOTES.................................................2
1.5.1 AT CLOSING.........................................................3
1.5.2 UPON THE COMPANY ENTERING INTO A JOINT VENTURE.....................3
1.5.3 UPON THE COMPANY REACHING CERTAIN FINANCIAL GOALS..................3
1.6 ISSUANCE OF UNITS.....................................................3
ARTICLE II CLOSING.............................................................3
2.1 CLOSING DELIVERIES BY THE COMPANY.....................................4
2.1.1 SHARE CERTIFICATES................................................4
2.1.2 NEW NOTES.........................................................4
2.1.3 AMENDED NOTES.....................................................4
2.1.4 FAIRNESS OPINION..................................................4
2.1.5 CERTIFICATES......................................................4
2.1.6 OTHER.............................................................4
2.2 CLOSING DELIVERIES BY THE PURCHASER...................................4
2.2.1 CANCELED NOTE.....................................................4
2.2.2 PURCHASE OF NEW NOTES.............................................4
2.2.3 CERTIFICATES......................................................4
2.2.4 OTHER.............................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................5
3.1 ORGANIZATION AND QUALIFICATION; AUTHORITY.............................5
3.2 SUBSIDIARIES..........................................................5
3.3 LICENSES..............................................................6
3.4 CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION...............6
3.5 VALIDITY AND BINDING EFFECT...........................................6
3.6 CAPITALIZATION........................................................6
3.7 PREEMPTIVE OR OTHER RIGHTS............................................7
3.8 LITIGATION; DEFAULTS..................................................7
3.9 OUTSTANDING DEBT......................................................8
3.10 NO MATERIAL ADVERSE CHANGE............................................8
3.11 EMPLOYEE PROGRAMS.....................................................8
3.12 PRIVATE OFFERING.....................................................10
3.13 BROKER'S OR FINDER'S COMMISSIONS.....................................10
3.14 DISCLOSURE...........................................................11
3.15 FOREIGN ASSETS CONTROL REGULATION, ETC...............................11
3.16 FEDERAL RESERVE REGULATIONS AND OTHER MATTERS........................11
3.17 INVESTMENT COMPANY ACT...............................................12
3.18 PUBLIC UTILITY HOLDING COMPANY ACT...................................12
3.19 INTERSTATE COMMERCE ACT..............................................12
3.20 ENVIRONMENTAL REGULATION, ETC........................................12
3.21 PROPERTIES AND ASSETS................................................13
3.22 INSURANCE............................................................13
3.23 EMPLOYMENT PRACTICES.................................................14
3.24 FINANCIAL STATEMENTS.................................................14
3.25 INTELLECTUAL PROPERTY................................................14
3.26 TAXES................................................................16
i
<PAGE>
PAGE
----
3.27 TRANSACTIONS WITH AFFILIATES.........................................16
3.28 LIMITATION ON SUBSIDIARY PAYMENT RESTRICTIONS........................17
3.29 NO OTHER BUSINESS....................................................17
3.30 SERIES D PREFERRED STOCK AND SERIES E PREFERRED STOCK
CERTIFICATES OF DETERMINATION........................................17
3.31 YEAR 2000 COMPLIANCE.................................................17
ARTICLE IV PURCHASE FOR INVESTMENT; SOURCE OF FUNDS...........................17
4.1 PURCHASE FOR INVESTMENT..............................................17
4.2 AUTHORITY............................................................18
4.3 BROKER'S OR FINDER'S COMMISSIONS.....................................18
4.4 ACKNOWLEDGMENT OF GAMING RESTRICTIONS................................18
ARTICLE V CONDITIONS PRECEDENT TO CLOSING.....................................18
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY...............18
5.1.1 REPRESENTATIONS, WARRANTIES AND COVENANTS........................18
5.1.2 AMENDMENT OF $7.5 MILLION OF NOTES...............................19
5.1.3 PURCHASE OF NEW NOTES............................................19
5.1.4 NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION..................19
5.1.5 GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC..............19
5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER.............20
5.2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS........................20
5.2.2 BOARD OF DIRECTOR ACTIONS........................................20
5.2.3 FAIRNESS OPINION.................................................21
5.2.5 OPINIONS OF COUNSEL..............................................21
5.2.6 LEGAL INVESTMENT.................................................21
5.2.7 COMPLIANCE WITH SECURITIES LAWS..................................21
5.2.8 PROCEEDINGS AND DOCUMENTS........................................21
5.2.9 COMPLETION OF OTHER TRANSACTIONS.................................21
5.2.10 PREFERRED STOCK..................................................22
5.2.11 NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION..................22
5.2.12 GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC..............23
5.2.13 SECRETARY'S CERTIFICATE..........................................23
5.2.14 PAYMENT OF FEES..................................................23
ARTICLE VI COVENANTS..........................................................23
6.1 LIMITATION ON CERTAIN ACTIONS........................................23
6.2 CORPORATE EXISTENCE..................................................24
6.3 LIMITATION ON INDEBTEDNESS...........................................24
6.4 LIMITATION ON TRANSACTIONS WITH AFFILIATES...........................26
6.5 LIMITATION ON LIENS..................................................27
6.6 LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK
OF SUBSIDIARIES......................................................27
6.7 LIMITATION ON SALE OF ASSETS.........................................27
6.8 CHANGE OF CONTROL....................................................27
6.9 REPORTS..............................................................27
6.10 COMPLIANCE CERTIFICATE...............................................28
6.11 LIMITATION ON RESTRICTED PAYMENTS....................................29
6.12 PAYMENT OF TAXES AND OTHER CLAIMS....................................29
6.13 RESTRICTIONS AGAINST LIMITATIONS ON UPSTREAM PAYMENTS................29
6.14 MANAGEMENT INCENTIVE PLAN............................................30
6.15 MAINTENANCE OF PROPERTIES............................................30
6.16 MAINTENANCE OF INSURANCE.............................................30
6.17 COMPLIANCE WITH LAWS.................................................31
6.18 STAY, EXTENSION AND USURY LAWS.......................................31
ii
<PAGE>
PAGE
----
ARTICLE VII INDEMNIFICATION...................................................31
7.1 INDEMNIFICATION; EXPENSES, ETC.......................................31
ARTICLE VIII MISCELLANEOUS....................................................33
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY.............34
8.2 NOTICES, ETC.........................................................34
8.3 SUCCESSORS AND ASSIGNS...............................................35
8.4 DESCRIPTIVE HEADINGS.................................................35
8.5 SATISFACTION REQUIREMENT.............................................35
8.6 GOVERNING LAW........................................................35
8.7 SERVICE OF PROCESS...................................................36
8.8 COUNTERPARTS.........................................................36
8.9 DISCLOSURE TO OTHER PERSONS..........................................36
8.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS........................37
8.11 WAIVER OF JURY TRIAL.................................................37
8.12 MERGER...............................................................37
8.13 COOPERATION WITH GAMING AUTHORITIES..................................37
8.14 GAMING LAWS; REQUISITE GAMING APPROVALS..............................37
8.15 ASSISTANCE WITH GAMING APPROVALS; WITHDRAWAL FROM JURISDICTIONS......38
8.16 EXPENSES.............................................................38
ARTICLE IX TERMINATION........................................................39
9.1 TERMINATION..........................................................39
9.2 TERMINATION PROCEDURES...............................................39
9.3 EFFECT OF TERMINATION................................................40
APPENDIX A DEFINITIONS
EXHIBITS
A Form of Certificate of Determination for Series D Preferred Stock
B Form of Certificate of Determination for Series E Preferred Stock
C Form of Series E Warrant
D Form of Amendment No. 2 to the Securities Purchase Agreement
E Form of New Note
F Form of Old Equity Warrant
G Form of Management Incentive Plan
H Form of Legal Opinion of Corporate Counsel
I Form of Legal Opinion of Gaming Counsel
J Form of Legal Opinion of Special Counsel
K Form of Stockholders Agreement
L Form of Amended and Restated Security Agreement
iii
<PAGE>
RESTRUCTURING AGREEMENT
This Restructuring Agreement (this "AGREEMENT") is entered into by and
between SILICON GAMING, INC., a California corporation ("COMPANY"), and BIII
CAPITAL PARTNERS, L.P., a Delaware limited partnership ("Purchaser"), effective
as of November 24, 1999.
RECITALS
A. The Purchaser currently holds $47.25 million in aggregate principal
amount of Senior Discount Notes (the "NOTES") issued by the Company to the
Purchaser pursuant to the terms of the Securities Purchase Agreement, dated
September 30, 1997, by and between the Company and the Purchaser (the
"SECURITIES PURCHASE AGREEMENT"), and Amendment No. 1 to the Securities Purchase
Agreement, dated July 8, 1998.
B. The Company has agreed to create a new class of preferred stock,
designated Series D Convertible Preferred Stock (the "SERIES D PREFERRED STOCK")
with all of the voting powers, preferences and relative, participating, optional
and other special rights, and qualifications, limitations and restrictions set
forth in a certificate of determination, a form of which is attached hereto as
EXHIBIT A (the "SERIES D CERTIFICATE OF DETERMINATION").
C. The Company has agreed to create a new class of preferred stock,
designated Series E Convertible Preferred Stock (the "SERIES E PREFERRED STOCK")
with all of the voting powers, preferences and relative, participating, optional
and other special rights, and qualifications, limitations and restrictions set
forth in a certificate of determination, a form of which is attached hereto as
EXHIBIT B (the "SERIES E CERTIFICATE OF DETERMINATION").
D. By this Agreement: (i) the Purchaser desires to exchange $39.75 million
in aggregate principal amount of the Notes, including the accrued interest
thereon, and any interest accrued through July 15, 1999 on the remaining $7.5
million in aggregate principal amount of the Notes, for 39,750 shares of Series
D Preferred Stock, and a warrant (the "SERIES E WARRANT") to purchase 60,807.731
shares of Series E Preferred Stock and the Company desires to assign, convey,
transfer and deliver to the Purchaser (x) 39,750 shares of Series D Preferred
Stock and (y) the Series E Warrant (upon the terms set forth in a separate
Series E Warrant Agreement), in exchange for the cancellation of $39.75 million
in aggregate principal amount of the Notes, and accrued interest thereon, and
any interest accrued through July 15, 1999 on the remaining $7.5 million in
aggregate principle amount of the Notes; (ii) the Purchaser and the Company
desire to amend certain terms and conditions of the $7.5 million in aggregate
principal amount of the Notes issued by the Company to the Purchaser that are
not being exchanged for Series D Preferred Stock; and (iii) the Purchaser
desires to commit to the purchase of up to an additional $5 million of the
Company's senior secured notes, upon the terms and conditions set forth in this
Agreement and a separate securities purchase agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
ARTICLE I
RESTRUCTURING TRANSACTIONS
1.1 DEFINITIONS. Unless the context otherwise requires, all capitalized
terms used herein shall have the respective meanings set forth in Appendix A
hereto.
1.2 EXCHANGE OF $39.75 MILLION OF NOTES FOR SERIES D PREFERRED STOCK AND
SERIES E WARRANT. On the Closing Date the Company will issue to the Purchaser
39,750 shares of Series D Preferred Stock and the Series E Warrant, and the
Purchaser will cancel $39.75 million in aggregate principal amount of the Notes,
and accrued interest thereon, and any interest accrued through July 15, 1999 on
the remaining $7.5 million in aggregate principle amount of the Notes; provided,
however, the parties acknowledge that the cancellation of any accrued but unpaid
interest is deemed to have occurred immediately prior to the cancellation of the
principal amount of the Notes and the issuance of the Series D Preferred Stock.
The shares of Series E Preferred Stock will be issuable upon the exercise of the
Series E Warrant, subject to the terms and conditions of the Series E Warrant
Agreement. The Series D Preferred Stock will be convertible into shares of the
Common Stock of the Company subject to the terms and provisions set forth in the
Series D Certificate of Determination and in this Agreement. The Series D
Preferred Stock will have all of the rights, preferences, privileges and
limitations as set forth in the Series D Certificate of Determination. The
Series E Preferred Stock will be convertible into shares of the Common Stock of
the Company subject to the terms and provisions set forth in the Series E
Certificate of Determination and in this Agreement. The Series E Preferred Stock
will have all of the rights, preferences, privileges and limitations as set
forth in the Series E Certificate of Determination.
1.3 AMENDMENT OF $7.5 MILLION OF NOTES. On the Closing Date the Company and
the Purchaser will enter into an amendment to the Securities Purchase Agreement
(the "AMENDMENT NO. 2 TO THE SECURITIES PURCHASE AGREEMENT") to amend the terms
and provisions of the $7.5 million aggregate principal amount of the Notes that
is not being exchanged for shares of Series D Preferred Stock of the Company
(the "AMENDED NOTES"). The Amendment No. 2 to the Securities Purchase Agreement
will be in substantially the form as set forth on EXHIBIT D hereto.
1.4 FORBEARANCE BY THE PURCHASER. The parties acknowledge that the Company
failed to make the July 1, 1999 interest payment due on the Notes and that the
Company failed to make the payment during the 15 Business Days following July 1,
1999 such failure constituting an Event of Default under the Notes. The
Purchaser hereby expressly waives, fully and unconditionally on and as of the
Closing Date: (i) any and all right or claim to any interest or other charges
that have accrued on the Notes which remain outstanding as of the Closing Date,
other than the interest that has accrued after July 15, 1999 on the Amended
Notes; and (ii) any Default or Event of Default under the Notes or the
Securities Purchase Agreement, as amended, relating to such non-payment of
interest.
1.5 ISSUANCE OF NEW NOTES The Company has agreed to issue to the Purchaser,
and the Purchaser has agreed to purchase from the Company, up to Five Million
Dollars ($5,000,000) in aggregate principal amount of 13% Senior Secured Notes
(the "NEW NOTES"). The New Notes will be in substantially the form as set forth
on EXHIBIT E hereto and will be issuable in tranches as follows:
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1.5.1 AT CLOSING. On the Closing Date the Company will issue to the
Purchaser New Notes in the aggregate principal amount of Two Million Dollars
($2,000,000) and the Purchaser will purchase such New Notes from the Company for
Two Million Dollars ($2,000,000) in immediately available funds.
1.5.2 UPON THE COMPANY ENTERING INTO A JOINT VENTURE. At such time
following the Closing, if the Company enters into a joint venture with a casino
operator that has at least $1.0 billion in Market Capitalization and the joint
venture provides that the casino operator will pay at least fifty percent (50%)
of the costs of development of an Exclusive New Game and such casino operator
purchases or commits to purchase at least 100 units of such Exclusive New Game,
then the Company will issue to the Purchaser additional New Notes in the
aggregate principal amount of One Million Dollars ($1,000,000) and the Purchaser
will purchase such New Notes from the Company for One Million Dollars
($1,000,000) in immediately available funds; provided that no Default or Event
of Default has occurred under the New Notes or the Amended Notes and there has
been no breach of any of the covenants contained herein that has not been cured
or waived.
1.5.3 UPON THE COMPANY REACHING CERTAIN FINANCIAL GOALS. At such time
following the Closing, if the Company reaches certain financial hurdles, to be
determined by the Purchaser in its sole discretion, the Company will issue to
the Purchaser up to Two Million Dollars ($2,000,000) in New Notes and the
Purchaser will purchase such New Notes from the Company for an amount, in
immediately available funds, equal to the aggregate original principal amount
thereof.
1.6 ISSUANCE OF UNITS. As soon as practical following the Closing, the
Company intends to complete an exchange offer in compliance with applicable
securities laws whereby existing shareholders of record as of the Closing Date
may exchange shares of Common Stock for units ("UNITS") consisting of one share
of Common Stock and one warrant (the "OLD EQUITY WARRANTS"). The Old Equity
Warrants issued as part of the Units would in the aggregate be exercisable for
up to 54,968,816 shares of Common Stock of the Company, as of the Closing Date.
The Old Equity Warrants would be issuable pursuant to the Warrant Agreement by
and between the Company and the Warrant Agent (the "WARRANT AGREEMENT"), in
substantially the form set forth on EXHIBIT F hereto. The Purchaser hereby
consents to the issuance of the Units, including the Old Equity Warrants and any
shares of Common Stock issued upon exercise of the Old Equity Warrants, to the
extent consent is required under this Agreement, any of the Transaction
Documents, or otherwise.
ARTICLE II
CLOSING
Subject to the terms and conditions of this Agreement, the exchange of
Notes for Series D Preferred Stock and the Series E Warrant, the forbearance by
the Purchaser of defaults under the Securities Purchase Agreement, the amendment
to the remaining $7.5 million aggregate principal of Notes, and the issuance of
$2.0 million in New Notes (the "CLOSING") shall take place at 10:00 a.m.,
Arizona Time, on the later of November 24, 1999, or the date on which the
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conditions set forth in Article V have been satisfied or waived, but in no event
later than December 1, 1999, at the offices of Squire, Sanders & Dempsey L.L.P.,
40 North Central Avenue, Suite 2700, Phoenix, Arizona, or at such other time and
place as is mutually agreed upon by the parties. The date on which the Closing
occurs is referred to as the "Closing Date."
2.1 CLOSING DELIVERIES BY THE COMPANY. At the Closing the Company will
deliver to the Purchaser:
2.1.1 SHARE CERTIFICATES: a certificate representing 39,750 shares of
Series D Preferred Stock issued to the Purchaser.
2.1.2 NEW NOTES: New Notes issued to the Purchaser in the principal
amount of $2 million pursuant to Section 1.5.1 above.
2.1.3 SERIES E WARRANT: A CERTIFICATE REPRESENTING THE SERIES E
WARRANT.
2.1.4 AMENDED NOTES: Amended Notes in the aggregate principal amounts
of $7.5 million.
2.1.5 FAIRNESS OPINION: a copy of a "fairness opinion" from a
nationally recognized investment banking firm, in form and substance reasonably
satisfactory to the Purchaser and the Company.
2.1.6 CERTIFICATES: the certificates and other documents required to
be delivered by the Company to the Purchaser pursuant to Section 5.2 hereof and
certified board and stockholder resolutions evidencing the authority of the
Company to enter into, execute and deliver this Agreement.
2.1.7 OTHER: all such other documents and instruments as shall, in the
reasonable opinion of the Purchaser, be necessary to consummate the transactions
as contemplated hereby and in accordance herewith.
2.2 CLOSING DELIVERIES BY THE PURCHASER. At the Closing, the Purchaser will
deliver to the Company:
2.2.1 CANCELED NOTE: a canceled promissory note, or other instrument
satisfactory to the Company, effecting the cancellation of $39.75 million in
principal of the Notes, plus any interest accrued thereon, with the remaining
balance of the Notes to be exchanged for the Amended Notes.
2.2.2 PURCHASE OF NEW NOTES: Two Million Dollars ($2,000,000) in
immediately available funds for the purchase of the New Notes pursuant to
Section 1.5.1 above.
2.2.3 CERTIFICATES: the certificates and other documents required to
be delivered by Purchaser to the Company pursuant to Section 5.1 hereof.
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2.2.4 OTHER: all such other documents and instruments as shall, in the
reasonable opinion of the Company, be necessary to consummate the transactions
as contemplated hereby and in accordance herewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the Purchaser to enter into the transactions
contemplated hereby the Company represents and warrants that the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made and as though the Closing Date were substituted for the date of this
Agreement throughout Article III):
3.1 ORGANIZATION AND QUALIFICATION; AUTHORITY. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to own
and lease its properties and carry on its business as presently conducted, is
duly qualified, registered or licensed as a foreign corporation to do business
and is in good standing in each jurisdiction in which the ownership or leasing
of its properties or the character of its present operations makes such
qualification, registration or licensing necessary, except where the failure so
to qualify or to be in good standing would not have a Material Adverse Effect.
The Company has heretofore delivered, or prior to the Closing Date will deliver,
to the Purchaser complete and correct copies of the Articles of Incorporation,
the Series D Certificate of Determination, the Series E Certificate of
Determination and the by-laws of the Company and the Articles of Incorporation
and the by-laws of each of its Subsidiaries, each as amended to date and as
presently in effect (collectively, with respect to any such Person, "CHARTER
DOCUMENTS"). A list of all jurisdictions in which the Company is qualified,
registered or licensed to do business as a foreign corporation is attached
hereto as SCHEDULE 3.1.
3.2 SUBSIDIARIES. The Company's Subsidiaries are set forth on SCHEDULE 3.2
hereto. Each of the Subsidiaries is a corporation, limited liability company or
partnership duly incorporated or formed, validly existing and in good standing
under the laws of the jurisdiction of its organization, has full corporate,
limited liability company or partnership power and authority, as the case may
be, to own and lease its properties, and carry on its business as presently
conducted, is duly qualified, registered or licensed as a foreign corporation,
limited liability company or partnership to do business and is in good standing
in each jurisdiction in which the ownership or leasing of its properties or the
character of its present operations make such qualification, registration or
licensing necessary, except where the failure so to qualify or be in good
standing would not have a Material Adverse Effect. A list of all jurisdictions
in which each of the Subsidiaries is qualified, registered or licensed to do
business as a foreign corporation, limited liability company or partnership is
attached hereto as SCHEDULE 3.2. Except as disclosed on SCHEDULE 3.2, the
Company owns, directly or indirectly, all of the outstanding shares of Capital
Stock or other evidences of equity ownership of each of its Subsidiaries free of
any Lien, restriction (other than restrictions generally applicable to
securities under federal, provincial or state securities laws) or encumbrance,
and said shares have been duly issued and are validly outstanding.
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3.3 LICENSES. The Company and its Subsidiaries hold all material licenses,
franchises, permits, consents, registrations, certificates and other approvals
(including, without limitation, those relating to environmental matters, public
and worker health and safety, buildings, highways or zoning) required for the
conduct of its business as now being conducted, and is operating in compliance
therewith, except where the failure to hold any such license or to operate in
compliance therewith would not have a Material Adverse Effect. The Company and
its Subsidiaries are in substantial compliance with all laws, regulations,
orders and decrees applicable to it, except in each case where the failure so to
comply would not have a Material Adverse Effect, or a material adverse effect on
the ability of the Company or any of its Subsidiaries to perform on a timely
basis any obligation that it has or will have under any Transaction Document to
which it is a party.
3.4 CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. Except as set
forth on SCHEDULE 3.4, the execution, delivery and performance by the Company of
the Transaction Documents to which it is a party and all other instruments or
agreements to be executed at the Closing Date in connection therewith, and the
issuance and sale to the Purchaser of the Series D Preferred Stock and the
Series E Warrant pursuant to this Agreement, are within the Company's corporate
power, having been duly authorized by all necessary corporate action on the part
of the Company; do not require any license, authorization, consent,
registration, permit, certificate, franchise, approval, qualification or formal
exemption from, or other action by or in respect of, or filing of a declaration
or registration with, any court, Governmental Body, agency or official or other
Person (except such as have been obtained or as may be required under the
Securities Act or state securities or Blue Sky laws) do not contravene or
constitute a default under or violation of (a) any provision of applicable law
or regulation of any Governmental Body, (b) the respective Charter Documents of
the Company or any of its Subsidiaries, (c) any agreement (or require the
consent of any Person under any agreement that has not been obtained) to which
the Company or any of its Subsidiaries is a party, or (d) any judgment,
injunction, order, decree or other instrument binding upon the Company, and of
its Subsidiaries or any of their respective properties, except where such
contravention, default or violation would not have a Material Adverse Effect;
and do not and will not result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, other than Permitted Liens.
3.5 VALIDITY AND BINDING EFFECT. On and as of the Closing Date, each of the
Transaction Documents will be duly executed and delivered by the Company and
will be a valid and binding agreement of the Company, enforceable against the
Company in accordance with their respective terms, except for (a) the effect
upon the Transaction Documents of bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting the rights of
creditors generally, (b) limitations imposed by a court of competent
jurisdiction under general equitable principles upon the specific enforceability
of any of the remedies, covenants or other provisions of the Transaction
Documents and upon the availability of injunctive relief or other equitable
remedies, and (c) any applicable laws relating to the maximum permissible rate
of interest.
3.6 CAPITALIZATION. Schedule 3.6 hereto sets forth the authorized, issued
and outstanding Capital Stock (including any options, warrants and convertible
securities, the exercise or conversion price of such options, warrants and
convertibles securities, and indicating the record owners thereof) of the
Company (i) as of the date hereof and (ii) immediately after giving effect to
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the consummation of the transactions contemplated hereby (including, without
limitation, the exchange of Senior Discount Notes for Series D Preferred Stock
and the Series E Warrant contemplated by Section 1.2 hereof, the issuance of the
Units, conversion of the Series B1 Preferred Stock and the adoption of the
Management Incentive Plan). Except as set forth on SCHEDULE 3.6 hereto, there
are no outstanding subscriptions, options, warrants, rights, convertible or
exchangeable securities or other agreements or commitments of any character
obligating the Company or its Subsidiaries to issue any securities. Except as
set forth on SCHEDULE 3.6, there are no voting trusts or other agreements or
understandings to which the Company or its Subsidiaries is a party with respect
to the voting of the Capital Stock of the Company or the Subsidiaries. Except as
set forth on SCHEDULE 3.6 or as contemplated by the Stockholders Agreement,
neither the Company nor any of its Subsidiaries has entered into any agreement
to register its equity or debt securities under the Securities Act.
3.7 PREEMPTIVE OR OTHER RIGHTS. Except as set forth on SCHEDULE 3.7 hereto,
as of the Closing Date and after giving effect to the transactions contemplated
hereby, other than rights set forth herein or in the Transaction Documents,
there are (i) no preemptive rights, rights of first refusal, put or call rights
or obligations or anti-dilution rights with respect to any shares of the
Company's Capital Stock that are triggered by the issuance, sale, or redemption
or conversion of the Series D Preferred Stock, the Series E Warrant, the Series
E Preferred Stock, the Units, the New Notes or the Common Stock issued or to be
issued under the Management Incentive Plan, (ii) no rights to have the Company's
Capital Stock registered for sale to the public in connection with the laws of
any jurisdiction and (iii) no documents, instruments or agreements relating to
the voting of the Company's Capital Stock or restrictions on the transfer of the
Company's Capital Stock, except as contemplated by the Stockholders Agreement
and the Management Incentive Plan. The shares of Series D Preferred Stock, the
shares of Series E Preferred Stock issued upon exercise of the Series E Warrant
and the shares of Common Stock to be issued upon conversion of the shares of
Series D Preferred Stock and the Series E Preferred Stock will when delivered to
the Purchaser, be duly authorized, validly issued, fully-paid and non-assessable
and free and clear of all encumbrances.
3.8 LITIGATION; DEFAULTS. Except as set forth on SCHEDULE 3.8, there is no
action, suit, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any of its Subsidiaries,
or any properties of any of the foregoing, before or by any court or arbitrator
or any Governmental Body which (individually or in the aggregate) could
reasonably be expected to (i) have a Material Adverse Effect, or (ii) impair the
ability of the Company or any Subsidiary to perform fully on a timely basis any
material obligation which the Company or such Subsidiary has or will have under
any Transaction Document to which the Company or such Subsidiary is a party.
Except as set forth on SCHEDULE 3.8, neither the Company nor any of its
Subsidiaries is in violation of, or in default under (and there does not exist
any event or condition which, after notice or lapse of time or both, would
constitute such a default under), any term of its respective Charter Documents,
or of any term of any agreement, instrument, judgment, decree, order, statute,
injunction, governmental regulation, rule or ordinance (including, without
limitation, those relating to zoning, city planning or similar matters)
applicable to the Company or any of its Subsidiaries or to which the Company or
any of its Subsidiaries is bound, or to any properties of the Company or any of
its Subsidiaries, except in each case to the extent that such violations or
defaults, individually or in the aggregate, could not reasonably be expected to
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(a) affect the validity or enforceability of any Transaction Document, (b) have
a Material Adverse Effect, or (c) impair the ability of the Company or any
Subsidiary to perform fully on a timely basis any material obligation which the
Company or any Subsidiary has or will have under any Transaction Document to
which the Company is a party.
3.9 OUTSTANDING DEBT. Except as set forth on SCHEDULE 3.9 hereto, neither
the Company nor any of its Subsidiaries has outstanding Indebtedness other than
short-term debt incurred in the ordinary course of business. SCHEDULE 3.9
contains a complete and accurate list of all material guarantees, assumptions,
purchase agreements and similar agreements and arrangements whereby the Company
or any of its Subsidiaries is or may become directly or indirectly liable or
responsible for the Indebtedness or other obligations of a Person other than the
Company or any of its Subsidiaries, except for negotiable instruments endorsed
for collection or deposit in the ordinary course of its business, identifying,
with respect to each of the respective parties, amounts and maturities.
3.10 NO MATERIAL ADVERSE CHANGE. Except as set forth on SCHEDULE 3.10,
since September 30, 1999, there has been (a) no material adverse change in the
condition (financial or other), assets, business, results of operations or
prospects of the Company or any of its Subsidiaries, (b) no obligation or
liability (contingent or other) incurred by the Company or any of its
Subsidiaries, other than obligations and liabilities incurred in the ordinary
course of business, and no Lien placed on any of the properties of the Company
or any of its Subsidiaries which remains in existence on the date hereof, other
than Permitted Liens and Liens described on SCHEDULE 3.17 hereto, (c) no
acquisition or disposition of any material assets by the Company or any of its
Subsidiaries, (d) no other material transaction, other than (i) for fair value
in the ordinary course of business, or (ii) Permitted Dispositions, or (e) no
contract or arrangement for any of the foregoing.
3.11 EMPLOYEE PROGRAMS. SCHEDULE 3.11 sets forth a list of every Employee
Program maintained by the Company or any Current Affiliate (as defined below) at
any time during the five-year period ending on the Closing Date or with respect
to which a liability of the Company or an Affiliate (as defined below) exists.
Each Employee Program (other than a Multiemployer Plan) which has been
maintained by the Company during the five-year period ending on the Closing Date
and which has been intended to qualify under Section 401(a) or Section 501(c)(9)
of the Code has received a favorable determination or approval letter from the
Internal Revenue Service regarding its qualification under such section or the
remedial amendment period under Section 401(b) of the Code has not yet expired
with respect to such Employee Program and, to the knowledge of the Company,
nothing has occurred that would adversely affect such qualification since the
date of such letter or application for a determination or approval letter has
been timely made, and to the knowledge of the Company, no reason exists why a
favorable determination or approval shall not be granted. Except as set forth on
SCHEDULE 3.11, the Company has no knowledge of any failure of any party to
comply with any laws applicable with respect to the Employee Programs that have
been maintained by the Company or any Current Affiliate, and no such failure
will result from completion of the transactions contemplated hereby. With
respect to any Employee Program ever maintained by the Company or an Affiliate,
there has been no "prohibited transaction," as defined in Section 406 of ERISA
or Code Section 4975, or breach of any duty under ERISA or other applicable law
or any agreement which in any such case could subject the Company to material
liability either directly or indirectly (including, without limitation, through
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any obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program (other than a Multiemployer Plan).
Neither the Company nor any of its Current Affiliates have incurred any
liability under title IV of ERISA which has not been paid in full prior to the
Closing. Neither the Company nor any of its Current Affiliates is liable for any
material "accumulated funding deficiency" (whether or not waived) with respect
to any Employee Program ever maintained by the Company or any Affiliate and
subject to Code Section 412 or ERISA Section 302. With respect to any Employee
Program subject to title IV of ERISA, there has been no (and the transactions
contemplated by this Agreement will not result in any) (a) "reportable event,"
within the meaning of ERISA Section 4043 or the regulations thereunder (for
which the notice requirement is not waived under 29 C.F.R. Part 2615) or (b)
other event or condition which presents a material risk of plan termination or
any other event that may cause the Company or any Current Affiliate to incur
material liability or have a material Lien imposed on its assets under title IV
of ERISA. All payments and/or contributions required to have been made by the
Company and its Current Affiliates (under the provisions of any agreements or
other governing documents or applicable law) with respect to all Employee
Programs subject to title IV of ERISA ever maintained by the Company or any
Affiliate, for all periods prior to the Closing, have been timely made. Except
as described on SCHEDULE 3.11, no Employee Program maintained by the Company or
an Affiliate and subject to title IV of ERISA (other than a Multiemployer Plan)
has any "unfunded benefit liabilities" within the meaning of ERISA Section
4001(a)(18), as of the Closing Date. With respect to Multiemployer Plans
maintained by the Company or any Affiliate, SCHEDULE 3.11 states the aggregate
amount of withdrawal liability or other termination liability that would be
incurred by the Company or any Affiliate if there were a withdrawal from any
such plan as determined by the most recent withdrawal liability calculation
prepared by such plan. Except as disclosed on SCHEDULE 3.11, none of the
Employee Programs which is a welfare plan maintained by the Company or any
Affiliate provides health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of title I of ERISA or comparable statutes or regulations) or has
ever promised to provide such post-termination benefits.
For purposes of this section:
(a) "Employee Program" means (A) any employee benefit plan within the
meaning of Section 3(3) of ERISA and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA, and (B) any stock option
plans, bonus or incentive award plans, severance pay policies or agreements,
deferred compensation arrangements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements, and arrangements not
described in (A) above, and (C) any trust used to fund benefits under the
foregoing maintained by the Company or any Affiliate.
(b) An entity is an "Affiliate" of the Company if it would have ever
been considered a single employer with the Company under ERISA Section 4001(b)
or part of the same "controlled group" as the Company for purposes of ERISA
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Section 302(d)(8)(C); an entity is a "Current Affiliate" if it currently would
be considered a single employer with the Company under ERISA Section 4001(b) or
part of the same "controlled group" as the Company for purposes of ERISA Section
302(d)(8)(C); and each reference to the Company includes its Subsidiaries.
(c) An entity "maintains" an Employee Program if such entity sponsors,
contributes to, or provides benefits under such Employee Program, or has any
obligation (by agreement or under applicable law) to contribute to or provide
benefits under such Employee Program, or if such Employee Program provides
benefits to or otherwise covers employees of such entity (or, in respect of such
employees, their spouses, dependents, or beneficiaries).
(d) "Multiemployer Plan" means a (pension or non-pension) employee
benefit plan to which more than one employer contributes and which is maintained
pursuant to one or more collective bargaining agreements.
3.12 PRIVATE OFFERING. No form of general solicitation or general
advertising, including, but not limited to, advertisements, articles, notices or
other communications, published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising, was used
by the Company or any of its Subsidiaries or any of the Company's or such
Subsidiary's representatives, or, to the knowledge of the Company, any other
Person acting on behalf of the Company or any of its Subsidiaries, in connection
with the offering of the Series D Preferred Stock, the Series E Warrant, the
Amended Notes and the New Notes contemplated by this Agreement. During the six
months prior to the Closing, neither the Company, any of its Subsidiaries nor
any Person acting on the Company's or any Subsidiary's behalf has directly or
indirectly offered the Series D Preferred Stock, the Series E Warrant, the
Amended Notes, the New Notes or any part thereof or any other similar
securities, for sale to, or sold or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with any Person
or Persons other than the Purchaser. The Company further represents to the
Purchaser that, assuming the accuracy of the representations of the Purchaser as
set forth in Section 4 hereof, neither the Company, any of its Subsidiaries nor
any Person acting on the Company's or such Subsidiary's behalf has taken or will
take any action which would subject the issue and sale of the Series D Preferred
Stock, the Series E Warrant, the Amended Notes or the New Notes to the
provisions of Section 5 of the Securities Act, except as contemplated by the
Stockholders Agreement. The Company has not sold the Series D Preferred Stock,
the Series E Warrant, the Amended Notes or the New Notes to anyone other than
the Purchaser. During the six months prior to the Closing, no securities of the
same class or series as the securities comprising the Series D Preferred Stock,
the Series E Warrant, the Amended Notes or the New Notes have been issued and
sold by the Company.
3.13 BROKER'S OR FINDER'S COMMISSIONS. Neither the Company nor any of its
Subsidiaries has engaged any broker or finder or has incurred or become liable
for any broker's commission or finder's fee relating to or in connection with
the transactions contemplated by this Agreement. In addition to and not in
limitation of any other rights hereunder, the Company and its Subsidiaries agree
that they will indemnify and hold harmless the Purchaser from and against any
and all claims, demands or liabilities for broker's, finder's, placement agent's
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or other similar fees or commissions and any and all liabilities with respect to
any taxes (including interest and penalties) payable or incurred or alleged to
have been incurred by the Company or any of its Subsidiaries or any Person
acting or alleged to have been acting on the Company's or such Subsidiary's
behalf, in connection with this Agreement, the issuance or sale of the Series D
Preferred Stock, the Series E Warrant, the Amended Notes, the New Notes, or the
Units or any other transaction contemplated by any of the Transaction Documents.
3.14 DISCLOSURE.
(a) The historical financial and operating information delivered to
the Purchaser has been derived from the consolidated books and records of the
Company and its Subsidiaries prepared in accordance with GAAP.
(b) There is no fact known to the Company which the Company has not
disclosed to the Purchaser in writing which has or, insofar as the Company can
reasonably foresee, may have or will have a Material Adverse Effect or a
material adverse effect on the ability of the Company to perform its obligations
under any of the Transaction Documents or in respect of the Series D Preferred
Stock, the Amended Notes, the New Notes, the Series E Warrant or the Units or
any document contemplated hereby or thereby or which insofar as the Company can
reasonably foresee may or will cause any of the representations and warranties
herein to be untrue.
3.15 FOREIGN ASSETS CONTROL REGULATION, ETC. The issuance of the Series D
Preferred Stock, the Amended Notes, the New Notes, the Series E Warrant and the
Units by the Company as contemplated by this Agreement will not violate the
Foreign Assets Control Regulations, the Transaction Control Regulations, the
Cuban Assets Control Regulations, the Foreign Funds Control Regulations, the
Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations,
the South African Transactions Control Regulations, the Libyan Sanctions
Regulations, the Soviet Gold Coin Regulations, the Panamanian Transactions
Regulations, the Haitian Transactions Regulations, or the Iraqi Sanctions
Regulations of the United States Treasury Department (31 C.F.R., Subtitle B,
Chapter V, as amended) or Executive Orders 12722 and 12724 (transactions with
Iraq).
3.16 FEDERAL RESERVE REGULATIONS AND OTHER MATTERS. Neither the Company nor
any of its Subsidiaries will, directly or indirectly, use any of the proceeds
from the sale of the New Notes for the purpose, whether immediate, incidental or
ultimate, of buying any "margin stock," or of maintaining, reducing or retiring
any indebtedness originally incurred to purchase any stock that is currently a
"margin stock," or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit," in each case within the meaning of
Regulations G or U of the Board of Governors of the Federal Reserve System (12
C.F.R. 207 and 221, as amended, respectively), or otherwise take or permit to be
taken any action which would involve a violation of such Regulation G or
Regulation U or of Regulations T or X of the Board of Governors of the Federal
Reserve System (12 C.F.R. 220 and 224, as amended, respectively) or any other
regulation of such Board. No indebtedness that may be maintained, reduced or
retired with the proceeds from the sale of the Convertible Notes was incurred
for the purpose of purchasing or carrying any "margin stock" and neither the
Company nor any of its Subsidiaries own any such "margin stock" or have any
present intention of acquiring, directly or indirectly any such "margin stock."
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3.17 INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
3.18 PUBLIC UTILITY HOLDING COMPANY ACT. To the Company's knowledge,
neither the Company nor any of its Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
3.19 INTERSTATE COMMERCE ACT. To the Company's knowledge, neither the
Company nor any of its Subsidiaries is, nor will be, a "rail carrier," or a
Person controlled by or affiliated with a "rail carrier," within the meaning of
Title 49, U.S.C. Neither the Company nor any of its Subsidiaries is a "carrier"
or other Person to which 49 U.S.C. Section 11301(b)(1) is applicable.
3.20 ENVIRONMENTAL REGULATION, ETC.
(a) Except as set forth on SCHEDULE 3.20, to the knowledge of the
Company, each of the Company and its Subsidiaries (i) has no liability under any
Environmental Law or common law cause of action relating to or arising from
environmental conditions which could have a Material Adverse Effect, and any
property owned, operated, leased, or used by the Company and its Subsidiaries
and any facilities and operations thereon comply with all applicable
Environmental Laws except to the extent that failure to comply could have a
Material Adverse Effect; (ii) has not entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and (iii) has no
reason to believe that any of the items enumerated in clause (ii) of this
paragraph will be forthcoming.
(b) Except as set forth on SCHEDULE 3.20, to the knowledge of the
Company: (i) to the knowledge of the Company, neither the Company nor any of its
Subsidiaries has generated, transported, used, stored, treated, disposed of, or
managed any Hazardous Waste, except in accordance with applicable Environmental
Laws; (ii) to the knowledge of the Company, no Release or Threat of Release of a
Hazardous Material at any site presently or formerly owned, operated, leased, or
used by the Company or any of its Subsidiaries has occurred; (iii) to the
knowledge of the Company, neither the Company nor any of its Subsidiaries has
ever had Hazardous Material transported from any site presently or formerly
owned, operated, leased, or used by the Company or any of its Subsidiaries for
treatment, storage, or disposal at any other place, except in accordance with
applicable Environmental Laws except such noncompliance which could not
reasonably be expected to have a Material Adverse Effect; (iv) to the knowledge
of the Company, neither the Company nor any of its Subsidiaries presently own,
operate, lease or use any site or formerly owned, operated, used or leased any
site on which underground storage tanks are or were located; (v) neither the
Company nor any of its Subsidiaries has ever placed underground storage tanks on
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any site owned, operated, leased or used by the Company or any of its
Subsidiaries; (vi) neither the Company nor any of its Subsidiaries has ever
removed underground storage tanks from any site presently or formerly owned,
operated, leased or used by the Company or any of its Subsidiaries; and (vii)
neither the Company nor any of its Subsidiaries has ever had a Lien imposed by
any Governmental Body on any property, facility, machinery, or equipment owned,
operated, leased, or used by the Company or any of its Subsidiaries in
connection with the presence of any Hazardous Material.
3.21 PROPERTIES AND ASSETS. The Company and its Subsidiaries have good
record and marketable title to (or, in the case of licensed Property, valid
licenses to) all Property, owned by or licensed to them and reasonably necessary
in the conduct of business of the Company or such Subsidiaries, except defects
in title which do not and will not have a Material Adverse Effect. All of the
leases necessary in any material respect for the operation of their respective
properties and assets, under which the Company or any of its Subsidiaries holds
any Property, are valid, subsisting and enforceable and afford peaceful and
undisturbed possession of the subject matter of the lease, and no material
default by the Company or any of its Subsidiaries exists under any of the
provisions thereof. All buildings, machinery and equipment of the Company and
its Subsidiaries are in good repair and working order, except for ordinary wear
and tear, and except as would have a Material Adverse Effect. All material
current and proposed uses of such Property of the Company and its Subsidiaries
are permitted as of right and no regulation or ordinance interferes with such
current or proposed uses. To the knowledge of the Company, there is no pending
or formally proposed change in any such laws, regulations and ordinances which
would have a Material Adverse Effect. Except as set forth on SCHEDULE 3.21, no
condemnation proceeding is pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries. All Property of the
Company and its Subsidiaries are free from all Liens except for (a) Liens which
would not have a Material Adverse Effect; (b) Liens disclosed on SCHEDULE 3.21
hereto; and (c) Permitted Liens. Except as set forth on SCHEDULE 3.21 hereto,
neither the Company nor any of its Subsidiaries has signed any material
financing statement, as debtor or lessee, or any security agreement authorizing
any secured party thereunder to file any such financing statement.
3.22 INSURANCE. A list of all insurance policies and fidelity bonds
maintained by or on behalf of the Company covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company and under which the Company or any of its Subsidiaries or any of their
employees, officers and directors may derive any material benefit is set forth
on SCHEDULE 3.22 hereof. There is no claim by the Company or any of its
Subsidiaries pending under any of such policies or bonds as to which coverage
has been questioned, reserved, denied or disputed by the underwriters of such
policies or bonds or their agents where such question, reservation, denial or
dispute would have a Material Adverse Effect. All premiums due and payable under
all such policies and bonds have been paid, and the Company and its Subsidiaries
are otherwise in full compliance with the terms and conditions of all such
policies and bonds. Except as set forth on SCHEDULE 3.22, such policies of
insurance and bonds (or other policies and bonds providing substantially similar
insurance coverage) are and have been in full force and effect for at least the
last year or since the inception of the Company or any of its Subsidiaries, as
the case may be, and remain in full force and effect. Such policies of insurance
and bonds are of the type and in amounts customarily carried by Persons
conducting business similar to that presently conducted by the Company and its
Subsidiaries. The Company knows of no threatened termination of any such
policies or bonds.
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3.23 EMPLOYMENT PRACTICES. Except as set forth on SCHEDULE 3.23 hereto,
neither the Company nor any of its Subsidiaries is a party to or in the process
of negotiating any collective bargaining or labor agreement or union contract.
As of the date of this Agreement, there is no (a) charge, complaint or suit
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries respecting employment, hiring for employment,
terminating from employment, employment practices, employment discrimination,
terms and conditions of employment, safety, wrongful termination, or wages and
hours, (b) unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened against, or decision or order in effect and
binding on, the Company or any of its Subsidiaries before or of the National
Labor Relations Board, (c) grievance or arbitration proceeding arising out of or
under collective bargaining agreements pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, (d) strike,
labor dispute, slow-down, work stoppage or other interference with work pending
or, to the knowledge of the Company, threatened against the Company or its
Subsidiaries, or (e) to the knowledge of the Company, union organizing
activities or union representation question threatened or existing with respect
to any groups of employees of the Company or any of its Subsidiaries, which in
the case of (a)-(e) above could be reasonably expected to have a Material
Adverse Effect.
3.24 FINANCIAL STATEMENTS.
(a) The consolidated financial statements contained in the Company's
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1999,
June 30, 1999, and September 30, 1999, and the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998, together with the notes
thereto (the "FINANCIAL Statements") fairly present in all material respects the
financial position of the Company and its Subsidiaries on a consolidated basis
on the dates of such statements and the results of their operations on the
applicable basis for the periods covered thereby in accordance with GAAP,
except, with respect to unaudited financial statements, the absence of notes
thereto and statements of cash flows and subject to customary year-end
adjustments; and have been prepared in accordance with GAAP consistently
applied, except as otherwise stated therein.
(b) As of September 30, 1999 and as of the date hereof and the Closing
Date, and except as set forth in the Schedules hereto, there are no material
liabilities, claims or obligations relating to the Company or its Subsidiaries
of any nature, whether accrued, absolute, contingent or otherwise, asserted or,
to the Company's knowledge, unasserted, except liabilities or claims stated or
adequately reserved against in the Financial Statements or liabilities or claims
incurred in the ordinary course of the Company's and any of its Subsidiary's
operations which are not required to be reflected in the Financial Statements or
in the notes thereto under GAAP. Nothing has come to the attention of the
Company since the date of the Financial Statements which would indicate that the
Financial Statements did not fairly present in all material respects the
financial position of the Company and its Subsidiaries as of the respective
dates thereof.
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3.25 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.25 sets forth all patent, copyright, trade secret,
trademark, or other proprietary rights used in or necessary to the business of
the Company or any of its Subsidiaries and material to the Company and its
Subsidiaries on a consolidated basis (collectively, "INTELLECTUAL PROPERTY").
Except as described on SCHEDULE 3.25, the Company and its Subsidiaries have
exclusive ownership of, or exclusive license to use the Intellectual Property.
There are no claims or demands of any other Person pertaining to any of such
Intellectual Property and no proceedings have been instituted, or are pending
or, to the knowledge of the Company, threatened, which challenge the rights of
the Company or any of its Subsidiaries in respect thereof. The Company and its
Subsidiaries have the right to use, free and clear of claims or rights of other
Persons, all customer lists, designs, manufacturing or other processes, computer
software systems, data compilations, research results and other information
required for or incident to their products or their business as presently
conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or any of its Subsidiaries or used or to be used by the
Company or any of its Subsidiaries in their business as presently conducted, and
which are material to the Company and its Subsidiaries are listed on SCHEDULE
3.25. All of such patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights, or the corresponding offices
of other jurisdictions as identified on SCHEDULE 3.25, and have been properly
maintained and renewed in accordance with all applicable provisions of law and
administrative regulations in the United States and each such jurisdiction.
(c) All material licenses or other agreements under which the Company
or any of its Subsidiaries is granted rights in Intellectual Property are listed
on SCHEDULE 3.25. Except as set forth on SCHEDULE 3.25, all said licenses or
other agreements are in full force and effect and there is no material default
by any party thereto.
(d) The Company and its Subsidiaries have taken all steps required in
accordance with sound business practice and business judgment to establish and
preserve their ownership of all material copyright, trade secret and other
proprietary rights with respect to their products and technology. The Company
and its Subsidiaries regularly require all professional and technical employees,
and other employees having access to valuable non-public information of the
Company or any of its Subsidiaries, to execute agreements under which such
employees are required to convey to the Company or any of its Subsidiaries, as
applicable, ownership of all inventions and developments conceived or created by
them in the course of their employment and to maintain the confidentiality of
all such information of the Company and its Subsidiaries. To the Company's
knowledge, neither the Company nor its Subsidiaries made any such information
available to any Person other than employees of the Company or any of its
Subsidiaries except pursuant to written agreements requiring the recipients to
maintain the confidentiality of such information and appropriately restricting
the use thereof. To the knowledge of the Company, there are no infringements by
others of any of its or any Subsidiary's Intellectual Property rights.
(e) To the knowledge of the Company, the present business, activities
and products of the Company or any of its Subsidiaries do not infringe any
intellectual property of any other Person, except where such infringement would
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not have a Material Adverse Effect. No proceeding charging the Company or any of
its Subsidiaries with infringement of any adversely held Intellectual Property
has been filed or is, to the knowledge of the Company, threatened to be filed.
To the Company's knowledge, there exists no unexpired patent or patent
application which includes claims that would be infringed by or otherwise have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is
making unauthorized use of any confidential information or trade secrets of any
Person, including without limitation any former employer of any past or present
employee of the Company or any of its Subsidiaries, except where such use would
not have a Material Adverse Effect. Except as set forth on SCHEDULE 3.25,
neither the Company or any of its Subsidiaries nor, to the knowledge of the
Company, any of its or any Subsidiary's employees have any agreements or
arrangements with any Persons other than the Company or any of its Subsidiaries
related to confidential information or trade secrets of such Persons or
restricting any such employee's engagement in business activities of any nature.
The activities of the Company or any of its Subsidiaries or any of its or any
Subsidiary's employees on behalf of the Company or any of its Subsidiaries do
not violate any such agreements or arrangements known to the Company which any
such employees have with other Persons (to the extent that such agreements and
arrangements are enforceable under applicable law).
3.26 TAXES. The Company and its Subsidiaries, and any predecessors to the
Company and any of its Subsidiaries, have filed or obtained extensions of all
Tax returns heretofore required by law to be filed by any of them. All Taxes
have been paid in full or are adequately provided for in accordance with GAAP on
the financial statements of the applicable Person. All deposits, Taxes and other
assessments and levies required by law to be made, withheld, collected or
provided for by the Company or any of its Subsidiaries including deposits with
respect to Taxes constituting employee income withholding taxes, have been duly
made, withheld, collected or provided for and have been paid over to the proper
federal, state or local authority, or are held by the applicable Person for such
payment. No Liens arising from or in connection with Taxes have been filed and
are currently in effect against the Company or any of its Subsidiaries (except
for Liens for Taxes which are not yet due). Except as set forth on SCHEDULE 3.26
hereto, neither the Company nor any of its Subsidiaries, nor any predecessors
thereto, has executed or filed with the IRS or any other taxing authority any
agreement or document extending, or having the effect of extending, the period
for assessment or collection of any Taxes. The federal income tax returns of the
Company and each of its Subsidiaries, and any predecessors thereto, have been
examined by the IRS, or the statute of limitations with respect to federal
income taxes has expired, for all tax years to and including the fiscal year
ended December 31, 1994 and, except as set forth on SCHEDULE 3.26, any
deficiencies have been paid in full or are being contested in good faith by
appropriate action or appropriate reserves therefor in accordance with GAAP have
been established on the Company's or applicable Subsidiary's books. Except as
set forth on SCHEDULE 3.26, neither the Company nor any of its Subsidiaries is a
party to any tax sharing agreement or arrangement. Except as set forth on
SCHEDULE 3.26, no audits or investigations are pending or, to the knowledge of
the Company, threatened with respect to any tax returns or taxes of the Company
or any of its Subsidiaries, or any predecessor thereto.
3.27 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 3.27,
and the Management Incentive Plan, there are no material transactions,
agreements or understandings, existing or presently contemplated between or
among the Company or any of its Subsidiaries and any of its officers or
directors or stockholders or any of their Affiliates or associates.
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3.28 LIMITATION ON SUBSIDIARY PAYMENT RESTRICTIONS. Except as set forth on
SCHEDULE 3.28 hereto, neither the Company nor any of its Subsidiaries is subject
to any consensual restriction on the ability of any such Subsidiary (a) to pay
dividends or make any other distributions on such Subsidiary's Capital Stock to,
or pay any indebtedness owing to, or repurchase or redeem any of such
Subsidiary's Capital Stock from, the Company or any other Subsidiary of the
Company, (b) to make any loans or advances to the Company or any other
Subsidiary of the Company, or (c) to transfer any of its Property or assets to
the Company or any other Subsidiary.
3.29 NO OTHER BUSINESS. Except as set forth in SCHEDULE 3.29 hereto, the
Company has not and is not engaged in any material respect in any business other
than the design, development, production, marketing and sale of interactive slot
machines.
3.30 SERIES D PREFERRED STOCK AND SERIES E PREFERRED STOCK CERTIFICATES OF
DETERMINATION. The Series D Certificate of Determination and the Series E
Certificate of Determination will each be filed with the Secretary of State of
the State of California and on and as of the Closing Date will each be in full
force and effect. The provisions of the Series D Preferred Stock and the Series
E Preferred Stock are the valid and binding obligations of the Company
enforceable in accordance with their terms.
3.31 YEAR 2000 COMPLIANCE. To its knowledge, except as set forth in
SCHEDULE 3.31 and except where the failure to be Year 2000 Compliant would not
be reasonably likely to have a Material Adverse Effect, all computer software
products that are owned by the Company, or produced and sold to others by the
Company ("SOFTWARE") are Year 2000 Compliant or will be Year 2000 compliant on
or prior to December 31, 1999. As used herein, "Year 2000 Compliant" shall mean
with respect to any such Software, the ability of such Software to perform the
following date-related functions: (i) consistently properly interpret date
information before, during and after January 1, 2000, including, but not limited
to, accepting date input, providing date output and performing calculations on
dates or portions of dates; (ii) function accurately in accordance with the
documentation relating to the applicable software and without material
interruption before, during and after January 1, 2000, without any change in
operations associated with the advent of the new century; (iii) respond to
two-digit date input in a way that resolves any ambiguity as to the century; and
(iv) store and process date information in ways that are unambiguous as to
century.
ARTICLE IV
PURCHASE FOR INVESTMENT; SOURCE OF FUNDS
4.1 PURCHASE FOR INVESTMENT. The Purchaser represents that (a) by reason of
its business and financial experience, and the business and financial experience
of those persons, if any, retained by it to advise it with respect to its
investment in the Series D Preferred Stock, it together with such advisers have
such knowledge, sophistication and experience in business and financial matters
as to be capable of evaluating the merits and risk of the prospective
investment, (b) it is an accredited investor as defined in Regulation D under
the Securities Act and (c) it is purchasing the Series D Preferred Stock for its
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own account or for one or more separate accounts maintained by it or for the
account of one or more institutional investors on whose behalf the Purchaser has
authority to make this representation for investment and not with a view to the
distribution or other disposition thereof or with any present intention of
distributing or selling any shares of the Series D Preferred Stock except in
compliance with the Securities Act and except to one or more such institutional
investors, provided that the disposition of the Purchaser's or such investor's
property shall at all times be within its control. The Purchaser understands and
agrees that the Series D Preferred Stock has not been registered under the
Securities Act and may be resold (which resale is not now contemplated) only if
registered pursuant to the provisions thereunder or if an exemption from
registration is available.
4.2 AUTHORITY. Each of the Transaction Documents has been duly executed and
delivered by the Purchaser and is a valid and binding agreement of the
Purchaser, enforceable against the Purchaser in accordance with its respective
terms, except for (a) the effect upon the Transaction Documents of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally, (b) limitations imposed by a court
of competent jurisdiction under general equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions of the
Transaction Documents and upon the availability of injunctive relief or other
equitable remedies, and (c) any applicable laws relating to the maximum
permissible rate of interest.
4.3 BROKER'S OR FINDER'S COMMISSIONS. In addition to and not in limitation
of any other rights hereunder, the Purchaser agrees that it will indemnify and
hold harmless the Company and its Subsidiaries from and against any and all
claims, demands or liabilities for broker's, finder's, placement agent's or
other similar fees or commissions and any and all liabilities with respect to
any taxes (including interest and penalties) payable or incurred or alleged to
have been incurred by the Purchaser or any Person acting or alleged to have been
acting on the Purchaser's behalf, in connection with this Agreement, the
issuance or sale of the Series D Preferred Stock, Series E Warrant or any other
transaction contemplated by any of the Transaction Documents.
4.4 ACKNOWLEDGMENT OF GAMING RESTRICTIONS. The Purchaser acknowledges that
pursuant to the Gaming Laws approvals from the Gaming Authorities shall be
required in order for the Purchaser to acquire control (as defined in the Gaming
Laws) of the Company.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The Company's
obligation to consummate the transactions contemplated hereby is subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any one or more of which may be waived in writing in whole or in
part by the Company in its sole discretion).
5.1.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the
representations and warranties of the Purchaser contained in this Agreement or
in any certificate, document or other instrument delivered in connection
herewith shall be true and correct in all material respects on and as of the
date of this Agreement and at and as of the Closing Date with the same effect as
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though such representations and warranties had been made at and as of the
Closing Date. The Purchaser shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed and complied with by it at or prior to the Closing. The Purchaser
shall furnish the Company with a certificate dated as of the Closing Date and
signed by an individual duly authorized to act on behalf of the Purchaser to the
effect that the conditions set forth in this Section 5.1.1 have been satisfied.
5.1.2 AMENDMENT OF $7.5 MILLION OF NOTES. The Purchaser shall have
executed and delivered Amendment No. 2 to the Securities Purchase Agreement in
substantially the form set forth on EXHIBIT D.
5.1.3 PURCHASE OF NEW NOTES. The Purchaser shall have delivered to the
Company Two Million Dollars ($2,000,000) in cash as payment of the purchase
price for the portion of the New Notes purchased on the Closing Date as
contemplated by Section 1.5.1 hereof against delivery of such portion of the New
Notes.
5.1.4 NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation,
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any Governmental Body, nor shall any decision of any court of
competent jurisdiction within the United States have been rendered which, in the
Company's reasonable judgment, could materially and adversely affect the Series
D Preferred Stock, the Amended Notes, the New Notes, or the Units as an
investment. There shall be no action, suit, investigation or proceeding pending
or threatened in writing, against or affecting the Company, any of its
properties or rights, or any of its Affiliates, associates, officers or
directors, before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise
affect the transactions contemplated by this Agreement and the other Transaction
Documents, or (ii) questions the validity or legality of any such transactions
or seeks to recover damages or to obtain other relief in connection with any
such transactions, and, to the Company's knowledge, there shall be no valid
basis for any such action, proceeding or investigation.
5.1.5 GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. The
Purchaser shall have duly applied for and obtained all prior Approvals from each
Governmental Body, or pursuant to any agreement to which the Purchaser is a
party or to which its assets are subject, which may be required in connection
with this Agreement, the other Transaction Documents or any other agreements and
documents contemplated thereby and in connection therewith. The Nevada Gaming
Control Board shall have determined that the issuance to the Purchaser of the
Series D Preferred Stock and to Andrew Pascal, Paul Mathews or such other
members of senior management of shares of Common Stock under the Management
Incentive Plan does not constitute the acquisition of control under Nevada
Gaming Laws and shall have indicated that the consummation of the transactions
contemplated by this Agreement (other than a conversion of Series D Preferred
Stock or Series E Preferred Stock into shares of Common Stock, or other
acquisition of shares of Common Stock, which results in an acquisition of
control under Nevada Gaming Laws) shall not require any post-closing filing,
qualification, finding of suitability or other approval on the part of DDJ or
the Purchaser with the Nevada Gaming Control Board.
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5.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER. The
Purchaser's obligation to consummate the transactions contemplated hereby are
subject to the satisfaction, on or prior to the Closing Date, of each of the
following conditions (any one or more of which may be waived in writing in whole
or in part by the Purchaser in its sole discretion).
5.2.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Each of the
representations and warranties of the Company contained in this Agreement or in
any certificate, document or other instrument delivered in connection herewith
shall be true and correct in all material respects on and as of the date of this
Agreement and at and as of the Closing Date with the same effect as though such
representations and warranties had been made at and as of the Closing Date. The
Company shall have performed and complied in all material respects with all
covenants and agreements required by this Agreement to be performed and complied
with by it at or prior to the Closing. The Company shall furnish the Company
with a certificate dated as of the Closing Date and signed by a senior executive
officer of the Company to the effect that the conditions set forth in this
Section 5.2.1 have been satisfied.
5.2.2 BOARD OF DIRECTOR ACTIONS. The Board of Directors of the Company
shall have adopted resolutions in form reasonably satisfactory to the Purchaser,
to:
(i) Approve and authorize execution and delivery of this
Agreement and the Transaction Documents;
(ii) Authorize the establishment of the Series D Preferred Stock
and the Series E Preferred Stock;
(iii) propose an increase in the number of authorized shares of
Common Stock of the Company to 750,000,000.
(iv) authorize a proposal to the shareholders of the Company to
approve the increase in the number of authorized shares of Common Stock;
(v) set a record date for determining the shareholders entitled
to consent in writing to approve the increase in authorized shares of
Common Stock;
(vi) approve and authorize issuance and delivery of the Amended
Notes;
(vii) approve and authorize the distribution of separate
Information Statements to the shareholders regarding a change in the Board
of Directors and an increase in the authorized shares of Common Stock;
(viii) approve and authorize the issuance of up to $5.0 million
of New Notes;
(ix) establish the Management Incentive Plan, in the form set
forth on EXHIBIT G, providing for the issuance of up to [116,190,084]
shares of Common Stock, as more particularly described in the Management
Incentive Plan;
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(x) set a record date for issuance of the Units, approve and
authorize the issuance of the Units, and approve and authorize the Warrant
Agreement.
5.2.3 FAIRNESS OPINION. The Board of Directors of the Company shall
have received a Fairness Opinion from Gordian Group., L.P. or another nationally
recognized investment banking firm reasonably acceptable to Purchaser stating
that it is such investment banking firm's opinion that the transactions
contemplated by this Agreement and the Transaction Documents are fair to the
shareholders of the Company from a financial point of view.
5.2.4 OPINIONS OF COUNSEL. The Purchaser shall have received (i) from
Gray, Cary, Ware and Freidenrich, corporate counsel to the Company, a favorable
opinion substantially in the form set forth in EXHIBIT H, addressed to the
Purchaser, dated as of the Closing Date, and otherwise satisfactory in substance
and form to the Purchaser, (ii) from special gaming counsel to the Company,
favorable opinions, each substantially in the form set forth in EXHIBIT I,
addressed to the Purchaser, dated as of the Closing Date, and otherwise
satisfactory in substance and form to the Purchaser, and (iii) from Squire,
Sanders & Dempsey L.L.P., a favorable opinion substantially in the form set
forth in EXHIBIT J, addressed to the Purchaser, dated as of the Closing Date,
and otherwise satisfactory in substance and form to the Purchaser.
5.2.5 LEGAL INVESTMENT. On the Closing Date, the transactions
contemplated by this Agreement shall be permitted by the laws and regulations of
the jurisdiction to which the Purchaser is subject (including, without
limitation, Section 5 of the Securities Act and Regulations G, T, U, or X of the
Board of Governors of the Federal Reserve System), and credit controls (whether
voluntary or mandatory) or similar restraints applicable to the Purchaser and
shall not subject the Purchaser to any tax, penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation
(other than applicable securities law restrictions on resale of the Series D
Preferred Stock, the Amended Notes, the New Notes, and the Series E Warrant),
and shall not be enjoined (temporarily or permanently) under, prohibited by or
contrary to any injunction, order or decree applicable to the Purchaser.
5.2.6 COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale
of the Series D Preferred Stock, the Amended Notes, the New Notes, and the Units
under this Agreement and the Transaction Documents shall have complied with all
applicable requirements of the Federal securities laws and the Purchaser shall
have received evidence, if any, of such compliance in form and substance
reasonably satisfactory to the Purchaser.
5.2.7 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
contemplated by this Agreement, including, without limitation, the matters set
forth in the Transaction Documents and all of the other documents and
instruments incident thereto, shall be reasonably satisfactory to the Purchaser,
and the Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as the Purchaser may reasonably
request.
5.2.8 COMPLETION OF OTHER TRANSACTIONS. Simultaneously with or prior
to the Closing Date:
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(i) the Company and the Purchaser shall have duly entered into
the Stockholders Agreement substantially in the form of EXHIBIT K hereto,
the Purchaser shall have received fully-executed counterparts of the
Stockholders Agreement in such numbers reasonably requested by it, and such
agreement shall be in full force and effect; and
(ii) each of the other Transaction Documents and any other
agreements and documents contemplated thereby and in connection therewith
shall have been executed and delivered by all respective parties thereto
and shall be in full force and effect.
(iii) The Company shall have executed an Amended and Restated
Security Agreement and other documents satisfactory to the Purchaser
granting the Purchaser a security interest in and to the Collateral (as
defined in the such Amended and Restated Security Agreement by and between
the Company, its Subsidiaries and the Purchaser, substantially in the form
as set forth on EXHIBIT L) securing the obligations of the Company under
the Amended Notes and the New Notes.
(iv) All of the issued and outstanding Series B-1 Preferred Stock
shall have been converted to Common Stock.
(v) The Company shall have received waivers in a form reasonably
satisfactory to the Purchaser from such holders of the Company's
outstanding warrants waiving their anti-dilution rights under the
applicable warrants with respect to the issuance of Capital Stock in
connection with the Restructuring and a consent and waiver from the parties
to the third Amended and Restated Rights Agreement as of July 29, 1996, and
any additional waiver or consent necessary in order to consummate the
transactions contemplated hereby.
5.2.9 PREFERRED STOCK. The Series D Certificate of Determination and
Series E Certificate of Determination shall each have been filed by the Company
and shall each be in full force and effect.
5.2.10 NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No
legislation, order, rule, ruling or regulation shall have been enacted or made
by or on behalf of any governmental body, department or agency of the United
States, nor shall any decision of any court of competent jurisdiction within the
United States have been rendered which, in the Purchaser's reasonable judgment,
could materially and adversely affect any of the Series D Preferred Stock or any
part thereof as an investment. There (a) shall be no action, suit, investigation
or proceeding pending or threatened against or affecting the Company or the
Purchaser, any of its properties or rights, or any of its Affiliates,
associates, officers or directors (in such capacity), before any court,
arbitrator or administrative or governmental body which (i) seeks to restrain,
enjoin, prevent the consummation of or otherwise affect the transactions
contemplated by this Agreement and the other Transaction Documents, or (ii)
questions the validity or legality of any such transactions or seeks to recover
damages or to obtain other relief in connection with any such transactions, and,
(b) to the Company's or the Purchaser's knowledge, there shall be no valid basis
for any such action, proceeding or investigation.
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5.2.11 GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. Except as
set forth on SCHEDULE 3.4, the Company and its Subsidiaries and the Purchaser
shall have duly applied for and obtained all Approvals from each Governmental
Body, or third party pursuant to any agreement to which the Company or any of
its Subsidiaries is a party or to which any of them or any of their assets is
subject, which are required in connection with this Agreement, the other
Transaction Documents or any other agreements and documents contemplated thereby
and in connection therewith. The Nevada Gaming Control Board shall have
determined that the issuance to the Purchaser of the Series D Preferred Stock
and to Andrew Pascal, Paul Mathews or such other members of senior management of
shares of Common Stock under the Management Incentive Plan does not constitute
the acquisition of control under Nevada Gaming Laws and shall have indicated
that the consummation of the transactions contemplated by this Agreement (other
than a conversion of Series D Preferred Stock or Series E Preferred Stock into
shares of Common Stock) shall not require any post-closing filing,
qualification, finding of suitability or other approval on the part of DDJ or
the Purchaser with the Nevada Gaming Control Board.
5.2.12 SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate, dated as of the Closing Date, of the Secretary or Assistant
Secretary of the Company, on behalf of such entity, (i) certifying as true,
complete and correct its Charter Documents and resolutions relating to the
transactions contemplated hereby attached thereto, (ii) as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
the Company, (iii) as to the incumbency and specimen signatures of officers who
shall have executed instruments, agreements and other documents in connection
with the transactions contemplated hereby, (iv) as to the effect that certain
agreements, instruments and other documents are in the form approved in the
resolutions referred to in clause (i) above, and (v) covering such other
matters, and with such other attachments thereto, as Purchaser's counsel may
reasonably request at least one Business Day before the Closing Date, which
certificates and attachments thereto shall be reasonably satisfactory in form
and substance to such Purchaser.
5.2.13 PAYMENT OF FEES. The Company shall have paid to the Purchaser's
counsel, Goodwin, Procter & Hoar LLP, and the Purchaser's special gaming
counsel, contemporaneously with the Closing, the reasonable fees, expenses and
disbursements reflected in the statements of such counsel rendered prior to or
on the Closing Date and agreed to pay such additional reasonable fees, expenses
and disbursements reflected in the statements of such counsel rendered after the
Closing Date for services rendered by such counsel directly related to this
Agreement and the transactions contemplated by this Agreement.
ARTICLE VI
COVENANTS
So long as there remain outstanding at least 100 shares of Series D
Preferred Stock:
6.1 LIMITATION ON CERTAIN ACTIONS. The Company shall not, without the prior
written consent of the holders of a majority of the then outstanding Series D
Preferred Stock:
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(a) authorize or issue any dividends on any of its outstanding
securities unless required to do so by the Series D Certificate of Determination
or other governing instrument of such security as in effect on the Closing Date;
(b) issue any Capital Stock or debt with a preference to or PARI PASSU
with the Series D Preferred Stock, the New Notes (or interest thereon whether
deferred or paid-in-kind) or Amended Notes.
(c) issue any additional Capital Stock or equity securities, including
options, warrants or other derivative securities other than the Series D
Preferred Stock, the Common Stock to be issued upon conversion of the Series D
Preferred Stock, the Units, the Old Equity Warrants, the Common Stock to be
issued upon exercise of the Old Equity Warrants, the Series E Warrant, the
Series E Preferred Stock to be issued upon exercise of the Series E Warrant, the
Common Stock to be issued upon exercise of the Series E Warrant, or, unless
issued to an officer, employee, director or consultant of the Company under the
Management Incentive Plan;
(d) acquire assets, not in the ordinary course of business, in an
aggregate value that exceeds $100,000 for any calendar year;
(e) make capital investments in any other entity in an aggregate
amount that exceeds $100,000;
(f) enter into any agreement or arrangement, not in the ordinary
course of business, which obligates the Company to present or future commitments
during the term of the agreement in excess of $100,000;
(g) make capital expenditures in an aggregate value that exceeds
$500,000 for any calendar year;
(h) liquidate, dissolve or wind-up operations, effect a
recapitalization or reorganization, or take steps to file for bankruptcy; or
(i) amend its Charter Documents or by-laws, other than as contemplated
herein or in the Transaction Documents.
6.2 CORPORATE EXISTENCE. The Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate or similar existence of each of its Subsidiaries in accordance
with the respective organizational documents of each of its Subsidiaries and the
rights (charter and statutory), licenses and franchises of the Company and each
of its Subsidiaries; provided, however, that the Company shall not be required
to preserve any such right, license or franchise, or the corporate or similar
existence of any Subsidiary, if the Company's Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries taken as a whole.
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6.3 LIMITATION ON INDEBTEDNESS.
(a) Except as set forth in this Section 6.3, the Company shall not,
and shall not permit any Subsidiary, after the date hereof, directly or
indirectly, to Incur any Indebtedness (including Acquired Indebtedness) without
the prior written consent of the holders of a majority of the then outstanding
Series D Preferred Stock. For purposes of this Agreement, Indebtedness of any
Acquired Person that is not a Subsidiary, which Indebtedness is outstanding at
the time such Person is acquired by the Company or a Subsidiary or becomes, or
is merged into or consolidated with, a Subsidiary, shall be deemed to have been
Incurred by the Company or the acquiring Subsidiary at the time such Acquired
Person becomes, or is merged into or consolidated with, a Subsidiary.
(b) Notwithstanding Section 6.3(a) the Company and its Subsidiaries
may Incur, after the date hereof, any of the following Indebtedness:
(i) Indebtedness outstanding at the date hereof as set forth on
SCHEDULE 3.9, the Indebtedness evidenced by the Amended Notes and the New
Notes including any Indebtedness evidenced by notes issued as
payment-in-kind for interest payments due and payable under the Amended
Notes and the New Notes;
(ii) Indebtedness to any Wholly-Owned Subsidiary of the Company
or Indebtedness of any Subsidiary to the Company (provided that such
Indebtedness is at all times held by the Company or a Wholly-Owned
Subsidiary of the Company); PROVIDED, HOWEVER, that for purposes of this
Section 6.3, upon either (A) the transfer or other disposition by any such
Wholly-Owned Subsidiary of any Indebtedness so permitted to a Person other
than the Company or another Wholly-Owned Subsidiary of the Company or (B)
the issuance, sale, lease, transfer or other disposition of shares of
Capital Stock (including by consolidation or merger) of such Wholly-Owned
Subsidiary to a Person other than the Company or another such Wholly-Owned
Subsidiary, the provisions of this clause (ii) shall no longer be
applicable to such Indebtedness and such Indebtedness shall be deemed to
have been Incurred by the Company at the time of such transfer or other
disposition;
(iii) Refinancing Indebtedness with respect to Indebtedness that
was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this Agreement;
PROVIDED, HOWEVER, that (A) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount (or accreted value, in
the case of Indebtedness issued at a discount) of the Indebtedness so
extended, refinanced, renewed, replaced, substituted, defeased or refunded
(plus the amount of fees, costs and expenses incurred and the amount of any
premium, penalties, breakage costs and other similar amounts required to be
paid in connection with such refinancing pursuant to the terms of the
instrument governing the Indebtedness so extended, refinanced, renewed,
replaced, substituted, defeased or refunded or the amount of any premium
reasonably determined by the Company as necessary to accomplish a
refinancing by means of a tender offer or privately negotiated repurchase,
which determination shall be supported by a fairness opinion from an
Independent Financial Advisor, plus the fees, costs and expenses of such
tender offer or repurchase); and (B) the Refinancing Indebtedness shall (1)
have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being extended,
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refinanced, renewed, replaced, substituted, defeased or refunded; (2) not
have a final scheduled maturity earlier than the final scheduled maturity
of the Indebtedness being extended, refinanced, replaced, renewed,
substituted, defeased or refunded; (3) not permit redemption at the option
of the holder earlier than the earliest date of redemption at the option of
the holder of the Indebtedness being extended, refinanced, renewed,
replaced, substituted, defeased or refunded; and (4) rank no more senior or
be at least as subordinated, as the case may be, in right of payment to the
Series D Preferred Stock, the Amended Notes and the New Notes as the
Indebtedness being extended, refinanced, replaced, renewed, substituted,
defeased or refunded; and
(iv) Senior Indebtedness of the Company not to exceed an
aggregate of $4,000,000 (inclusive of amounts outstanding as of the date of
this Agreement), including without limitation, Indebtedness owed to Silicon
Valley Bank under the Company's secured credit facility.
6.4 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) Neither the Company nor any of its Subsidiaries shall enter into
any transaction or series of transactions to sell, lease, transfer, exchange or
otherwise dispose of any of its properties or assets to or to purchase any
property or assets from, or for the direct or indirect benefit of, an Affiliate
of the Company or of any Subsidiary of the Company, make any Investment in or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with, or for the direct or indirect benefit of, an Affiliate of the Company or
of any Subsidiary of the Company (each, including any series of transactions
with one or more Affiliates, an "AFFILIATE TRANSACTION"), unless (i) the Board
of Directors of the Company or the relevant Subsidiary determines, as evidenced
by a Board Resolution, that the terms of such Affiliate Transaction are fair and
reasonable to the Company and no less favorable to the Company or the relevant
Subsidiary than those that could have been obtained at that time in a comparable
arms-length transaction by the Company or such Subsidiary with an unrelated
Person, (ii) such transaction has been approved by a majority of the Board of
Directors of the Company or the relevant Subsidiary who have no direct or
indirect interest in the Affiliate Transaction or in the Affiliate that is a
party to the Affiliate Transaction, or in any other party that is an Affiliate
of any such Affiliate, and (iii) the Company shall have delivered to the holders
of the Series D Preferred Stock an Officer's Certificate certifying that the
conditions set forth in clauses (i) and (ii) above have been satisfied.
(b) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $1,000,000 unless, in addition to the requirements of (a) above, the Board
of Directors of the Company or the relevant Subsidiary shall first have received
a written opinion from an Independent Financial Advisor for the benefit of the
Company and the holders of the Series D Preferred Stock, which firm is not
receiving any contingent fee or other consideration directly or indirectly
related to the successful completion of the Affiliate Transaction, to the effect
that the proposed Affiliate Transaction is fair to the Company from a financial
point of view.
(c) The provisions of this Section 6.4 shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section 6.1
or Section 6.11, (ii) the reasonable and customary fees and compensation paid to
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or indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or such Subsidiary or the senior management thereof in
good faith, (iii) transactions exclusively between or among the Company and any
Wholly-Owned Subsidiary or exclusively between or among Wholly-Owned
Subsidiaries provided such transactions are not otherwise prohibited by this
Agreement, and (iv) any Affiliate Transaction contemplated by this Agreement
(including without limitation, the Management Incentive Plan) or in existence as
of the date hereof the terms of which are listed on Schedule 3.27.
6.5 LIMITATION ON LIENS. The Company shall not, and shall not permit any of
its Subsidiaries to, Incur, assume, suffer to exist, create or otherwise cause
to be effective any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom to secure any Indebtedness except: (a) Permitted Liens, (b) Liens
existing as of the date hereof (and any extension, renewal or replacement Liens
upon the same Property subject to such Liens, provided the principal amount of
Indebtedness secured by each Lien constituting such an extension, renewal or
replacement Lien shall not exceed the principal amount of Indebtedness secured
by the Lien theretofore existing, plus amounts described in Section
6.3(b)(iii)(A) with respect to permitted Refinancing Indebtedness), and (c)
Liens replacing, extending or renewing, in whole or in part, any Lien described
in the foregoing clauses (a) and (b), including in connection with any
refinancing of the Indebtedness, in whole or in part, secured by any such Lien
effected in accordance with Section 6.3, provided that if any such clauses limit
the amount secured by or the Property or assets subject to such Liens, no such
replacement, extension or renewal shall increase the amount of Indebtedness or
the Property or assets subject to such Liens.
6.6 LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK OF
SUBSIDIARIES. The Company (a) shall not, and shall not permit any Subsidiary to
transfer, convey, sell, or otherwise dispose of any Capital Stock, or securities
convertible into or exercisable or exchangeable for, or options, warrants,
rights or any other interest with respect to, Capital Stock of a Subsidiary to
any Person (other than the Company or a Wholly-Owned Subsidiary) unless such
transfer, conveyance, sale, lease or other disposition is of 100% of the Capital
Stock of such Subsidiary held by the Company and is in compliance with SECTION
6.7 below and (b) shall not permit any Subsidiary to issue shares of its Capital
Stock (other than directors' qualifying shares), or securities convertible into
or exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, the Capital Stock of a Subsidiary to any Person.
6.7 LIMITATION ON SALE OF ASSETS.The Company shall not, and shall not
permit any of its Subsidiaries to undertake an Asset Disposition without the
prior written consent of the holders of a majority of the then outstanding
Series D Preferred Stock.
6.8 CHANGE OF CONTROL. The Company will not merge or consolidate with any
other entity, or enter into any transaction which would constitute or have the
effect of a Change of Control without the consent of a majority of the Holders
of the then outstanding shares of Series D Preferred Stock.
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6.9 REPORTS.
(a) To the extent permitted by applicable law or regulation, whether
or not the Company is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission all quarterly and
annual reports and such other information, documents or other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) required to be filed pursuant to such provisions of the
Exchange Act. The Company shall mail to the Purchaser at its last known
addresses, at the time of such mailing, within 10 days after it files the same
with the Commission, all information, documents and reports that it is required
to file with the Commission pursuant to this Section 6.8. If the Company is not
permitted by applicable law or regulations to file the aforementioned reports,
the Company (at its own expense) shall mail to the holders of the Series D
Preferred Stock at their addresses appearing in the register of holders of
Series D Preferred Stock, as applicable, at the time of such mailing within 5
days after it would have been required to file such information with the
Commission, all information and financial statements, including any notes
thereto and with respect to annual reports, an auditors' report by an accounting
firm of established national reputation, and a "Management's Discussion and
Analysis of Financial Condition and Results of Operations," comparable to the
disclosure that the Company would have been required to include in annual and
quarterly reports, information, documents or other reports, including, without
limitation, reports on Forms 10-K, 10-Q and 8-K, if the Company was subject to
the requirements of such Section 13 or 15(d) of the Exchange Act.
(b) At any time when the Company is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of the
Purchaser, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Purchaser or to a prospective
purchaser of such Series D Preferred Stock designated by such Purchaser, as the
case may be, in order to permit compliance by such Purchaser with Rule 144A
under the Securities Act.
6.10 COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Purchaser, within 135 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that (i) a review of the activities of the Company and its Subsidiaries during
the preceding fiscal year has been made to determine whether the Company has
kept, observed, performed and fulfilled all of its obligations under this
Agreement and the Stockholders Agreement, (ii) such review was supervised by the
Officers of the Company signing such certificate, and (iii) that to the best
knowledge of each Officer signing such certificate, the Company has kept,
observed, performed and fulfilled each and every covenant contained in this
Agreement and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Agreement (or, if a Default or Event of
Default occurred, describing all such Defaults or Events of Default of which
each such Officer may have knowledge and what action the Company has taken or
proposes to take with respect thereto).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Officers' Certificate
delivered pursuant to Section 6.10(a) shall be accompanied by a written
statement of Deloitte & Touche LLP, the Company's independent public accountants
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(or another independent accounting firm of established national reputation
reasonably satisfactory to the Purchaser), that in making the examination
necessary for certification of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Sections 6.3, 6.11 and 6.12, or if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company will, so long as any of the Series D Preferred Stock
are outstanding, deliver to the Purchaser, promptly after any Officer of the
Company becomes aware of (i) any Default or Event of Default, or (ii) any
default or event of default under any other mortgage, agreement or instrument
that could result in an Event of Default, an Officers' Certificate specifying
such Default, or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
6.11 LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment, except payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not incurred in violation of Section 6.3.
(b) Notwithstanding Section 6.11(a), the following Restricted Payments
may be made: (i) the redemption of the Series D Preferred Stock, the Series E
Preferred Stock, the Amended Notes and the New Notes under the terms and
provisions of the relevant agreement controlling each instrument; (ii)
repurchase of any Common Stock pursuant to the provisions of the Management
Incentive Plan at a purchase price no greater than the price at which such
securities were originally sold, (iii) the issuance of the Units and (iv) the
issuance of the Series E Warrant (including the issuance of shares of Series E
Preferred Stock upon exercise of the Series E Warrant).
6.12 PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall, and shall cause
each of its Subsidiaries to, pay or discharge, before the same shall become
delinquent, (a) all Taxes, assessments and governmental charges (including
withholding taxes and penalties, interest and additions to taxes) levied or
imposed upon it or any of its Subsidiaries or properties of the Company or any
of its Subsidiaries and (b) all lawful claims for labor, materials and supplies
that, if unpaid might by law become a Lien upon the Property of it or any of its
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such Tax, assessment, charge
or claim if either (i) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by GAAP or (ii) the failure to
make such payment or effect such discharge (together with all other such
failures) would not have a Material Adverse Effect.
6.13 RESTRICTIONS AGAINST LIMITATIONS ON UPSTREAM PAYMENTS. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction or other encumbrance or restriction on the ability of any Subsidiary
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of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make loans or advances to the Company or a Subsidiary of the
Company, or (c) transfer any of its Properties or assets to the Company or any
Subsidiary of the Company, except for such Payment Restrictions or encumbrances
existing under or by reason of: (i) applicable law; (ii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was Incurred in contemplation of or in connection
with such acquisition), PROVIDED, that such restriction is not applicable to any
Person, or the Property or assets of any Person, other than the Acquired Person;
(iii) non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (iv) instruments governing purchase
money Indebtedness for Property acquired in the ordinary course of business that
only impose restrictions on the Property so acquired; (v) any agreement for the
sale or disposition of the Capital Stock or assets of such Subsidiary, PROVIDED
that such restriction is only applicable to such Subsidiary or assets, as
applicable; or (vi) Refinancing Indebtedness permitted under this Agreement with
respect to Indebtedness described in clauses (ii), (iii) or (iv), PROVIDED that
the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instrument governing the Indebtedness being refinanced immediately prior to
such refinancing.
6.14 MANAGEMENT INCENTIVE PLAN. The Company will not amend the Management
Incentive Plan (or the Exhibits thereto) without the prior written consent of
the holders of a majority of the then outstanding Series D Preferred Stock.
6.15 MAINTENANCE OF PROPERTIES. The Company will cause all properties used
or useful in the conduct of its business or the business of any Subsidiary of
the Company to be maintained and kept in good condition, repair and working
order, subject to normal wear and tear, and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 6.15 shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Purchasers.
6.16 MAINTENANCE OF INSURANCE. The Company shall, and shall cause its
Subsidiaries to, (a) keep at all times all of their properties which are of an
insurable nature insured against loss or damage with financially sound and
reputable insurers to the extent that property of similar character is usually
so insured by corporations similarly situated and owning like properties in
accordance with good business practice, and (b) will maintain with financially
sound and reputable insurers insurance against other hazards and risks and
liability to persons and property to the extent and in a manner customary for
corporations in similar business similarly situated. The Company shall, and
shall cause its Subsidiaries to, use the proceeds from any such insurance policy
to repair, replace or otherwise restore the property to which such proceeds
relate, except to the extent that a different use of such proceeds is, as
determined by the Company, in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not disadvantageous in any
material respect to the Purchasers.
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6.17 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause each
of its Subsidiaries to comply, with all applicable statutes, rules, regulations,
orders and restrictions of the United States of America, all states and
municipalities thereof, and of any governmental department, commission, board,
regulatory authority, bureau, agency and instrumentality of the foregoing, in
respect of the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliance as would not in the
aggregate have a Material Adverse Effect.
6.18 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that might affect the covenants or the performance of its obligations under this
Agreement, the Series D Preferred Stock, the Series E Warrant, the Series E
Preferred Stock, the New Notes and the Amended Notes; and the Company (to the
extent it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impede the execution of any power granted to the Purchaser
pursuant to this Agreement, but will suffer and permit the execution of every
such power as though no such law has been enacted.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION; EXPENSES, ETC.
(a) In addition to any and all obligations of the Company to indemnify
the Purchaser hereunder or under the other Transaction Documents, the Company
agrees, without limitation as to time, to indemnify and hold harmless the
Purchaser, its Affiliates, and the employees, officers, directors, and agents of
the Purchaser and its Affiliates (individually, an "INDEMNIFIED PARTY" and,
collectively the "INDEMNIFIED PARTIES") from and against any and all losses,
claims, damages, liabilities, costs (including the costs of preparation and
attorneys' fees) and expenses (including expenses of investigation)
(collectively, "LOSSES") incurred or suffered by an Indemnified Party (i) in
connection with or arising out of any breach of any warranty, or the inaccuracy
of any representation, as the case may be, made by the Company, or the failure
of the Company to fulfill any agreement or covenant contained in this Agreement,
(ii) in connection with any proceeding against the Company or any Indemnified
Party brought by any third party arising out of or in connection with this
Agreement or the other Transaction Documents or the transactions contemplated
hereby or thereby, as the case may be, or any action taken in connection
herewith or therewith (or any other document or instrument executed herewith or
pursuant hereto or thereto), whether or not the transactions contemplated by
this Agreement are consummated or whether or not any Indemnified Party is a
formal party to any proceeding, or (iii) in connection with or arising out of a
violation of the Securities Act, the Exchange Act, or any other federal or state
securities law or regulation; provided, however, that the Company shall not be
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liable for any losses resulting from action on the part of any Indemnified Party
which (x) is based on an untrue statement or omission or alleged untrue
statement or omission in a registration statement, prospectus or other
disclosure document which is made in reliance on and in conformity with written
information furnished to the Company by or on behalf of such Indemnified Party
for use in the preparation thereof, or (y) is finally determined in such
proceeding to be wrongful or which is an act of gross negligence, recklessness,
or willful misconduct by such Indemnified Party. The Company agrees promptly to
reimburse any Indemnified Party for all such Losses as they are incurred or
suffered by such Indemnified Party.
Except as otherwise provided herein, the Company agrees (for the benefit of
the Purchaser) to pay, and to hold the Purchaser harmless from and against, all
costs and expenses (including, without limitation, attorneys' fees, expenses and
disbursements), if any, incurred in connection with the enforcement against the
Company of this Agreement or any other agreement or instrument furnished
pursuant hereto, or in connection herewith in any action in which the Purchaser
shall prevail or in any action in which the Purchaser shall in good faith assert
any provision of any of the foregoing as a defense.
(A) If the indemnification provided for in Section 7.1(a)(iii)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party in respect of any losses, claims,
damages, expenses or liabilities referred to therein, then the Company, in
lieu of indemnifying such Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages, expenses or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company and the Purchaser
in connection with the action or inaction which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. With respect to losses, claims, damages, expenses
or liabilities ensuing in connection with a public filing, the relative
fault of the Company, and the Purchaser shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or the Purchaser and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(B) The Company and the Purchaser agree that it would not be just
and equitable if contribution pursuant to this Section 7.1(a) were
determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. In connection with the
registration of the Company's securities, in no event shall the Purchaser
be required to contribute any amount under this Section 7.1(a) in excess of
the lesser of (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the
total securities sold under such registration statement which is being sold
by the Purchaser, or (ii) the proceeds received by the Purchaser from its
sale of securities under such registration statement. No person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person
who was not found guilty of such fraudulent misrepresentation.
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(C) The indemnification and contribution provided for in this
Section 7.1(a) will remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Parties or any
officer, director, partner, employee, agent or controlling person of the
Indemnified Parties.
(b) If any Indemnified Party is entitled to indemnification hereunder,
such Indemnified Party shall give prompt notice to the Company of any claim or
of the commencement of any proceeding against the Company or any Indemnified
Party brought by any third party with respect to which such Indemnified Party
seeks indemnification pursuant hereto; PROVIDED, HOWEVER, that the failure so to
notify the Company shall not relieve the Company from any obligation or
liability except to the extent the Company is prejudiced by such failure. The
Company shall have the right, exercisable by giving written notice to an
Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume, at the expense of the
Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Indemnified Party or Parties will
not be subject to any liability for any settlement made without its or their
consent (but such consent will not be unreasonably withheld). The Company shall
not consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by claimant or plaintiff to
such Indemnified Party or Parties of a release, in form and substance
satisfactory to the Indemnified Party or Parties, from all liability in respect
of such claim, litigation or proceeding.
(c) In addition to any other obligations of the Company to indemnify
the Purchaser herein or pursuant to any of the Transaction Documents or any
other agreements or documents executed and delivered in connection herewith or
therewith, the Company will pay, and will save the Purchaser and each other
holder of any of the Securities harmless from liability for the payment of, all
expenses arising in connection with such transactions, including, without
limitation: (i) all document production and duplication charges and the
reasonable fees, charges and expenses of the Purchaser's Special Counsel
(whether arising before or after the Closing Date), the transactions
contemplated hereby and any subsequent proposed modification of, or proposed
consent under, this Agreement, whether or not such proposed modification shall
be effected or such proposed consent granted; (ii) the costs of obtaining a
private placement CUSIP number from Standard & Poor's Corporation for the
Securities; (iii) the costs and expenses, including attorneys' fees, incurred by
the Purchaser in enforcing any rights under this Agreement or in responding to
any subpoena or other legal process issued in connection with this Agreement or
the transactions contemplated hereby or thereby or by reason of the Purchaser's
having acquired any of the Securities, including, without limitation, costs and
expenses incurred by the Purchaser in any bankruptcy case; (iv) the cost of
delivering to the Purchaser's principal office, insured to its satisfaction, the
Series D Preferred Stock delivered to the Purchaser hereunder and any Securities
delivered to the Purchaser upon any substitution of Securities pursuant to this
Agreement or any of the Transaction Documents and of the Purchaser's delivering
any Securities, insured to its satisfaction, upon any such substitution; and (v)
the reasonable out-of-pocket expenses incurred by the Purchaser in connection
with such transactions and any such amendments or waivers.
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ARTICLE VIII
MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY. All
representations and warranties contained in this Agreement or the Transaction
Documents or made in writing by or on behalf of the Company in connection with
the transactions contemplated by this Agreement or the Transaction Documents
shall survive, for the duration of any statutes of limitation applicable
thereto, the execution and delivery of this Agreement, any investigation at any
time made by the Purchaser or on the Purchaser's behalf, the purchase of the
Series D Preferred Stock by the Purchaser under this Agreement and any
disposition of or payment on the Series D Preferred Stock. All statements
contained in any certificate or other instrument delivered to the Purchaser by
or on behalf of the Company pursuant to this Agreement or the Transaction
Documents at the Closing shall be deemed representations and warranties of the
Company under this Agreement. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
8.2 NOTICES, ETC. Any notice or communication under this Agreement shall be
duly given if in writing and delivered in person, mailed by registered or
certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
If to the Company: Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
Attn: President
Fax: (650) 842-9001
Tel: (650) 842-9000
With a copy to: Squire, Sanders & Dempsey L.L.P.
40 North Central Avenue
Suite 2700
Phoenix, Arizona 85004
Attn.: Christopher D. Johnson, Esq.
Craig D. Hansen, Esq.
Fax: (602) 253-8129
Tel: (602) 528-4000
If to the Purchaser: BIII Capital Partners
c/o DDJ Capital Management, L.P.
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02482
Attn: General Counsel
Fax: (781) 283-8555
Tel: (781) 283-8500
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Laura C. Hodges-Taylor, P.C.
Fax: (617) 570-8150
Tel: (617) 570-1000
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The Company or the Purchaser by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications shall be deemed to have been duly given: at
the time delivered by hand, if personally delivered; the date receipt is
acknowledged, if mailed by registered or certified mail; when answered back, if
telecopied; and the next Business Day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to any other Person shall be mailed by
first-class mail to his or her address shown on the register maintained by the
Company. Failure to mail a notice or communication to a Party or any defect in
it shall not affect its sufficiency with respect to other Parties. If a notice
or communication is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it.
8.3 SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties
hereto are referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of the respective parties which are contained in this Agreement shall
bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of the Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon the Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to the Securities, this Agreement, the other Transaction Documents, the Company,
any other Persons referred to herein or any of the business of any of the
foregoing entities, subject to full compliance with Section 8.9 hereof.
8.4 DESCRIPTIVE HEADINGS. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
8.5 SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to the holders of a specified
portion of the principal amount of any class of the Securities, the
determination of such satisfaction shall be made by the Purchaser or such
holders, as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
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8.7 SERVICE OF PROCESS. The Company (a) hereby irrevocably submits itself
to the jurisdiction of the state courts of the State of New York and to the
jurisdiction of the United States District Court for the Southern District of
New York for the purpose of any suit, action or other proceeding arising out of
or based upon this Agreement, the Securities, the other Transaction Documents or
the subject matter hereof or thereof brought by the Purchaser or its successors
or assigns and (b) hereby waives, and agrees not to assert, by way of motion, as
a defense, or otherwise, in any such suit, action or proceeding, any claim that
it is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (c) hereby waives any
offsets or counterclaims in any such action, suit or proceeding (other than
compulsory counterclaims). the Company hereby consents to service of process by
registered mail at the address to which notices are to be given. the Company
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the Purchaser. Final judgment against
the Company in any such action, suit or proceeding shall be conclusive and may
be enforced in other jurisdictions (a) by suit, action or proceeding on the
judgment, a certified or true copy of which shall be conclusive evidence of the
fact and of the amount of any indebtedness or liability of the Company therein
described or (b) in any other manner provided by or pursuant to the laws of such
other jurisdiction; provided, however, that the Purchaser may at its option
bring suit or institute other judicial proceedings against the Company or any of
the Company's assets in any state or federal court of the United States or in
any country or place where the Company or such assets may be found.
8.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
8.9 DISCLOSURE TO OTHER PERSONS. The Purchaser agrees to keep confidential
any financial information delivered by the Company pursuant to this Agreement
(other than information that is publicly available) and such other non-public
proprietary information delivered by the Company that is clearly designated in
writing to be or otherwise known by the Purchaser to be confidential; provided,
however, that nothing herein shall prevent the Purchaser from disclosing such
information: (a) to any Affiliate, director, officer, employee, agent and
professional consultant of the Purchaser, in its capacity as such or any
proposed assignee, or transferee of all or any portion of the Purchaser's rights
under the Series D Preferred Stock that agrees in writing to be bound by this
Section 8.9, (b) upon order of any court or administrative agency having
jurisdiction over such party, (c) upon the request or demand of any regulatory
agency or authority having jurisdiction over such party, (d) which has been
publicly disclosed through no breach of the Purchaser, (e) which has been
obtained from any Person that is not a party hereto or an Affiliate of any such
party, (f) in connection with the exercise of any remedy hereunder, (g) to the
certified public accountants for the Purchaser or as required in summary
financial or descriptive business information disclosed by the Purchaser that is
an investment fund as part of its regular reports to its investors or partners,
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or (h) as otherwise expressly contemplated by this Agreement. In order to permit
the Company to remove or limit any order, request or demand or to obtain
confidential treatment for any disclosure pursuant to (b) or (c) above, the
Purchaser will use reasonable efforts to inform the Company of any such request
for disclosure prior to disclosure. Nothing in this Section 8.9 shall be
construed to create or give rise to any fiduciary duty on the part of the
Purchaser to the Company.
8.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Agreement may not
be used to interpret another agreement, indenture, loan or debt agreement of the
Company or any Subsidiary. Any such agreement, indenture, loan or debt agreement
may not be used to interpret this Agreement.
8.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN
ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES, ANY OTHER TRANSACTION
DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT,
THE SECURITIES OR ANY OTHER TRANSACTION DOCUMENTS, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, PROVIDED, HOWEVER, THAT WITH
RESPECT TO ANY COMPULSORY COUNTERCLAIM (I.E., A CLAIM BY ONE PARTY AGAINST
ANOTHER PARTY WHICH IF NOT BROUGHT IN SUCH ACTION WOULD RESULT IN THE PARTY
BRINGING SUCH CLAIM BEING FOREVER BARRED FROM BRINGING SUCH CLAIM), THE PARTY
BRINGING SUCH CLAIM SHALL HAVE THE RIGHT TO RAISE SUCH COMPULSORY COUNTERCLAIM
IN ANY SUCH LITIGATION.
8.12 MERGER. This Agreement and the Transaction Documents constitute the
entire agreement of the Company and the Purchaser and express the entire
understanding of the Company and the Purchaser with respect to this Agreement
and the Transaction Documents.
8.13 COOPERATION WITH GAMING AUTHORITIES. The Purchaser and any successor
or assign of the Purchaser, agrees to cooperate with the Gaming Authorities in
connection with the administration of their regulatory jurisdiction over the
Company and its Gaming Subsidiaries, including, without limitation, the
provision of such documents or other information as may be requested by any such
Gaming Authority relating to the Purchaser's or its successor's or assign's
interest in any of the Company's securities, or to the Company or its Gaming
Subsidiaries, or to the Transaction Documents.
8.14 GAMING LAWS; REQUISITE GAMING APPROVALS.
(a) Notwithstanding anything to the contrary herein or therein, this
Agreement, the Transaction Documents and the exercise of all rights, powers and
remedies thereunder are subject to all applicable provisions of the Gaming Laws.
(b) Notwithstanding anything to the contrary contained above or in the
Transaction Documents, it is understood and agreed that to become effective, the
Gaming Subsidiaries Stock Restrictions require the approvals described in the
definition thereof (the "GAMING SUBSIDIARIES STOCK RESTRICTIONS REQUISITE GAMING
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APPROVALS"). On the Closing Date, the Company and its Gaming Subsidiaries in
good faith believe that they will be able to obtain all Gaming Subsidiaries
Stock Restrictions Requisite Gaming Approvals required, if any, within 180 days
after the Closing Date. Notwithstanding anything to the contrary contained above
or in the Transaction Documents, unless and until the relevant Gaming
Subsidiaries Stock Restrictions Requisite Gaming Approvals have been obtained,
the Gaming Subsidiaries Stock Restrictions contained in this Agreement shall not
apply or be effective. Furthermore, the Company and its Gaming Subsidiaries
agree to use their best efforts to obtain all Gaming Subsidiaries Stock
Restrictions Requisite Gaming Approvals as promptly as possible but in any event
within 180 days after the Closing Date.
8.15 ASSISTANCE WITH GAMING APPROVALS; WITHDRAWAL FROM JURISDICTIONS
(a) The Company will and will cause its Gaming Subsidiaries to assist
the Purchaser and pay all expenses of the Purchaser (including fees of counsel
and including fees to gaming counsel) in obtaining all approvals, waivers,
licenses or findings of suitability of any Gaming Authority or other
Governmental Body that are required by law, including, without limitation, the
Gaming Laws, or by any Gaming Authority or other governmental body for or in
connection with any action or transaction contemplated by the Transaction
Documents, including any approvals required for the conversion of the Series D
Preferred Stock occurring at any time before or after the Closing Date.
(b) Notwithstanding any provision in this agreement to the contrary,
the Purchaser shall not be obligated to make any filing or submit any
information under the Gaming Laws of any jurisdiction, and shall not be required
to apply for licensure or registration, seek a finding of suitability or a
waiver of licensing, registration or suitability requirements or seek any
similar approval of any Gaming Authority or other Governmental Body under the
Gaming Laws (collectively, a "GAMING APPROVAL"). In the event any applicable
Gaming Authority or other Governmental Body requires the Purchaser to apply for
a Gaming Approval, the Company will or will cause the relevant Gaming Subsidiary
to, at the Purchaser's request, withdraw from such jurisdiction and not sell its
products or otherwise conduct its business in such jurisdiction in a manner that
would otherwise require Purchaser to be required to apply for a Gaming Approval
of any Gaming authority or other Governmental Body under the Gaming Laws of such
jurisdiction. The Company further agrees that it will not and will cause its
Gaming Subsidiaries not to seek any remedy against the Purchaser, either at law
or in equity, for the Purchaser's failure or refusal to apply for a Gaming
Approval, including, without limitation, seeking the divestiture by the
Purchaser of the Series D Preferred Stock, the Amended Notes, the New Notes or
any other securities of the Company then held by the Purchaser.
8.16 EXPENSES. The Company shall pay the reasonable expenses incurred by
the Purchaser in connection with the preparation and negotiation of this
Agreement, the Transaction Documents and negotiation and consummation of the
transactions contemplated hereby and thereby, whether or not the Closing occurs,
including, without limitation, the reasonable fees, expenses and disbursements
of the Purchaser's counsel, Goodwin, Procter & Hoar LLP, and of the Purchaser's
special gaming counsel in Nevada and New Jersey.
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ARTICLE IX
TERMINATION
9.1 TERMINATION. Subject to Section 9.3, this Agreement may be terminated
prior to the Closing Date:
(a) by Purchaser if there has been a material breach by the Company of
any covenant or agreement of the Company in this Agreement or in the Transaction
Documents, which breach has not been cured within 30 days of the date on which
written notice of such breach was first given to the Company or which is not
capable of being cured by the Closing Date;
(b) by the Company if there has been a material breach by Purchaser of
any covenant or agreement of Purchaser in this Agreement or in the Transaction
Documents, which breach has not been cured within 30 days of the date on which
written notice of such breach was first given to Purchaser or which is not
capable of being cured by the Closing Date;
(c) by Purchaser if Purchaser reasonably determines that the timely
satisfaction of any condition set forth in Section 5.1.4, 5.1.5, 5.2.3, 5.2.10,
5.2.11 by the Closing Date has become impossible (other than as a result of any
failure on the part of Purchaser to comply with or perform any covenant or
obligation set forth in this Agreement);
(d) by the Company if the Company reasonably determines that the
timely satisfaction of any condition set forth in Sections 5.2.3, 5.2.10 or
5.2.11 by the Closing Date has become impossible (other than as a result of any
failure on the part of the Company to comply with or perform any covenant or
obligation set forth in this Agreement);
(e) by Purchaser if the Closing has not taken place on or before
December 1, 1999 (other than as a result of any failure on the part of Purchaser
to comply with or perform any covenant or obligation set forth in this
Agreement);
(f) by the Company if the Closing has not taken place on or before the
December 1, 1999 (other than as a failure on the part of the Company to comply
with or perform any covenant or obligation set forth in this Agreement or in any
other agreement or instrument delivered to Purchaser);
(g) by the mutual consent of Purchaser and the Company.
9.2 TERMINATION PROCEDURES. If Purchaser wishes to terminate this Agreement
pursuant to Section 9.1(a), Section 9.1(c), or Section 9.1(e), Purchaser shall
deliver to the Company a written notice stating that Purchaser is terminating
this Agreement and setting forth a brief description of the basis on which
Purchaser is terminating this Agreement. If the Company wishes to terminate this
Agreement pursuant to Section 9.1(b), Section 9.1(d) or Section 9.1(f), the
Company shall deliver to Purchaser a written notice stating that Company is
terminating this Agreement and setting forth a brief description of the basis on
which the Company is terminating this Agreement.
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9.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 9.1, all further obligations of the parties under this Agreement shall
terminated except that any termination shall be without prejudice to the rights
of either party hereto arising out of a breach by the other party of any
covenant or agreement contained in this Agreement, and except that the
provisions of Sections 7.1, 8.6, 8.7, 8.9, 8.11 and 8.16 shall survive
termination of this Agreement.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
SILICON GAMING, INC.
/s/ Andrew Pascal
----------------------------------------
By: Andrew Pascal
Its: President and Chief Executive
Officer
B III CAPITAL PARTNERS, L.P.
By: DDJ Capital III, LLC, its General
Partner
By: DDJ Capital Management, LLC, its
Manager
By:
-------------------------------------
Name:
Title:
<PAGE>
APPENDIX A
DEFINITIONS AND ACCOUNTING TERMS
In addition to any terms defined elsewhere in this Agreement, unless
otherwise specifically provided herein, the following terms shall have the
following meanings for all purposes when used in this Agreement, and in any
note, agreement, certificate, report or other document made or delivered in
connection with this Agreement:
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of an Acquired Person existing at the time of such acquisition,
including Indebtedness issued in connection with, or in contemplation of, such
acquisition, and (b) Indebtedness incurred by such Person or its Subsidiaries
(i) the proceeds of which have been used to finance an Investment in a Related
Business, and (ii) which is secured by a Lien solely on the assets or Property
constituting such an Investment in a Related Business.
"Acquired Person" means, with respect to any specified Person, any other
Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
(a) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (b) that directly or
indirectly owns more than 10% of the voting securities of such Person. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Transaction" has the meaning ascribed thereto in Section 6.4
hereof.
"Agreement" means this Agreement, as amended, modified or supplemented from
time to time, together with any exhibits, schedules or other attachments
thereto.
"Amended Notes" has the meaning ascribed thereto in Section 1.3 hereof.
"Amendment No. 2 to the Securities Purchase Agreement" means that certain
Amendment No. 2 to the Securities Purchase Agreement dated initially entered
into and dated September 30, 1997, and as amended by Amendment No. 1 to the
Securities Purchase Agreement dated July 8, 1998, by and between the Company and
BIII Capital Partners, L.P.
"Approvals" means each and every approval, consent, filing or registration
by, or with any Governmental Body, or any creditor or shareholder of the
Company, necessary (a) to authorize or permit the execution, delivery or
performance by the Company of the Transaction Documents, and (b) for the
validity or enforceability of any of such Transaction Documents against the
Company.
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"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (in one transaction or a series of related transactions), including
any such disposition by means of a merger, consolidation or similar transaction,
of shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), Property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries, but
excluding the following: (a) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (b) a disposition of
tangible property or assets which have become obsolete or are otherwise not used
or useful, so long as such disposition is at fair market value (as determined by
the Company in good faith) in the ordinary course of business, (c) a disposition
that constitutes a Restricted Payment, so long as effected in accordance with
all applicable provisions of this Agreement, and (d) a disposition of inventory
in the ordinary course of business, in each case so long as effected in
accordance with all applicable provisions of this Agreement.
"Bankruptcy Law" means Title 11, United States Code, or any similar Federal
or state law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. The stated
maturity of such obligation shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares of, or interests,
rights, participations, and/or other equivalents in (however designated),
corporate stock or equity securities of or other equity interest in such Person,
including each class of common stock and preferred stock of such Person and
partnership or limited liability company interests, whether general or limited,
of such Person, and including any securities convertible into or exercisable or
exchangeable for, or any right to acquire, any equity interest in such Person.
"Cash Equivalents" means: (a) marketable obligations issued or
unconditionally guaranteed by the United States government, in each case
maturing within 360 days after the date of acquisition thereof; (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
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within 360 days after the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (c) commercial paper maturing no
more than 360 days after the date of acquisition thereof, issued by a
corporation organized under the laws of any state of the United States or of the
District of Columbia and, at the time of acquisition, having a rating in one of
the two highest rating categories obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (d) money market funds whose
investments are made solely in securities described in clause (a) maturing
within 360 days after the date of acquisition thereof; (e) certificates of
deposit maturing within 360 days after the date of acquisition thereof, issued
by any commercial bank that is a member of the Federal Reserve System that has
capital, surplus and undivided profits (as shown on its most recent statement of
condition) aggregating not less than $100,000,000 and is rated A or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation; and (f)
repurchase agreements entered into with any commercial bank of the nature
referred to in clause (e), secured by a fully perfected Lien in any obligation
of the type described in any of clauses (a) through (e), having a fair market
value at the time such repurchase agreement is entered into of not less than
100% of the repurchase obligation thereunder of such commercial bank.
"Change of Control" means any transaction or series of transactions in
which any of the following occurs: (a) any Person or group (within the meaning
of Rule 13d-3 under the Exchange Act and Sections 13(d) and 14(d) of the
Exchange Act) becomes the direct or indirect "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of 25% or more of the issued and outstanding
shares of Capital Stock entitled to vote in the election of directors of the
Company or the Surviving Person (if other than the Company); (b) a merger or
consolidation of the Company with or into another corporation in which less than
a majority of the outstanding voting power of the surviving or consolidated
corporation immediately following such event is held by persons or entities who
were stockholders of the Company immediately prior to such event; (c) the sale
of all or substantially all of the properties and assets of the Company and its
subsidiaries; (d) the redemption or repurchase of shares representing a majority
of the voting power of the outstanding shares of capital stock of the Company;
or (e) individuals who at the Closing constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least a majority of the directors of the Company
then still in office who were either directors at the Closing or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
provided however, that a conversion of Series D Preferred Stock into Common
Stock, an issuance of Common Stock under the Management Incentive Plan, issuance
of the Units, an issuance of Common Stock upon exercise of Old Equity Warrants,
issuance of the Series E Warrant, an issuance of Series E Preferred Stock upon
exercise of the Series E Warrant, and an issuance of Common Stock upon
conversion of the Series E Preferred Stock, shall not, individually or in the
aggregate in and of itself, constitute a Change of Control.
"Charter Documents" has the meaning ascribed thereto in Section 3.1
"Closing" has the meaning ascribed thereto in the preamble to Article II
hereof.
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"Closing Date" has the meaning ascribed thereto in the preamble to Article
II hereof.
"Code" means the Internal Revenue Code of 1986, as the same may be amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Collateral" means all of the assets of the Company and its Subsidiaries,
including, without limitation, all right, title and interest of the Company and
its Subsidiaries now owned or hereafter acquired in and to the following: (a)
all equipment and fixtures (including, without limitation, furniture, vehicles
and other machinery and office equipment), together with all additions and
accessions thereto and replacements therefor; (b) all inventory (including,
without limitation, (i) all raw materials, work in progress and finished goods
and (ii) all such goods which are returned to or repossessed by the Company),
together with all additions and accessions thereto, replacements therefor,
products thereof and documents therefor; (c) all accounts, chattel paper,
contract rights and rights to the payment of money; (d) all general intangibles
(including, without limitation, (i) customer and supplier lists and contracts,
books and records, insurance policies, tax refunds, contracts for the purchase
of real or personal property, (ii) all copyrights, trademarks, trade names and
service marks, (iii) all patents, and all registrations, recordings, reissues,
continuations, continuations-in-part and extensions thereof, and all pending
applications therefor, (iv) all licenses to use, applications for, and other
rights to, such patents, copyrights, trademarks, trade names and service marks
(other than licenses whose terms prohibit the granting of a security interest
therein), and (v) all goodwill of the Company); (e) all deposit accounts, money,
certificated and uncertificated securities, instruments and documents; and (f)
all proceeds of the foregoing (including, without limitation, whatever is
receivable or received when Collateral or proceeds is sold, collected,
exchanged, returned, substituted or otherwise disposed of, whether such
disposition is voluntary or involuntary, including rights to payment and return
premiums and insurance proceeds under insurance with respect to any Collateral,
and all rights to payment with respect to any cause of action affecting or
relating to the Collateral).
"Commission" means the United States Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act or any
successor law thereto.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Company" means Silicon Gaming, Inc., a California corporation, until a
successor replaces it and thereafter means the successor.
"Consolidated" or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated EBIT" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person and its consolidated Subsidiaries for
such period, plus or minus (a) a provision for taxes based on income or profits,
to the extent such provision for taxes was included in computing such
Consolidated Net Income, plus (b) Consolidated Interest Expense for such period,
all as determined on a consolidated basis in accordance with GAAP.
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"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated EBIT of such Person and its consolidated Subsidiaries for such
period, plus depreciation, amortization and all other non-cash charges, to the
extent such depreciation, amortization and other non-cash charges were deducted
in computing such Consolidated EBIT (including amortization of goodwill and
other intangibles), all as determined on a consolidated basis in accordance with
GAAP.
"Default" means any event which is, or after notice or passage of time or
both would be, an event of default, under the terms and provisions of the
relevant agreement or understanding.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets in one
transaction or a series of related transactions.
"Disqualified Capital Stock" means, (a) with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such Person or its Subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the stated
maturity date of the Convertible Notes or the redemption of the Series D
Preferred Stock, or (b) any other Capital Stock of such Person or its
Subsidiaries designated as Disqualified Capital Stock by such Person at the time
of issuance.
"Dollars" and "$" mean lawful currency of the United States of America.
"Employee Program" has the meaning ascribed to it in Section 3.11(a)
hereof.
"Environment" means soil, surface waters, groundwater, land, stream
sediments, surface or subsurface strata and ambient air.
"Environmental Law(s)" means and includes any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the Environment, health, safety or
natural resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, or any successor thereto, and the rules
and regulations issued thereunder, as from time to time in effect.
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"Exchange Act" means the Securities Exchange Act of 1934, as the same may
be amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Exclusive New Game" shall mean a nationally recognized brand name game for
use in the Company's slot machines for which either the Company, the relevant
casino operator or joint venture between the Company and such casino operator
has secured an exclusive license for use in the gaming industry and which has
not been used in the gaming industry prior to the granting of such exclusive
license.
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties would change
hands between a willing buyer and a willing seller, within a commercially
reasonable time, each having reasonable knowledge of the relevant facts, neither
being under a compulsion to sell or buy, as such amount is reasonably determined
by (a) the Board of Directors of the Company acting reasonably and in good faith
or (b) at the request of the holders of a majority of the outstanding Series D
Preferred Stock, an appraisal or valuation firm of national or regional standing
selected by the Company, with the reasonable consent of the holders of a
majority of the outstanding Series D Preferred Stock, with experience in the
appraisal or valuation of properties or assets of the type for which Fair Market
Value is being determined; provided however that if the Common Stock is traded
on the Nasdaq National Market or the NYSE (or successor thereto) the Fair Market
Value of the Common Stock shall be the average of the closing prices for the 10
trading days immediately prior to the date of determination.
"Fully Diluted Percentage of Equity Interest" of the Company, with respect
to a Liquidation Event or a Change of Control, shall mean the product of (x) a
fraction, the NUMERATOR of which is the number of shares of Common Stock of the
Company into which all of the outstanding shares of Series D Preferred Stock are
then convertible and the DENOMINATOR of which is the total number of shares of
Common Stock then outstanding (including shares issuable upon conversion of the
Series D Preferred Stock and all other outstanding warrants, options and other
convertible securities the per share price of which is less than the amount to
which a share of Common Stock would be entitled in the relevant Liquidation
Event or the value thereof or determined in the relevant Change of Control),
MULTIPLIED by (y) 100.
"Financial Statements" has the meaning ascribed thereto in Section 3.24
hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, as in
effect from time to time.
"Gaming Authorities" means, collectively, the Mississippi Gaming
Commission, the Nevada Gaming Commission, the Nevada State Gaming Control Board,
and any other Governmental Body that holds regulatory, licensing or permit
authority over gaming activities conducted by the Company or its Gaming
Subsidiaries within its jurisdiction.
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"Gaming Laws" means, collectively, (a) the Nevada Gaming Control Act, as
codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to
time, together with the regulations of the Nevada Gaming Commission promulgated
thereunder, as amended from time to time, (b) the Mississippi Gaming Control
Act, as codified in Chapter 76 of the Mississippi Code Annotated, as amended
from time to time, together with the regulations of the Mississippi Gaming
Commission promulgated thereunder, as amended from time to time, and (c) all
other laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over gaming activities conducted by
the Company or its Gaming Subsidiaries within its jurisdiction.
"Gaming Subsidiaries" means Silicon Gaming-Nevada, Inc., Silicon
Gaming-Mississippi, Inc., and any other Subsidiary that is subject to the
regulatory, licensing or permit authority and jurisdiction of any Gaming
Authority.
"Gaming Subsidiaries Stock Restrictions" means the negative pledge (i.e.,
the agreement not to encumber pursuant to Section 6.5), and the restrictions on
transfers (i.e., pursuant to Sections 6.6, and 6.7), of the capital stock of the
Company's Gaming Subsidiaries, in each case only to the extent such negative
pledge or restrictions require the approval of any Gaming Authority pursuant to
the Gaming Laws.
"Governmental Body" means any governmental or quasi-governmental authority
including, without limitation, any federal, state, territorial, county,
municipal, Native American or other governmental or quasi-governmental agency,
board, branch, bureau, commission, court, department or other instrumentality or
political unit or subdivision, whether domestic or foreign and any of the Gaming
Authorities.
"Hazardous Materials" means petroleum or petroleum products, by-products or
breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas, and any other chemicals, materials or
substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
"Hazardous Waste" means and includes any hazardous waste as defined or
regulated under any Environmental Law.
"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), suffer to exist, assume, Guarantee or otherwise become liable in
respect of such Indebtedness or other obligation, including by way of merger or
acquisition of another Person, or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing).
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"Indebtedness" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof and whether short-term or long-term, secured or unsecured),
(ii) evidenced by bonds, notes, debentures, drafts accepted or similar
instruments or letters of credit (including such liabilities representing the
balance deferred and unpaid of the purchase price of any property, other than
any such liability that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business in connection with obtaining goods,
materials or services, which account is not overdue according to the original
terms of sale, unless such account payable is being contested in good faith),
(iii) for the payment of money relating to Capital Lease Obligations; or (iv)
under the terms of any amendment, renewal, extension or refunding of any
liability of the types referred to in the preceding clauses (i), (ii) or (iii);
(b) the maximum fixed repurchase price of all Disqualified Capital Stock of such
Person or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (c) outstanding reimbursement obligations of such Person with respect
to letters of credit or bankers' acceptances issued for the benefit of such
Person; (d) net obligations of such Person with respect to Interest Rate or
Currency Protection Agreements; (e) all liabilities of others of the kind
described in the preceding clause (a), (b), (c) or (d) that such Person has
Guaranteed or that is otherwise its legal liability; and (f) all obligations of
others secured by a Lien to which any of the Property or assets of such Person
are subject (other than obligations of a lessor under any operating lease
pursuant to which the Company or any of its Subsidiaries leases Property, if
such lessor grants a Lien on such lease to secure such lessor's Indebtedness),
whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability (PROVIDED that if the
obligations so secured have not been assumed by such Person or are not otherwise
such Person's legal liability, such obligations shall be deemed to be in an
amount equal to the fair market value of such Properties or assets, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Agreement, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution. For purposes hereof, Indebtedness incurred by any Person that
is a general partnership (other than non-recourse Indebtedness) shall be deemed
to have been incurred by the general partners of such partnership pro rata in
accordance with their respective interests in the liabilities of such
partnership unless any such general partner shall, in the reasonable
determination of the Board of Directors of the Company, be unable to satisfy its
pro rata share of the liabilities of the partnership, in which case the pro rata
share of any Indebtedness attributable to such partner shall be deemed to be
incurred at such time by the remaining general partners on a pro rata basis in
accordance with their interests.
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"Indemnified Party" or "Indemnified Parties" has the meaning ascribed
thereto in Section 7.1(a) hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to the Company and its Affiliates.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (b) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of such Person.
"Intellectual Property" means all patent, copyright, trade secret,
trademark, or other proprietary rights used in or necessary to the business of
the Company or any of its Subsidiaries and material to the Company and its
Subsidiaries on a consolidated basis.
"Interest Rate or Currency Protection Agreements" means any interest rate
swap agreement, interest rate cap agreement, currency swap agreement or other
financial agreement or arrangement designed to protect the Company or any
Subsidiary against fluctuations in interest rates or currency exchange rates and
which shall have a notional amount no greater than the payments due with respect
to Indebtedness being hedged thereby.
"Investment" means any investment by any Person in any other Person,
whether by a purchase of assets, in any transaction or series of related
transactions, individually or in the aggregate, purchase of Capital Stock,
capital contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, and other similar
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other Person, and any Guarantee of Indebtedness of such other Person.
"IRS" means the Internal Revenue Service or any successor agency.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in New York City, New York, or Boston, Massachusetts, or at such
place of payment, are not required to be open.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); PROVIDED that in no event shall an operating lease (as
opposed to a Capital Lease Obligation) or a license with respect to any
intangible asset with any Person who is not an Affiliate be deemed to constitute
a Lien hereunder.
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"Losses" has the meaning ascribed thereto in Section 7.1(a) hereof.
"Management Incentive Plan" means the Silicon Gaming, Inc. 1999 Long-Term
Compensation Plan adopted by the Board of Directors of the Company,
contemporaneously with the Closing, under which grants and sales of up to
116,190,084 shares of Common Stock and options to purchase shares of Common
Stock of the Company may be made.
"Management Options" means any options to purchase the Common Stock of the
Company sold or granted to any eligible participant under the Management
Incentive Plan.
"Management Shares" means the shares issued under the Management Incentive
Plan or upon exercise of the options granted under that plan.
"Market Capitalization" means the market value of the publicly traded
securities of a company as traded on a national securities exchange or on the
Nasdaq National Market system.
"Material Adverse Effect" means a material adverse effect on the business,
Property, operations or condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole.
"Mezzanine Debt Financing" means the issuance, transfer, conveyance, sale,
or other disposition for cash by the Company or any of its Subsidiaries of
unsecured Subordinated Indebtedness.
"Multiemployer Plan" has the meaning ascribed to it in Section 3.11(d)
hereof.
"Net Cash Proceeds" means, with respect to any Mezzanine Debt Financing,
any Securities Sale, or any Asset Disposition, as the case may be, the aggregate
amount of cash or Cash Equivalents actually received from time to time (whether
as initial consideration or through payment or disposition of deferred
consideration) by or on behalf of the Person issuing the Indebtedness or
securities, as the case may be, in connection with such transaction after
deducting therefrom only (without duplication) (i) brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees, accountants' fee and
expenses, printers' fees and expenses, road show expenses and other similar
transaction fees and commissions incurred in connection with such transaction,
and (ii) the amount of Taxes payable in connection with or as a result of such
transaction as determined in accordance with GAAP, but only to the extent that
the amounts so deducted are properly attributable to such transaction and are,
in the case of clause (i), at the time of receipt of such cash, actually paid to
a Person that is not an Affiliate of such Person and, in the case of clause
(ii), on the earlier of the dates on which the tax return covering such taxes is
filed or required to be filed, actually paid to a Person that is not an
Affiliate of such Person.
"New Notes" has the meaning ascribed thereto in Section 1.5.
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"Notes" has the meaning ascribed thereto in the Recitals.
"Officer" means, with respect to any Person, the Chairman of the Board (if
an officer), the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer or the Secretary of such Person.
"Officers' Certificate" means a certificate executed on behalf of the
Company by an Officer of the Company or by an Assistant Secretary of the
Company.
"Old Equity Warrants" means the warrants to purchase the Common Stock of
the Company issuable to the stockholders of the Company as of the Record Date
set pursuant to the Restructuring Agreement and issued as a part of the Units,
and the terms and provisions of which are set forth in the Warrant Agreement by
and between the Company and the Warrant Agent (as defined in the Warrant
Agreement).
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"PARI PASSU" means, when used with respect to the ranking of any
Indebtedness or Capital Stock of any Person in relation to other Indebtedness or
Capital Stock of such Person, that each such Indebtedness or Capital Stock (a)
either (i) is not subordinated or junior in right of payment to any other
Indebtedness or Capital Stock of such Person or (ii) is subordinate in right of
payment to the same Indebtedness or Capital Stock of such Person as is the other
and is so subordinate to the same extent and (b) is not subordinate in right of
payment to the other or to any Indebtedness or Capital Stock of such Person as
to which the other is not so subordinate.
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (a) such Subsidiary
to (i) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (ii) make loans or advances to such Person or
any other Subsidiary of such Person, or (iii) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (b) such Person
or any other Subsidiary of such Person to receive or retain any such (i)
dividends, distributions or payments, (ii) loans or advances, or (iii) transfers
of properties or assets.
"Permitted Disposition" means (a) any transfer, conveyance, sale, lease,
license or other disposition (a "sale") by the Company or any of its
Subsidiaries of its inventory or license of its intangible Property in the
ordinary course of its business; (b) any sale by the Company or any of its
Subsidiaries in the ordinary course of its business of its equipment or other
tangible or intangible Property that is obsolete or no longer useful or
necessary to its business; (c) any sale by the Company or any of its
Subsidiaries in the ordinary course of its business, and in a manner consistent
with its customary and usual cash management practices, of its Permitted
Investments of the kind described in clause (c) of the definition thereof; (d)
the creation or Incurrence of any Liens in any Property of the Company or any of
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its Subsidiaries that are permitted by this Agreement and (e) any sale of
Property by or at the direction of a secured party holding a Lien on such
Property, which Lien is permitted by this Agreement, pursuant to the exercise by
such secured party of its rights as a creditor.
"Permitted Investment" by any Person means (a) any Investment in a Related
Business which becomes a Subsidiary following such Investment (including any
Investments held by such Subsidiary (or any Subsidiaries thereof) on the date
such Subsidiary is acquired), (b) Investments in securities or other Property
not constituting cash or Cash Equivalents and received in connection with an
Asset Disposition, to the extent permitted hereunder, or any other disposition
of assets not constituting an Asset Disposition, (c) Investments in cash and
Cash Equivalents, (d) Investments existing on the date hereof, (e) Investments
by any Subsidiary in other Subsidiaries, (f) Investments by the Company in any
of its Subsidiaries required by any instrument or agreement governing
Indebtedness to the extent that such Investments consist of (i) performance
under Guarantees Incurred by the Company in compliance with this Agreement with
respect to Indebtedness of its Subsidiaries not Incurred in violation of this
Agreement or (ii) Liens securing the Company's Obligations with respect to any
Guarantee described in the foregoing clause (i), (g) Investments in the form of
accounts receivable arising from sales of goods or services in the ordinary
course of business, PROVIDED that for any accounts receivable that are more than
120 days overdue, appropriate reserves or allowances have been established in
accordance with GAAP, (h) Investments in the form of advances or prepayments to
suppliers or employees in the ordinary course of business and (i) Investments
which do not exceed an aggregate of $5,000,000 and which in the good faith
judgment of the Board of Directors of the Company (1) relate to a Related
Business and (2) add strategic value or offer a potential competitive advantage
to the Company.
"Permitted Liens" shall mean (a) Liens for Taxes, assessments, and similar
governmental charges to the extent (1) not delinquent or (2) being contested in
good faith by appropriate proceedings and as to which reserves have been set
aside on the books of the Company to the extent required by GAAP; (b) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen, or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
on the books of the Company; (c) pledges or deposits in the ordinary course of
business to secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or other social security benefits; (d)
Liens to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (e) zoning restrictions, easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (f) Liens in respect of purchase money or similar acquisition
Indebtedness Incurred to acquire furniture, fixtures, equipment or other
operating assets, provided that the principal amount of the Indebtedness secured
by such Lien does not exceed the acquisition cost of such assets; (g) Liens
securing Indebtedness which secures assets leased pursuant to Capital Lease
Obligations; (h) Liens on any assets of any Acquired Person securing Acquired
A-12
<PAGE>
Indebtedness which assets or Acquired Person are acquired by the Company or a
Subsidiary subsequent to the date of the Agreement, and which Liens were in
existence on or prior to the acquisition of such assets or Acquired Person (to
the extent that such Liens were not created in connection with or in
contemplation of such acquisition), provided that such Liens are limited to the
assets or Acquired Person so acquired and the proceeds thereof; and (i) Liens
imposed pursuant to condemnation or eminent domain or substantially similar
proceedings; and (j) Liens in favor of the Purchaser imposed in connection with
the transactions contemplated hereby and by the Transaction Documents; provided
that in the case of clauses (f), (g) and (h), any Indebtedness secured by such
Liens was not Incurred in violation of Section 6.4.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, or Governmental Body.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a debt security means the principal of the security
including the premium, if any, on the security.
"Property" or "property" means any assets or property of any kind or nature
whatsoever, real, personal, or mixed (including fixtures), whether tangible or
intangible.
"Purchaser" has the meaning ascribed thereto in the introduction hereof.
"Series E Warrant" means the Warrant to purchase shares of Series E
Preferred Stock issued to B III Capital Partners, LP pursuant to the
Restructuring Agreement.
"Purchaser's Special Counsel" means Goodwin, Procter & Hoar LLP, a
partnership including professional corporations, acting as special counsel to
the Purchaser in connection with the transactions contemplated hereunder.
"Qualified Capital Stock" means with respect to any Person, any or all
Capital Stock issued by such Person after the Closing Date that is not
Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries Incurred or given in exchange for, or the proceeds of which are
used to, extend, refinance, renew, replace, substitute, defease or refund any
other Indebtedness of the Company or any of its Subsidiaries (and related
interest, premium, penalties, breakage costs, fees, expenses and other amounts
owing in respect of such Indebtedness, to the extent permitted to be Incurred by
Section 6.3(b)(iii)) Incurred in accordance with the terms of this Agreement,
including Section 6.3.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date hereof and any and
all businesses that in the good faith judgment of the Board of Directors of the
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<PAGE>
Company are materially related businesses. Without limiting the generality of
the foregoing, Related Business shall include the design, development,
production, marketing and sale of interactive slot machines.
"Release" means any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing, or
dumping into the Environment.
"Restricted Payment" means, with respect to any Person, without
duplication: (a) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock (other than (i) in the case of the Company, dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or options,
warrants or other rights to acquire Qualified Capital Stock of the Company and
(ii) any dividends, distributions or other payments in respect of any Capital
Stock made by any Subsidiary to the Company or a Wholly-Owned Subsidiary), or
the making by such Person or any of its Subsidiaries of any other distribution
in respect of such Person's Capital Stock or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than
exchangeable or convertible Indebtedness of such person); (b) the redemption,
repurchase, retirement or other acquisition for value by such Person or any of
its Subsidiaries, directly or indirectly, of such Person's Capital Stock (and,
in the case of a Subsidiary, Capital Stock of the Company) other than Capital
Stock owned by the Company or a Wholly-Owned Subsidiary, or any warrants, rights
or options to purchase or acquire shares of any class of such Capital Stock
(other than exchangeable or convertible Indebtedness of such Person), and other
than, in the case of the Company, through the issuance in exchange therefor
solely of Qualified Capital Stock of the Company; (c) any payment to purchase,
redeem, defease or otherwise acquire or retire for value any Pari Passu
Indebtedness or Subordinated Indebtedness (other than with the proceeds of
Refinancing Indebtedness permitted under this Agreement), except in accordance
with the mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness; and (d) any Investment other than
Permitted Investments.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Sale" means any sale, lease, conveyance, exchange, transfer, assignment,
pledge, hypothecation or other disposition of any Property.
"SEC Reports" means the Company's Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended December 31, 1998, as filed with the
Commission, together with each other registration statement, periodic report,
proxy statement, and other filing made by the Company with the Commission on or
after January 1, 1999.
"Securities" means, collectively, the Series D Preferred Stock, the Amended
Notes, the New Notes and the Units.
A-14
<PAGE>
"Securities Act" means the Securities Act of 1933, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement, dated September 30, 1997, by and between the Company and the
Purchaser, as amended by Amendment No. 1 to the Securities Purchase Agreement,
dated July 8, 1998, and as further amended by Amendment No. 2 to the Securities
Purchase Agreement dated as of the Closing Date.
"Senior Indebtedness" means and includes all principal of, premium and
interest (including Post-Petition Interest) on and other Obligations with
respect to any Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the date hereof or hereafter Incurred,
other than the Notes and Amended Notes; PROVIDED, HOWEVER, that the following
shall not constitute Senior Indebtedness: (a) any Indebtedness which by the
terms of the instrument creating or evidencing the same is PARI PASSU,
subordinated or junior in right of payment to the Notes and Amended Notes in any
respect; (b) that portion of any Indebtedness Incurred in violation of this
Agreement; (c) any Preferred Stock; or (d) any Indebtedness of the Company which
is subordinated to or junior in right of payment in any respect to any other
Indebtedness of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Notes and
Amended Notes, (ii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, (iii) any liability for foreign, Federal, state, local
or other Taxes owed or owing by the Company, (iv) Indebtedness of the Company to
the extent such liability constitutes Indebtedness to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (v)
Indebtedness for the purchase of goods or materials in the ordinary course of
business, or (vi) Indebtedness owed by the Company for compensation to employees
or for services.
"Series D Certificate of Determination" means the Certificate of
Determination for the Company's Series D Preferred Stock.
"Series D Preferred Stock" means the Series D Convertible Redeemable
Preferred Stock of the Company.
"Series E Certificate of Determination" means the Certificate of
Determination for the Company's Series E Preferred Stock.
"Series E Preferred Stock" means the Series E Convertible Redeemable
Preferred Stock of the Company.
"Series E Warrant" means the Warrant to purchase shares of Series E
Preferred Stock initially issued to B III Capital Partners, L.P. pursuant to the
Restructuring Agreement.
"Software" has the meaning ascribed thereto in Section 3.31 hereof.
"Stockholders Agreement" means the Stockholders Agreement, dated as of the
Closing Date, by and among the Company and the Purchaser, and certain
stockholders of the Company as the same may be amended, modified, or
supplemented from time to time in accordance with the terms thereof.
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<PAGE>
"Subsidiary" of any Person means any other Person with respect to which
either (i) more than 50% of the interests having ordinary voting power to elect
a majority of the directors or individuals having similar functions of such
other Person (irrespective of whether at the time interests of any other class
or classes of such Person shall or might have voting power upon the occurrence
of any contingency), or (ii) more than 50% of the equity interests of such other
Person is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries. When used herein without reference to any
Person, Subsidiary means a Subsidiary of the Company.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Taxes" any present or future federal, state, county, local, foreign or
other income, Property, excise, franchise, sales, use, value added, employees'
income withholding, social security, unemployment and other taxes, of any nature
whatsoever now or hereafter imposed, levied, collected, withheld, or assessed by
any Governmental Body, which have become due or payable by the Company or any of
its Subsidiaries, or by any predecessors thereto, including any fines or
penalties with respect thereto or interest thereon, whether disputed or not.
"Threat of Release" means a substantial likelihood of a Release which under
applicable Environmental Laws requires action to prevent or mitigate damage to
the Environment which may result from such Release.
"Transaction Documents" means, collectively, the Restructuring Agreement,
the Amended Notes, the Amendment No. 2 to the Securities Purchase Agreement, the
New Notes, the Securities Purchase Agreement for the New Notes, the Series D
Certificate of Determination, the Series E Certificate of Determination, the
Series E Warrant, the Management Incentive Plan, the Warrant Agreement, the Old
Equity Warrants, and any and all agreements, certificates, instruments and other
documents contemplated thereby or executed and delivered in connection
therewith.
"Units" has the meaning ascribed thereto in Section 1.6 hereof.
"Warrant Agent" has the meaning ascribed to it in the Warrant Agreement.
"Warrant Agreement" has the meaning ascribed to it in Section 1.6 hereof.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
100% of the equity interests in which (however measured) are owned by such
Person or a Wholly-Owned Subsidiary of such Person or such Person and one or
more Wholly-Owned Subsidiaries of such Person taken together, except in any case
for the minimum equity interest required to be held by directors, if any, to
satisfy the requirements of any applicable statute requiring that directors own
qualifying shares.
A-16
SILICON GAMING, INC.
AMENDMENT NO. 2 TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 30, 1997
FOR
UNITS CONSISTING OF
SENIOR DISCOUNT NOTES
DUE SEPTEMBER 30, 2002
AND
WARRANTS TO PURCHASE COMMON STOCK,
PAR VALUE $.001 PER SHARE,
OF
SILICON GAMING, INC.
November 24, 1999
<PAGE>
SILICON GAMING, INC.
This AMENDMENT NO. 2 (this "AMENDMENT") to the Securities Purchase
Agreement dated as of September 30, 1997 (the "AGREEMENT") by and between
Silicon Gaming, Inc., a California corporation (the "COMPANY"), and the
purchaser named therein (the "PURCHASER") is effective as of November 24, 1999.
Unless otherwise defined, capitalized terms used in this Amendment have the same
meanings as those ascribed to them in the Agreement.
WHEREAS, the Company and the Purchaser entered into the Agreement as of
September 30, 1997 providing for the issuance by the Company and the purchase by
the Purchaser of $30,000,000 aggregate principal amount of Senior Discount Notes
(the "NOTES") and Warrants to purchase 375,000 shares of Common Stock; and
WHEREAS, the Company and the Purchaser entered into Amendment No. 1 to the
Agreement as of July 8, 1998, providing for the issuance by the Company and the
purchase by the Purchaser of an additional $17.25 million aggregate principal
amount of Notes and Warrants to purchase 250,000 shares of Common Stock; and
WHEREAS, in connection with the financial restructuring of the Company
contemplated by that certain Restructuring Agreement dated as of November 24,
1999 (the "RESTRUCTURING AGREEMENT") by and between the Company and the
Purchaser, the Company and the Purchaser desire to amend the Agreement to
provide for the cancellation of $39.75 million aggregate principal amount of the
Notes by the Purchaser in exchange for 39,750 shares of Series D Preferred Stock
of the Company, to amend the terms and provisions of the remaining $7.5 million
aggregate principal amount of the Notes and to issue to Purchaser warrants for
the Series E Preferred Stock of the Company; and
WHEREAS, in connection with such cancellation of Notes and accrued
interest, and issuance of Preferred Stock, the Company and the Purchaser have
agreed to amend certain terms of the Agreement as set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
agree as follows:
ARTICLE I
AMENDMENTS
1.1 AMENDMENTS TO ARTICLE I.
(a) SECTION 1.1 OF THE AGREEMENT IS HEREBY AMENDED BY ADDING THE
FOLLOWING DEFINITIONS:
"Authorized Common Stock Amendment" means the Amendment to the
Articles of Incorporation of the Company approved by the Board of
Directors of the Company to increase the number of authorized shares
of Common Stock of the Company from 50,000,000 shares to 750,000,000
shares.
2
<PAGE>
"Management Incentive Plan" means the Silicon Gaming, Inc. 1999
Long-Term Compensation Plan adopted by the Board of Directors of the
Company, contemporaneously with the Closing, under which grants and
sales of Common Stock and options to purchase up to _________________
shares of Common Stock of the Company may be made.
"Management Options" means any options to purchase the Common Stock of
the Company sold or grated to any eligible participant under the
Management Incentive Plan.
"Management Shares" means the shares issued under the Management
Incentive Plan or upon exercise of the options granted under that
plan.
"Old Equity Warrants" means the warrants to purchase the Common Stock
of the Company issuable to the stockholders of the Company as of the
Record Date set pursuant to the Restructuring Agreement, and the terms
and provisions of which are set forth in the Warrant Agreement by and
between the Company and the Warrant Agent (as defined in the Warrant
Agreement).
"Restructuring Agreement" shall mean that certain Restructuring
Agreement by and between the Company and BIII Capital Partners, L.P.,
dated as of November ____, 1999.
"Restructuring Closing" has the meaning ascribed thereto in Section
2.9 hereof.
"Restructuring Closing Date" has the meaning ascribed thereto in
Section 2.9 hereof.
"Series D Certificate of Determination" means the officer's
certificate filed with the Secretary of State of the State of
California which sets forth the voting powers, preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions of the Company's Series D
Preferred Stock.
"Series D Preferred Stock" means the Series D Convertible Redeemable
Preferred Stock of the Company.
"Warrant Agent" has the meaning ascribed to it in the Warrant
Agreement.
"Warrant Agreement" means the Warrant Agreement between the Company
and the Warrant Agent (as defined in the Warrant Agreement) which sets
forth the terms and provisions of the Old Equity Warrants.
3
<PAGE>
(b) SECTION 1.1 IS HEREBY FURTHER AMENDED BY RESTATING EACH OF THE
FOLLOWING DEFINITIONS IN ITS ENTIRETY:
the definition of "Accreted Value" is hereby deleted in its entirety.
"Amended Notes" means the Senior Discount Notes, as amended by
Amendment No. 2 to the Securities Purchase Agreement.
"Change of Control" means any transaction or series of transactions in
which any of the following occurs: (a) any Person or group (within the
meaning of Rule 13d-3 under the Exchange Act and Sections 13(d) and
14(d) of the Exchange Act) becomes the direct or indirect "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of 25% or
more of the issued and outstanding shares of Capital Stock entitled to
vote in the election of directors of the Company or the Surviving
Person (if other than the Company); (b) a merger or consolidation of
the Company with or into another corporation in which less than a
majority of the outstanding voting power of the surviving or
consolidated corporation immediately following such event is held by
persons or entities who were stockholders of the Company immediately
prior to such event or (c) the sale of all or substantially all of the
properties and assets of the Company and its subsidiaries; or (d) the
redemption or repurchase of shares representing a majority of the
voting power of the outstanding shares of capital stock of the Company
or (e) individuals who at the Closing constituted the Board of
Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election
by the stockholders of the Company was approved by a vote of at least
a majority of the directors of the Company then still in office who
were either directors at the Closing or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; provided, however, that a conversion of Series D Preferred
Stock into Common Stock, an issuance of Common Stock under the
Management Incentive Plan, an issuance of the Units, or an issuance of
Common Stock upon exercise of the Old Equity Warrants, shall not,
individually or in the aggregate, constitute a Change of Control.
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties
would change hands between a willing buyer and a willing seller,
within a commercially reasonable time, each having reasonable
knowledge of the relevant facts, neither being under a compulsion to
sell or buy, as such amount is determined by (a) the Board of
Directors of the Company acting in good faith or (b) at the request of
the holders of the majority of the outstanding Senior Discount Notes
an appraisal or valuation firm of national or regional standing
selected by the Company (with the reasonable consent of the holders of
a majority of the outstanding Senior Discount Notes), with experience
in the appraisal or valuation of properties or assets of the type for
which Fair Market Value is being determined; provided, however, that
if the Common Stock is traded on the Nasdaq National Market or the
NYSE (or successor thereof), the Fair Market Value of the Common Stock
shall be the average of the closing prices for the 10 trading days
immediately prior to the date of determination.
4
<PAGE>
"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion,
exchange or otherwise), suffer to exist, assume, Guarantee or
otherwise become liable in respect of such Indebtedness or other
obligation, including by way of merger or acquisition of another
Person, or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing).
"Issue Date" means July 15, 1999.
"Officers' Certificate" means a certificate executed on behalf of the
Company by an Officer of the Company or by an Assistant Secretary of
the Company.
"Securities" means the Amended Notes.
"Senior Discount Notes" means the Company's Senior Discount Notes
(Series A) and Senior Discount Notes (Series B), due September 30,
2002, and Amended Notes, as amended or supplemented from time to time
in accordance with the terms hereof, that are issued pursuant to this
Agreement and each note delivered in substitution or exchange for any
such note.
"Transaction Documents" means, collectively, this Agreement, the
Certificate of Determination, the Amended Notes, the Amendment No. 2
to the Securities Purchase Agreement, the New Notes, the Restructuring
Agreement, the Stockholders Agreement, and the Management Incentive
Plan, the Warrant Agreement and any and all agreements, certificates,
instruments and other documents contemplated thereby or executed and
delivered in connection therewith.
"Units" means the Units consisting of one share of Common Stock and
one Old Equity Warrant that the Company intends to issue as soon as is
practicable following the Closing of the Restructuring.
1.2 AMENDMENTS TO ARTICLE II.
(a) ARTICLE II OF THE AGREEMENT IS HEREBY AMENDED TO ADD THE FOLLOWING
SECTIONS 2.7, 2.8 AND 2.9:
2.7 ISSUANCE OF AMENDED NOTES.
(a) The Company has authorized the issuance of up to $7.5 million
aggregate principal amount of its Amended Notes, to be issued pursuant to and in
accordance with the terms of this Agreement, as a replacement and in
5
<PAGE>
substitution for the remaining principal amount of Senior Discount Notes
outstanding upon execution and delivery of the Amendment No. 2 to the Agreement
and the Restructuring Agreement. Each Amended Note will be issued in
substantially in the form set forth in EXHIBIT E hereto, with such changes
thereto, if any, as may be approved by the Purchaser and the Company.
(b) The Company has authorized the issuance and sale of up to
39,750 shares of Series D Preferred Stock in exchange for the cancellation by
the Purchaser of (i) $39.75 million aggregate principal amount of Senior
Discount Notes and any and all interest accrued thereon through the
Restructuring Closing Date, and (ii) any and all interest accrued through July
15, 1999 on the remaining $7.5 million aggregate principal amount of Senior
Discount Notes. The rights, preferences, and limitations of the Series D
Preferred Stock are set forth in the Certificate of Determination.
2.8 ISSUANCE AND ACCEPTANCE OF AMENDED NOTES. At the Restructuring Closing
provided for in Section 2.9, the Company will issue to the Purchaser and,
subject to the terms and conditions of this Agreement, the Purchaser will accept
from the Company, the Amended Notes. In addition, the Company will issue shares
of Series D Preferred Stock in exchange for the cancellation of (i) $39.75
million aggregate principal amount of Senior Discount Notes and all interest
accrued thereon through the Restructuring Closing Date, and (ii) any and all
interest that has accrued through July 15, 1999 on the remaining $7.5 million
aggregate principal amount of Senior Discount Notes, subject to the terms and
conditions of the Amendment No. 2 to the Agreement and the Restructuring
Agreement.
2.9 CLOSING OF THE RESTRUCTURING. The events set forth in Sections 2.7 and
2.8 will take place at the offices of Squire, Sanders & Dempsey L.L.P., 40 North
Central Avenue, Suite 2700, Phoenix, Arizona 85004, at a closing (the
"RESTRUCTURING CLOSING") on November 24, 1999, or at such other place or on such
other date as the Purchaser and the Company may agree upon (such date on which
the Restructuring Closing shall have actually occurred, the "RESTRUCTURING
CLOSING DATE").
1.3 AMENDMENTS TO ARTICLE III.
ARTICLE III OF THE AGREEMENT IS HEREBY AMENDED TO ADD THE FOLLOWING
SECTIONS 3.5 AND 3.6:
3.5 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER ON THE
RESTRUCTURING CLOSING DATE. The Purchaser's obligation to cancel $39.75 million
aggregate principal amount of the Senior Discount Notes, and any interest
accrued thereon, and any interest which has accrued on the remaining $7.5
million aggregate principal amount of the Senior Discount Notes through July 15,
1999, is subject to the fulfillment to its satisfaction, prior to or at the
Restructuring Closing, of the conditions set forth in Sections 3.1(a), (b), (c),
(g), (h)(iii), (j) and (k) above, in each case substituting the Restructuring
Closing for the Closing and, with respect to the certificate provided for in
Section 3.1(c), referring to the conditions set forth in this Section 3.5;
provided that any or all of such conditions may be waived, in whole or in part,
by the Purchaser with respect to this Agreement in its sole and absolute
discretion.
6
<PAGE>
3.6 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY ON THE RESTRUCTURING
DATE. The Company's obligation to execute and deliver the Amendment No. 2 to the
Agreement is subject to (i) the fulfillment to its satisfaction, prior to or at
the Restructuring Closing, of the conditions set forth in Sections 3.2(a), (b),
(d) and (e) above, and in each case substituting the Restructuring Closing for
the Closing, and (ii) the execution and delivery of the Restructuring Agreement
by the Purchaser; provided that any or all of such conditions may be waived, in
whole or in part, by the Company with respect to this Agreement in its sole and
absolute discretion.
1.4 AMENDMENTS TO ARTICLE IV.
THE INTRODUCTORY LANGUAGE TO ARTICLE IV IS HEREBY AMENDED TO PROVIDE AS
FOLLOWS:
In order to induce the Purchaser to accept the Amended Notes, the Company
represents and warrants that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date, the Additional Closing Date or the
Restructuring Closing Date as the case may be (as though made at and as of the
date of this Agreement and as though the Closing Date, Additional Closing Date
or Restructuring Date were substituted for the date of this Agreement throughout
Article IV):
1.5 AMENDMENTS TO ARTICLE VI.
SECTIONS 6.6(A), (C) AND (D), AND 6.7(B) AND (C) OF THE AGREEMENT ARE
AMENDED AND RESTATED IN THEIR ENTIRETY AS FOLLOWS:
6.6 OPTIONAL AND MANDATORY REDEMPTION.
(a) The Senior Discount Notes will be subject to redemption, in whole
or from time to time in part (in multiples of $1,000 of principal amount) at the
option of the Company at a price equal to 100% of the aggregate outstanding
principal amount thereof, plus any accrued and unpaid interest to the Redemption
Date.
(c) [omitted]
(d) Upon any partial prepayment or redemption of the Senior Discount
Notes, the principal amount so prepaid or redeemed shall be allocated to all
Senior Discount Notes at the time outstanding in proportion to the respective
outstanding principal amounts thereof, and a corresponding pro rata adjustment
shall be made in the minimum denomination of a Senior Discount Note pursuant to
Section 11.1.
6.7 MANDATORY OFFERS.
(b) On the Purchase Date for any Offer, the Company shall (i) in the
case of an Offer resulting from a Change of Control, accept for payment all New
Notes or portions thereof tendered pursuant to such Offer, and (ii) in the case
of an Offer resulting from one or more Securities Sales or Mezzanine Debt
Financings accept for payment all New Notes or portions thereof tendered
pursuant to such Offer that are required to be purchased pursuant to Section
7.13 hereof.
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(c) With respect to any Offer, (i) if less than all of the Senior
Discount Notes tendered pursuant to an Offer are to be accepted for payment by
the Company for any reason, the Company shall select on or prior to the Purchase
Date the Senior Discount Notes or portions thereof to be accepted for payment
pursuant to Section 6.2; and (ii) unless the Company defaults in the payment of
the purchase price for such Senior Discount Notes on the Purchase Date, interest
shall cease to accrue on such Senior Discount Notes on the Purchase Date;
PROVIDED, HOWEVER, that if the Company fails to purchase all Senior Discount
Notes accepted for payment, the Company shall purchase on a pro rata basis all
Senior Discount Notes, respectively, accepted for payment and interest shall
continue to accrue on all Senior Discount Notes not purchased.
1.6 AMENDMENTS TO ARTICLE VII
(a) ARTICLE 7 OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN ITS
ENTIRETY AS FOLLOWS:
7.1 PAYMENT OF SENIOR DISCOUNT NOTES. The Company shall pay the principal
of, and premium, if any, and interest on, the Senior Discount Notes on the dates
and in the manner provided in the Senior Discount Notes. Holders must surrender
their Senior Discount Notes to the Company to collect principal payments.
Principal, premium, or interest shall be considered paid on the date due if, by
2:00 p.m., Boston, Massachusetts time, on such date, the Company shall have
executed wire transfers in immediately available funds designated for and
sufficient to pay such principal, premium or interest. To the extent lawful, the
Company shall pay interest (including Post-Petition Interest) on overdue
principal, premium and interest (without regard to any applicable grace period)
at a rate equal to 1.5% per annum in excess of the then applicable interest rate
on the Senior Discount Notes.
7.2 REPORTS
(a) To the extent permitted by applicable law or regulation, whether
or not the Company is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission all quarterly and
annual reports and such other information, documents or other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) required to be filed pursuant to such provisions of the
Exchange Act. The Company shall mail to the holders of the Senior Discount Notes
at their addresses appearing in the register of Senior Discount Notes, at the
time of such mailing, within 10 days after it files the same with the
Commission, all information, documents and reports that it is required to file
with the Commission pursuant to this Section 7.2. If the Company is not
permitted by applicable law or regulations to file the aforementioned reports,
the Company (at its own expense) shall mail to the holders of the Senior
Discount Notes at their addresses appearing in the register of Senior Discount
Notes, at the time of such mailing within 5 days after it would have been
required to file such information with the Commission, all information and
financial statements, including any notes thereto and with respect to annual
reports, an auditors' report by an accounting firm of established national
reputation, and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," comparable to the disclosure that the Company would
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have been required to include in annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, if the Company was subject to the requirements of such
Section 13 or 15(d) of the Exchange Act.
(b) At any time when the Company is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a holder of
a Senior Discount Note, the Company will promptly furnish or cause to be
furnished such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act (or any successor provision thereto) to such holder or to a
prospective purchaser of such Senior Discount Note designated by such holder, as
the case may be, in order to permit compliance by such holder with Rule 144A
under the Securities Act.
7.3 COMPLIANCE CERTIFICATE. The Company shall deliver to the Holders,
within 135 days after the end of each fiscal year of the Company, an Officers'
Certificate stating that (i) a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made to determine whether
the Company has kept, observed, performed and fulfilled all of its obligations
under this Agreement and the Senior Discount Notes, (ii) such review was
supervised by the Officers of the Company signing such certificate, and (iii)
that to the best knowledge of each Officer signing such certificate, (A) the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Agreement and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Agreement (or,
if a Default or Event of Default occurred, describing all such Defaults or
Events of Default of which each such Officer may have knowledge and what action
the Company has taken or proposes to take with respect thereto), and (B) no
event has occurred and remains in existence by reason of which payments on
account of the principal of, or premium, if any, or interest on, the New Notes
are prohibited or if such event has occurred, a description of the event and
what action the Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Officers' Certificate
delivered pursuant to Section 7.3(a) shall be accompanied by a written statement
of Deloitte & Touche LLP, the Company's independent public accountants (or
another independent accounting firm of established national reputation
reasonably satisfactory to the Holders), that in making the examination
necessary for certification of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Sections 7.1, 7.5, 7.7, 7.10, 7.13, or Article VIII, or if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company will, so long as any of the Senior Discount Notes are
outstanding, deliver to the Holders, promptly after any Officer of the Company
becomes aware of (i) any Default or Event of Default, or (ii) any default or
event of default under any other mortgage, agreement or instrument that could
result in an Event of Default under Section 9.1, an Officers' Certificate
specifying such Default, Event of Default or default and what action the Company
is taking or proposes to take with respect thereto.
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7.4 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that might affect the covenants or the performance of its obligations under this
Agreement and the Senior Discount Notes; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power granted to the Holders pursuant to this
Agreement, but will suffer and permit the execution of every such power as
though no such law has been enacted.
7.5 LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment, except payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not incurred in violation of Section 7.7.
(b) NOTWITHSTANDING SECTION 7.5(A), THE FOLLOWING RESTRICTED PAYMENTS
MAY BE MADE: (I) THE REDEMPTION OF THE SERIES D PREFERRED STOCK, THE AMENDED
NOTES, AND THE NEW NOTES UNDER THE TERMS AND PROVISIONS OF THE RELEVANT
AGREEMENT CONTROLLING EACH INSTRUMENT; (II) REPURCHASE OF ANY COMMON STOCK
PURSUANT TO THE PROVISIONS OF THE MANAGEMENT INCENTIVE PLAN AT A REDEMPTION
PRICE NO GREATER THAN THE PRICE AT WHICH SUCH SHARES WERE ORIGINALLY SOLD; (III)
THE ISSUANCE OF THE UNITS; AND (IV) THE ISSUANCE OF THE SERIES E WARRANT.
7.6 CORPORATE EXISTENCE. Subject to Article VIII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate or similar existence of each of
its Subsidiaries in accordance with the respective organizational documents of
each of its Subsidiaries and the rights (charter and statutory), licenses and
franchises of the Company and each of its Subsidiaries; provided, however, that
the Company shall not be required to preserve any such right, license or
franchise, or the corporate or similar existence of any Subsidiary, if the
Company's Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole and that the loss thereof is not adverse in any
material respect to the holders of the Senior Discount Notes and the Warrants.
7.7 LIMITATION ON INDEBTEDNESS.
(a) Except as set forth in this Section 7.7, the Company shall not,
and shall not permit any Subsidiary, after the date hereof, directly or
indirectly, to Incur any Indebtedness (including Acquired Indebtedness) without
the prior written consent of the holders of a majority of the then outstanding
Senior Discount Notes. For purposes of this Agreement, Indebtedness of any
Acquired Person that is not a Subsidiary, which Indebtedness is outstanding at
the time such Person is acquired by the Company or a Subsidiary or becomes, or
is merged into or consolidated with, a Subsidiary, shall be deemed to have been
Incurred by the Company or the acquiring Subsidiary at the time such Acquired
Person becomes, or is merged into or consolidated with, a Subsidiary.
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(b) Notwithstanding Section 7.7(a) the Company and its Subsidiaries
may Incur, after the date hereof, any of the following Indebtedness:
(i) Indebtedness outstanding at the date evidenced by the New
Notes and the Amended Notes, including any Indebtedness evidenced hereof as
set forth on SCHEDULE 4.8, including the Indebtedness by notes issued as
payment-in-kind for interest payments due and payable under the Amended
Notes and the New Notes;
(ii) Indebtedness to any Wholly-Owned Subsidiary of the Company
or Indebtedness of any Subsidiary to the Company (provided that such
Indebtedness is at all times held by the Company or a Wholly-Owned
Subsidiary of the Company); PROVIDED, HOWEVER, that for purposes of this
Section 7.7, upon either (A) the transfer or other disposition by any such
Wholly-Owned Subsidiary of any Indebtedness so permitted to a Person other
than the Company or another Wholly-Owned Subsidiary of the Company or (B)
the issuance, sale, lease, transfer or other disposition of shares of
Capital Stock (including by consolidation or merger) of such Wholly-Owned
Subsidiary to a Person other than the Company or another such Wholly-Owned
Subsidiary, the provisions of this clause (ii) shall no longer be
applicable to such Indebtedness and such Indebtedness shall be deemed to
have been Incurred by the Company at the time of such transfer or other
disposition;
(iii) Refinancing Indebtedness with respect to Indebtedness that
was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this Agreement;
PROVIDED, HOWEVER, that (A) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount (or accreted value, in
the case of Indebtedness issued at a discount) of the Indebtedness so
extended, refinanced, renewed, replaced, substituted, defeased or refunded
(plus the amount of fees, costs and expenses incurred and the amount of any
premium, penalties, breakage costs and other similar amounts required to be
paid in connection with such refinancing pursuant to the terms of the
instrument governing the Indebtedness so extended, refinanced, renewed,
replaced, substituted, defeased or refunded or the amount of any premium
reasonably determined by the Company as necessary to accomplish a
refinancing by means of a tender offer or privately negotiated repurchase,
which determination shall be supported by a fairness opinion from an
Independent Financial Advisor, plus the fees, costs and expenses of such
tender offer or repurchase); and (B) the Refinancing Indebtedness shall (1)
have a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, substituted, defeased or refunded; (2) not
have a final scheduled maturity earlier than the final scheduled maturity
of the Indebtedness being extended, refinanced, replaced, renewed,
substituted, defeased or refunded; (3) not permit redemption at the option
of the holder earlier than the earliest date of redemption at the option of
the holder of the Indebtedness being extended, refinanced, renewed,
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replaced, substituted, defeased or refunded; and (4) rank no more senior or
be at least as subordinated, as the case may be, in right of payment to the
New Notes, the Series D Preferred Stock and the Senior Discount Notes as
the Indebtedness being extended, refinanced, replaced, renewed,
substituted, defeased or refunded;
(iv) Senior Indebtedness of the Company not to exceed an
aggregate of $4,000,000 (inclusive of amounts outstanding as of the date of
this Agreement), including without limitation, Indebtedness owed to Silicon
Valley Bank under the Company's secured credit facility, or any successor
or similar secured credit facility.
7.8 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) Neither the Company nor any of its Subsidiaries shall enter into
any transaction or series of transactions to sell, lease, transfer, exchange or
otherwise dispose of any of its properties or assets to or to purchase any
property or assets from, or for the direct or indirect benefit of, an Affiliate
of the Company or of any Subsidiary of the Company, make any Investment in or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with, or for the direct or indirect benefit of, an Affiliate of the Company or
of any Subsidiary of the Company (each, including any series of transactions
with one or more Affiliates, an "Affiliate Transaction"), unless (i) the Board
of Directors of the Company or the relevant Subsidiary determines, as evidenced
by a Board Resolution, that the terms of such Affiliate Transaction are fair and
reasonable to the Company and no less favorable to the Company or the relevant
Subsidiary than those that could have been obtained at that time in a comparable
arms-length transaction by the Company or such Subsidiary with an unrelated
Person, (ii) such transaction has been approved by a majority of the Board of
Directors of the Company or the relevant Subsidiary who have no direct or
indirect interest in the Affiliate Transaction or in the Affiliate that is a
party to the Affiliate Transaction, or in any other party that is an Affiliate
of any such Affiliate, and (iii) the Company shall have delivered to the Holders
an Officers' Certificate certifying that the conditions set forth in clauses (i)
and (ii) above have been satisfied.
(b) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $1,000,000 unless, in addition to the requirements of (a) above, the Board
of Directors of the Company or the relevant Subsidiary shall first have received
a written opinion from an Independent Financial Advisor for the benefit of the
Company and the Holders, which firm is not receiving any contingent fee or other
consideration directly or indirectly related to the successful completion of the
Affiliate Transaction, to the effect that the proposed Affiliate Transaction is
fair to the Company from a financial point of view.
(c) The provisions of this Section 7.8 shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section
7.5, (ii) the reasonable and customary fees and compensation paid to or
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Subsidiary, as determined by the Board of Directors of the
Company or such Subsidiary or the senior management thereof in good faith, (iii)
transactions exclusively between or among the Company and any Wholly-Owned
Subsidiary or exclusively between or among Wholly-Owned Subsidiaries provided
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such transactions are not otherwise prohibited by this Agreement, and (iv) any
Affiliate Transaction in existence as of the date hereof (including but not
limited to the Management Incentive Plan), the terms of which are listed on
SCHEDULE 4.27.
7.9 LIMITATION ON LIENS. The Company shall not, and shall not permit any of
its Subsidiaries to, Incur, assume, suffer to exist, create or otherwise cause
to be effective any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom to secure any Indebtedness except: (a) Permitted Liens (other than
Permitted Liens described in clause (i) of the definition thereof), (b) Liens
existing as of the date hereof (and any extension, renewal or replacement Liens
upon the same Property subject to such Liens, provided the principal amount of
Indebtedness secured by each Lien constituting such an extension, renewal or
replacement Lien shall not exceed the principal amount of Indebtedness secured
by the Lien theretofore existing, plus amounts described in Section
7.7(b)(iii)(A) with respect to permitted Refinancing Indebtedness), (c) after
the Security Opinion Date, Liens securing Indebtedness of any Subsidiary of the
Company, PROVIDED that (i) such Liens are limited to Property or assets of such
Subsidiary, (ii) the Indebtedness secured by such Liens was not Incurred in
violation of this Agreement and (iii) the Indebtedness secured by such Liens is
not subordinated to or junior in right or priority of payment in any respect to
any other Indebtedness of such Subsidiary; (d) after the Security Opinion Date,
Liens as defined in clause (i) of the definition of Permitted Liens; and (e)
Liens replacing, extending or renewing, in whole or in part, any Lien described
in the foregoing clauses (a) through (d), including in connection with any
refinancing of the Indebtedness, in whole or in part, secured by any such Lien
effected in accordance with Section 7.7, PROVIDED that if any such clauses limit
the amount secured by or the Property or assets subject to such Liens, no such
replacement, extension or renewal shall increase the amount of Indebtedness or
the Property or assets subject to such Liens.
7.10 PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall, and shall cause
each of its Subsidiaries to, pay or discharge, before the same shall become
delinquent, (a) all Taxes, assessments and governmental charges (including
withholding taxes and penalties, interest and additions to taxes) levied or
imposed upon it or any of its Subsidiaries or properties of the Company or any
of its Subsidiaries and (b) all lawful claims for labor, materials and supplies
that, if unpaid might by law become a Lien upon the Property of it or any of its
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such Tax, assessment, charge
or claim if either (i) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by GAAP or (ii) the failure to
make such payment or effect such discharge (together with all other such
failures) would not have a Material Adverse Effect.
7.11 RESTRICTIONS AGAINST LIMITATIONS ON UPSTREAM PAYMENTS. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction or other encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make loans or advances to the Company or a Subsidiary of the
Company, or (c) transfer any of its Properties or assets to the Company or any
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Subsidiary of the Company, except for such Payment Restrictions or encumbrances
existing under or by reason of: (i) applicable law; (ii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was Incurred in contemplation of or in connection
with such acquisition), PROVIDED, that such restriction is not applicable to any
Person, or the Property or assets of any Person, other than the Acquired Person;
(iii) non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices; (iv) instruments governing purchase
money Indebtedness for Property acquired in the ordinary course of business that
only impose restrictions on the Property so acquired; (v) any agreement for the
sale or disposition of the Capital Stock or assets of such Subsidiary, PROVIDED
that such restriction is only applicable to such Subsidiary or assets, as
applicable; or (vi) Refinancing Indebtedness permitted under this Agreement with
respect to Indebtedness described in clauses (ii), (iii) or (iv), PROVIDED that
the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instrument governing the Indebtedness being refinanced immediately prior to
such refinancing.
7.12 CHANGE OF CONTROL. Upon the occurrence of a Change of Control (such
date being the "Change of Control Trigger Date"), each Holder will have the
right to require the Company to repurchase all or any part of such Holder's
Senior Discount Notes pursuant to the Offer (but, with respect to any partial
tender of Senior Discount Notes, the Company shall only be required to purchase
principal amounts in integral multiples of $1,000) at a purchase price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the Purchase Date. The Offer shall be effected in accordance with
Section 6.7 and Article VI (to the extent applicable) and the provisions of this
Section 7.12; provided, however, that this Section 7.12 shall not apply if the
Company instead elects to redeem all Senior Discount Notes as provided in
Section 6.7(f).
7.13 REDEMPTION FROM THE PROCEEDS OF SECURITIES SALES AND MEZZANINE DEBT
FINANCINGS.
(a) The Company will not, and will not permit any of its Subsidiaries
to, undertake any Securities Sale or any Mezzanine Debt Financing, unless: (i)
the Company or the applicable Subsidiary receives consideration, which, at the
time of such Securities Sale or Mezzanine Debt Financing, is at least equal to
the fair market value of the Capital Stock or other equity or debt securities
sold or otherwise disposed of (as determined in good faith by the Board of
Directors of the Company evidenced by a Board Resolution); and (ii) the Net Cash
Proceeds received by the Company or such Subsidiary, as the case may be, from
such Securities Sale or Mezzanine Debt Financing are applied in accordance with
this Section 7.13.
(b) As soon as practicable, but in no event later than 10 Business
Days after any date (with respect to both a Securities Sale or a Mezzanine Debt
Financing, a "Repayment Trigger Date") that the aggregate amount of Net Cash
Proceeds from all such Securities Sales or Mezzanine Debt Financings occurring
on or after the date hereof, then:
(i) if such Net Cash Proceeds exceed $5,000,000, but are less
than or equal to $10,000,000, then the Company shall commence an Offer to
purchase the maximum principal amount of Amended Notes (and if no Amended Notes
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remain outstanding then New Notes) that may be purchased using Fifty Percent
(50%) of any such Net Cash Proceeds in excess of $5,000,000 but less than or
equal to $10,000,000; or
(ii) if such Net Cash Proceeds exceed $10,000,000, then the
Company shall commence an Offer to purchase the maximum principal amount of
Amended Notes (and if no Amended Notes remain outstanding then New Notes) that
may be purchased using One Hundred (100%) of any such Net Cash Proceeds in
excess of $10,000,000;
in any case, subject to reduction in the event holders of New Notes or Amended
Notes tender such Notes for redemption pursuant to Section 6.7 of the Securities
Purchase Agreement for the New Notes, or this Agreement, as applicable, at an
offer price of $1.00 for every $1.00 of principal amount, plus accrued and
unpaid interest to the Purchase Date. The Offer shall be effected in accordance
with Section 6.7 and Article VI (to the extent applicable) and the provisions of
this Section 7.13. To the extent that any such Net Cash Proceeds remain after
completion of an Offer, the Company may use the remaining amount for any purpose
permitted by this Agreement.
7.14 MAINTENANCE OF PROPERTIES. The Company will cause all properties used
or useful in the conduct of its business or the business of any Subsidiary of
the Company to be maintained and kept in good condition, repair and working
order, subject to normal wear and tear, and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 7.14 shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
7.15 MAINTENANCE OF INSURANCE. The Company shall, and shall cause its
Subsidiaries to, (a) keep at all times all of their properties which are of an
insurable nature insured against loss or damage with financially sound and
reputable insurers to the extent that property of similar character is usually
so insured by corporations similarly situated and owning like properties in
accordance with good business practice, and (b) will maintain with financially
sound and reputable insurers insurance against other hazards and risks and
liability to persons and property to the extent and in a manner customary for
corporations in similar business similarly situated. The Company shall, and
shall cause its Subsidiaries to, use the proceeds from any such insurance policy
to repair, replace or otherwise restore the property to which such proceeds
relate, except to the extent that a different use of such proceeds is, as
determined by the Company, in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
7.16 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause each
of its Subsidiaries to comply, with all applicable statutes, rules, regulations,
orders and restrictions of the United States of America, all states and
municipalities thereof, and of any governmental department, commission, board,
regulatory authority, bureau, agency and instrumentality of the foregoing, in
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respect of the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliance as would not in the
aggregate have a Material Adverse Effect.
7.17 LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK OF
SUBSIDIARIES. The Company (a) shall not, and shall not permit any Subsidiary to,
transfer, convey, sell, or otherwise dispose of any Capital Stock, or securities
convertible into or exercisable or exchangeable for, or options, warrants,
rights or any other interest with respect to, Capital Stock of a Subsidiary to
any Person (other than the Company or a Wholly-Owned Subsidiary) unless such
transfer, conveyance, sale, lease or other disposition is of 100% of the Capital
Stock of such Subsidiary held by the Company and the Net Cash Proceeds from such
transfer, conveyance or sale are applied in accordance with Section 7.18 hereof
and (b) shall not permit any Subsidiary to issue shares of its Capital Stock
(other than directors' qualifying shares), or securities convertible into or
exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, its Capital Stock to any Person.
7.18 LIMITATION ON SALE OF ASSETS. The Company shall not, and shall not
permit any of its Subsidiaries to undertake an Asset Disposition.
1.7 AMENDMENTS TO ARTICLE IX.
(a) SECTION 9.1(A) OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
9.1 EVENTS OF DEFAULT.
(a) Each of the following constitutes an "Event of Default": (i) the
Company shall fail to make any payment in respect of (A) the principal of or
premium, if any, on the New Notes or the Senior Discount Notes as the same shall
become due, whether at maturity, upon acceleration, redemption or otherwise, or
(B) interest on or in respect of any New Notes or the Senior Discount Notes as
the same shall become due, and such failure shall continue for a period of 15
Business Days; (ii) failure by the Company for 30 days after receipt of notice
from the Holders of at least 25% of the principal amount of the outstanding New
Notes to comply with any other provisions of this Agreement, the Amendment No. 2
to the Securities Purchase Agreement, the Restructuring Agreement, the Senior
Discount Notes or any New Notes; (iii) default under any mortgage, agreement or
instrument under which there may be Incurred or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness now exists, or is created after the date
hereof if (A) such default results in the acceleration of such Indebtedness
prior to its express maturity or shall constitute a default in the payment of
such Indebtedness at final maturity of such Indebtedness, and (B) the principal
amount of any such Indebtedness that has been accelerated or not paid at
maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$250,000, (iv) failure by the Company or any of its Subsidiaries to pay final
16
<PAGE>
judgments, the uninsured portion of which exceeds $250,000, which judgments are
not paid, discharged, bonded or stayed for a period of 90 days after the date of
entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its Property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 60 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; and
(vi) any of the Transaction Documents shall cease, for any reason, to be in full
force and effect in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing.
Any notice of default delivered to the Company by the Holders of New Notes must
be in writing and must specify the Event of Default, demand that it be remedied
and state that the notice is a "Notice of Default."
1.8 AMENDMENTS TO ARTICLE XI.
(a) SECTION 11.2(B) OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
11.2(b) EXECUTION AND AUTHENTICATION. Two Officers of the Company (each of
whom shall have been duly authorized by all requisite corporate actions) shall
sign each Senior Discount Note for the Company by manual or facsimile signature.
If an Officer whose signature is on a Senior Discount Note no longer holds that
office at the time the Senior Discount Note is issued, the Senior Discount Note
shall nevertheless be valid. The Company's seal shall be reproduced on each
Senior Discount Note.
With respect to the sale and issuance of the Senior Discount Notes, the
Company shall authorize for issuance, upon the execution and delivery of this
Agreement, Senior Discount Notes in an aggregate principal amount up to
$7,500,000. In no case shall the aggregate principal amount of outstanding
Senior Discount Notes exceed $7,500,000 at any time, except as provided in
Section 11.5.
(b) SECTION 11.12 OF THE AGREEMENT IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
11.12 RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section
11.12, each Amended Unit, and each Amended Note and Common Stock Purchase
Warrant certificate (or Common Stock certificate issued on exercise thereof),
issued pursuant to this Agreement shall be stamped or otherwise imprinted with a
legend in substantially the following form:
17
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE
SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED,
EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A
UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH
ACT RELATING TO SUCH ACT, PROVIDED THAT, IF REQUESTED BY THE COMPANY, AN
OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE IS
FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF
THIS SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH
SECURITY ARE SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES
PURCHASE AGREEMENT DATED AS OF SEPTEMBER 30, 1997 (AS AMENDED), A COMPLETE
AND CORRECT COPY OF THE FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO
THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to the Purchaser upon its request.
Whenever the legend requirement imposed by this Section 11.12 shall
terminate, as hereinabove provided, the respective holders of Securities for
which such legend requirements have terminated shall be entitled to receive from
the Company, at the Company's expense, Senior Discount Notes or new Common Stock
Purchase Warrant certificates, as applicable, without such legend.
ARTICLE II
MISCELLANEOUS
2.1 EFFECTIVENESS OF AMENDMENT NO. 2. On the Restructuring Closing Date,
upon execution and delivery of this Amendment, $39.75 million aggregate
principal amount of the Senior Discount Notes, and any interest accrued thereon,
and any interest that has accrued on the remaining aggregate $7.5 million
principal amount of Senior Discount Notes through July 15, 1999, will
automatically be cancelled, without any further action by either of the parties.
In addition, upon execution and delivery of this Amendment, any amendments to
the remaining $7.5 million aggregate principal amount of the Senior Discount
Notes contained in this Amendment will automatically become effective as of the
Restructuring Closing Date without any further action by either of the parties.
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2.2 SEVERABILITY. Any provision of this Amendment that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
2.3 SUCCESSORS AND ASSIGNS. All covenants, promises and agreements by or on
behalf of the respective parties which are contained in this Amendment shall
bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Amendment shall inure to the benefit
of and shall be binding upon any assignee or transferee of the Purchaser, and in
the event of such transfer or assignment, the rights and privileges herein
conferred upon the Purchaser shall automatically extend to and be vested in, and
become an obligation of, such transferee or assignee, all subject to the terms
and conditions hereof. In connection therewith, such transferee or assignee may
disclose all documents and information which such transferee or assignee now or
hereafter may have relating to this Amendment, subject to full compliance with
Section 13.9 of the Agreement.
2.4 GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAW.
2.5 SERVICE OF PROCESS. The Company (a) hereby irrevocably submits itself
to the jurisdiction of the state courts of the State of New York and to the
jurisdiction of the United States District Court for the Southern District of
New York for the purpose of any suit, action or other proceeding arising out of
or based upon this Amendment or the subject matter hereof or thereof brought by
the Purchaser or its successors or assigns and (b) hereby waives, and agrees not
to assert, by way of motion, as a defense, or otherwise, in any such suit,
action or proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the suit, action or proceeding is brought in
an inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Amendment or the subject matter hereof may not be enforced
in or by such court, and (c) hereby waives any offsets or counterclaims in any
such action, suit or proceeding (other than compulsory counterclaims). The
Company hereby consents to service of process by registered mail at the address
to which notices are to be given. The Company agrees that its submission to
jurisdiction and its consent to service of process by mail is made for the
express benefit of the Purchaser. Final judgment against the Company in any such
action, suit or proceeding shall be conclusive and may be enforced in other
jurisdictions (x) by suit, action or proceeding on the judgment, a certified or
true copy of which shall be conclusive evidence of the fact and of the amount of
any indebtedness or liability of the Company therein described or (y) in any
other manner provided by or pursuant to the laws of such other jurisdiction;
PROVIDED, HOWEVER, that the Purchaser may at its option bring suit or institute
other judicial proceedings against the Company or any of the Company's assets in
any state or federal court of the United States or in any country or place where
the Company or such assets may be found.
2.6 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN
ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT TO, IN CONNECTION
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WITH, OR ARISING OUT OF THIS AMENDMENT, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, PROVIDED, HOWEVER, THAT WITH
RESPECT TO ANY COMPULSORY COUNTERCLAIM (I.E., A CLAIM BY ONE PARTY AGAINST
ANOTHER PARTY WHICH IF NOT BROUGHT IN SUCH ACTION WOULD RESULT IN THE PARTY
BRINGING SUCH CLAIM BEING FOREVER BARRED FROM BRINGING SUCH CLAIM), THE PARTY
BRINGING SUCH CLAIM SHALL HAVE THE RIGHT TO RAISE SUCH COMPULSORY COUNTERCLAIM
IN ANY SUCH LITIGATION.
2.7 COUNTERPARTS. This Amendment may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Amendment to produce or account for more
than one such counterpart.
2.8 SATISFACTION OF WAIVER AND CONSENT. By signing below, the Purchaser
represents and acknowledges that the requirement on the part of the Company to
obtain the written consent of the Holders of at least a majority in aggregate
principal amount of the then outstanding Senior Discounts Note prior to any
amendment to the Agreement or the Senior Discount Notes, is hereby waived.
2.9 MERGER. This Amendment, Amendment No. 1 to the Agreement, the Senior
Discount Notes and the Restructuring Agreement constitute the entire agreement
of the Company and the Holders and express the entire understanding of the
Company and the Holders with respect to the Senior Discount Notes.
2.10 ASSISTANCE WITH GAMING APPROVALS.
(a) The Company will and will cause its Gaming Subsidiaries to assist
the Purchaser and pay all expenses of the Purchaser (including fees of counsel)
in obtaining all approvals of any Gaming Authority or other Governmental Body
that are required by law, including, without limitation, the Gaming Laws, for or
in connection with any action or transaction contemplated by the Transaction
Documents, including any approvals required for the conversion of the Series D
Preferred Stock.
(b) Following the Closing Date, the Purchaser shall not be obligated
to make any filing under the Gaming Laws of any other jurisdiction, and shall
not be required to apply for licensure or registration, seek a finding of
suitability or a waiver of licensing, registration or suitability requirements
or seek any similar approval of any Gaming Authority or other Governmental Body
under the Gaming Laws (collectively, a "GAMING APPROVAL"). In the event any
applicable Gaming Authority or other Governmental Body requires the Purchaser to
apply for a Gaming Approval, the Company will or will cause the relevant Gaming
Subsidiary to, at Purchaser's request, withdraw from such jurisdiction and not
sell its products or otherwise conduct its business in such jurisdiction in a
manner that would otherwise require Purchaser to be required to apply for a
Gaming Approval of any Gaming authority or other Governmental Body under the
Gaming Laws of such jurisdiction. The Company further agrees that it will not
and will cause its Gaming Subsidiaries not to seek any remedy against the
Purchaser, either at law or in equity, for the Purchaser's failure or refusal to
apply for a Gaming Approval, including, without limitation, seeking the
divestiture by the Purchaser of the Series D Preferred Stock, the Amended Notes,
the New Notes or any other securities of the Company then held by the Purchaser.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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AMENDMENT NO. 2 TO
SECURITIES PURCHASE AGREEMENT
AND UNITS OF SENIOR DISCOUNT NOTES
COMPANY SIGNATURE PAGE
If this Amendment is satisfactory, please so indicate by signing the
applicable attached signature page of this Amendment and delivering such
counterpart to the Company whereupon this Amendment will become binding among
the parties hereto in accordance with its terms.
SILICON GAMING, INC.,
a California corporation
By: /s/ Andrew Pascal
----------------------------------------
Name: Andrew Pascal
Title: President and Chief Executive Officer
<PAGE>
AMENDMENT NO. 2 TO
SECURITIES PURCHASE AGREEMENT
AND UNITS OF SENIOR DISCOUNT NOTES
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Principal Amount of
date first written above: Senior Discount Notes
to be Cancelled: $39,750,000
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
By: DDJ Capital III, LLC,
its General Partner
By: DDJ Capital Management, LLC,
its Manager
By:
-----------------------------------
Name:
Title: Member
Address: c/o DDJ Capital Management, LLC Aggregate Principal Amount of Senior
Attn: Wendy Schnipper Clayton Discount Notes to be Amended:
141 Linden Street, Suite 4 $7,500,000
Wellesley, MA 02181
Telephone: (617) 283-8500
Telecopy: (617) 283-8555
Nominee (name in which the Amended Notes are to be registered, if different than
name of Purchaser):
GOLDMAN SACHS & COMPANY FFC: BIII CAPITAL PARTNERS, L.P.
(Nominee's Name)
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES PURCHASE
AGREEMENT DATED AS OF September 30, 1997, as amended, A COMPLETE AND CORRECT
COPY OF THE FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE. SUCH AGREEMENT, AMONG OTHER THINGS,
RESTRICTS THE DETACHMENT OF THIS SENIOR DISCOUNT NOTE FROM THE COMMON STOCK
PURCHASE WARRANTS ATTACHED HERETO.
SILICON GAMING, INC.
SENIOR DISCOUNT NOTE DUE NOVEMBER___, 2004
No. $7,500,000
Silicon Gaming, Inc., a California corporation (hereinafter called the
"COMPANY", which term includes any successor entity under the Agreement
hereinafter referred to), for value received, hereby promises to pay to GOLDMAN
SACHS & COMPANY FFC: B III CAPITAL PARTNERS, L.P., a Delaware limited
partnership, or registered assigns, the principal sum of Seven Million Five
Hundred Thousand Dollars on November ___, 2004.
Interest Payment Dates: January 1 and July 1 beginning on January 1, 2000
Record Dates: December 15 and June 15
Reference is hereby made to the further provisions of this Senior Discount
Note set forth on the following five (5) pages, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Reference is hereby made to the Restructuring Agreement, dated __________,
1999, by and between the Company and B III Capital Partners, L.P. (the
"RESTRUCTURING AGREEMENT"). All capitalized terms not defined herein shall have
the meanings ascribed to them in the Restructuring Agreement.
IN WITNESS WHEREOF, the Company has caused this Senior Discount Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its seal to be affixed hereto or imprinted hereto.
SILICON GAMING, INC.
By: /s/ Andrew Pascal
------------------------------------
Name: Andrew Pascal
Title: President and Chief Executive
Officer
<PAGE>
Senior Discount Note due __________, 2004
1. INTEREST. The Company promises to pay interest on the principal amount
of this Senior Discount Note at the rate and in the manner specified below.
Interest on this Senior Discount Note will accrue at 10% per annum from July 15,
1999 until maturity and will be payable semiannually in cash, subject to Section
2 set forth below, on January 1 and July 1 of each year beginning on January 1,
2000, or if any such day is not a Business Day on the next succeeding Business
Day (each an "INTEREST PAYMENT DATE"), to the holder of record on the
immediately preceding June 15, or December 15, as the case may be. Interest on
this Senior Discount Note will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from July 15, 1999,
provided that the first Interest Payment Date shall be January 1, 2000. The
Company shall pay interest on overdue principal and premium, if any, from time
to time on demand at the rate of 1.5% per annum in excess of the interest rate
then in effect and shall pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Accreted Value of this Senior Discount Note shall accrete, for purposes
of calculating any Redemption Price or Purchase Price and for all other purposes
in determining Accreted Value, in the period during which this Senior Discount
Note remains outstanding, at _____% per annum from the date hereof until July
15, 2004 on a semi-annual basis compounding on each January 1 and July 1, using
a 360-day year comprised of twelve 30-day months, commencing on the date of
issuance of this Senior Discount Note, and shall cease to accrete upon payment
in full or the earliest of __________, 2004, any Redemption Date or any Purchase
Date.
2. METHOD OF PAYMENT. The Company will pay interest on this Senior Discount
Note (except defaulted interest) to the Person who is the registered Holder of
this Senior Discount Note at the close of business on the record date for the
next Interest Payment Date even if such Senior Discount Note is canceled after
such record date and on or before such Interest Payment Date. Interest may be
paid, at the Company's option, in cash or by the issuance of additional Senior
Discount Notes. The issuance of such promissory notes shall constitute "payment"
of the interest for all purposes of this Note. Notwithstanding the two
immediately preceding sentences, the Company will be required to pay interest on
this Note in cash if on any Interest Payment Date the Company's EBITDA/total
debt ratio for the 12 month period ending the September 30 (in the case of
payments due January 1) or March 31 (in the case of payments due July 1)
immediately preceding such Interest Payment Date exceeds 2.5 to 1.0. Holders
must surrender Senior Discount Notes to the Company to collect principal
payments on such Senior Discount Notes. Other than payment of interest in the
form of additional Senior Discount Notes, the Company will pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal, premium, if any, and interest by wire transfer of
Federal funds, or interest by check payable in such money, and any such check
may be mailed to a Holder's registered address.
3. RESTRUCTURING AGREEMENT. Pursuant to the Restructuring Agreement, dated
as of November ___, 1999, by and between the Company and the Purchaser named
therein, this Senior Discount Note is issued in replacement of, and in full
substitution for, Senior Discount Notes No. 1 and No. B-1 due September 30,
2002.
The Company issued the Senior Discount Notes No. 1 and No. B-1 pursuant to
a Securities Purchase Agreement, dated as of September 30, 1997, by and between
the Company, as issuer of the Senior Discount Notes, and the Purchaser named
therein and as amended by Amendment No. 1 to the Securities Purchase Agreement
and Amendment No. 2 to the Securities Purchase Agreement (collectively referred
to herein as the "AGREEMENT"). The terms of the Senior Discount Notes are those
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stated in the Agreement and herein. The Senior Discount Notes are subject to,
and qualified by, all such terms, certain of which are summarized herein, and
Holders are referred to the Agreement (all capitalized terms not defined herein
shall have the meanings assigned them in the Agreement). The Senior Discount
Notes are general obligations of the Company limited to $7,500,000 in aggregate
principal amount. Reference is hereby made to the Agreement for a description of
the properties and assets in which a security interest has been granted, the
nature of the security, the terms and conditions upon which the security
interests were granted.
4. REDEMPTION PROVISIONS. The Senior Discount Notes will be subject to
redemption, in whole or from time to time in part (in multiples of $1,000 of
principal amount) at the option of the Company at a price equal to 100% of the
aggregate outstanding principal amount at maturity.
Notwithstanding the foregoing, if any Gaming Authority requires that any
Purchaser, Holder or beneficial owner of the Senior Discount Notes must be
licensed, qualified or found suitable under any Gaming Laws and such Purchaser,
Holder or beneficial owner of the Senior Discount Notes fails to apply for a
license, qualification or finding of suitability within 30 days after being
requested to do so by any Gaming Authority (or such lesser period that may be
required by such Gaming Authority), or, if any Purchaser, Holder or beneficial
owner of the Senior Discount Notes is not so licensed, qualified or found
suitable, the Purchaser, Holder or beneficial owner of the Senior Discount Notes
shall comply with any order by such Gaming Authorities requiring that such
Person dispose of any Securities held by it; provided, however, that in the
event the Purchaser, Holder or beneficial owner of the Senior Discount Notes
does not comply with such order within the required period, the Company shall
have the option as its sole remedy with respect to the Senior Discount Notes to
call for redemption the Senior Discount Notes held by such Purchaser, Holder or
beneficial owner at a price equal to the Accreted Value thereof on the
Redemption Date, plus accrued and unpaid interest to the Redemption Date.
In addition, if not previously redeemed, the Senior Discount Notes will be
subject to redemption (a "CHANGE OF CONTROL REDEMPTION") at the option of the
Holders, in whole or in part, at any time within 30 days after the completion of
an Offer made as a result of a Change of Control, at a redemption price equal to
101% of the principal amount thereof, plus accrued and unpaid interest to the
Purchase Date, subject to certain conditions set forth in the Agreement.
In addition, the Senior Discount Notes will be subject to redemption
("SECURITIES SALE REDEMPTION") at the option of the Holders, in whole or in
part, following a Securities Sale or a Mezzanine Debt Financing, from the Net
Cash Proceeds of such Securities Sale or Mezzanine Debt Financing, subject to
the provisions of Section 7.13 of the Agreement; provided that an Offer to make
a Securities Sale Redemption shall be made by the Company only if, and to the
extent that, the aggregate amount of Net Cash Proceeds from all such Securities
Sales or Mezzanine Debt Financings occurring on or after the date hereof exceed
$5,000,000. In the event of a Securities Sale Redemption, the Senior Discount
Notes will be redeemable at the aggregate principal amount plus any accrued and
unpaid interest to the Purchase Date.
5. MANDATORY OFFERS. (a) Within 10 days after any Change of Control Trigger
Date, any Repayment Trigger Date or any Excess Proceeds Date, the Company shall
mail a notice to each Holder stating a number of items as set forth in Section
of the Agreement.
(b) Holders may tender all or, subject to Section 7 below, any portion
of their Senior Discount Notes in an Offer by completing the form below entitled
"OPTION OF HOLDER TO ELECT PURCHASE."
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(c) Promptly after consummation of an Offer, (i) the Company shall
mail to each Holder of Senior Discount Notes or portions thereof accepted for
payment an amount equal to the purchase price for, plus any accrued and unpaid
interest on, such Senior Discount Notes, (ii) with respect to any tendered
Senior Discount Note not accepted for payment in whole or in part, the Company
shall return such Senior Discount Note to the Holder thereof, and (iii) with
respect to any Senior Discount Note accepted for payment in part, the Company
shall authenticate and mail to each such Holder a new Senior Discount Note equal
in principal amount to the unpurchased portion of the tendered Senior Discount
Note.
(d) The Company will (i) publicly announce the results of the Offer to
Holders on or as soon as practicable after the Purchase Date, and (ii) comply
with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations to the extent applicable to any Offer.
6. NOTICE OF REDEMPTION OR PURCHASE. At least 30 days but not more than 60
days before any Redemption Date the Company shall mail by first class mail a
notice of redemption to each Holder of Senior Discount Notes or portions thereof
that are to be redeemed.
7. SENIOR DISCOUNT NOTES TO BE REDEEMED OR PURCHASED. The Senior Discount
Notes may be redeemed or purchased in part, but only in whole multiples of
$1,000 unless all Senior Discount Notes held by a Holder are to be redeemed or
purchased. On or after any date on which Senior Discount Notes are redeemed or
purchased, interest ceases to accrue on the Senior Discount Notes or portions
thereof called for redemption or accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Discount Notes are in
registered form without coupons in denominations of $100,000 and integral
multiples thereof (subject to adjustment as provided in the Agreement). The
transfer of Senior Discount Notes may be registered and Senior Discount Notes
may be exchanged as provided in the Agreement. Holders seeking to transfer or
exchange their Senior Discount Notes may be required, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Agreement. The Company need not
exchange or register the transfer of any Senior Discount Note or portion of a
Senior Discount Note selected for redemption or tendered pursuant to an Offer.
9. PERSONS DEEMED OWNERS. The registered holder of a Senior Discount Note
may be treated as its owner for all purposes.
10. AMENDMENTS AND WAIVERS. (a) Subject to certain exceptions, the
Agreement and the Senior Discount Notes may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Discount Notes, and any existing Default
or Event of Default or compliance with any provision of the Agreement or the
Senior Discount Notes may be waived with the consent of the Holders of at least
a majority in principal amount of the then outstanding Senior Discount Notes.
(b) Notwithstanding Section 10(a) above, the Company may amend or
supplement the Agreement or the Senior Discount Notes without the consent of any
Holder to: cure any ambiguity, defect or inconsistency; provide for
uncertificated Senior Discount Notes in addition to or in place of certificated
Senior Discount Notes; or make any change that would provide any additional
rights or benefits to Holders or not adversely affect the legal rights under the
Agreement of any Holder.
(c) Certain provisions of the Agreement cannot be amended,
supplemented or waived without the consent of each Holder of Senior Discount
Notes affected.
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<PAGE>
11. DEFAULTS AND REMEDIES. Events of Default include: (i) the Company's
failure to make any payment in respect of (A) the principal of or premium, if
any, on the Senior Discount Notes as the same shall become due, whether at
maturity, upon acceleration, redemption, or otherwise, or (B) interest on or in
respect of any Senior Discount Notes as the same shall become due and such
failure shall continue for a period of 15 Business Days; (ii) failure by the
Company for 30 days after receipt of notice from the Holders of at least 25% of
the outstanding Senior Discount Notes to comply with any other provisions of the
Agreement or the Senior Discount Notes; (iii) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness now exists, or is created after
the date hereof, if (A) such default results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such Indebtedness at final maturity of such Indebtedness, and (B) the
principal amount of any such Indebtedness that has been accelerated or not paid
at maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$250,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $250,000, which judgments are
not paid, discharged, bonded or stayed for a period of 60 days after the date of
entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 90 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; and
(vi) any of the Transactions Documents shall cease for any reason, to be in full
force and effect, in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing.
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or shareholder of the Company shall have any liability for any
obligation of the Company under the Agreement or the Senior Discount Notes or
for any claim based on, in respect of, or by reason of, any such obligation or
the creation of any such obligation. Each Holder by accepting a Senior Discount
Note waives and releases such Persons from all such liability, and such waiver
and release is part of the consideration for the Issuance of the Senior Discount
Notes.
13. SUCCESSOR SUBSTITUTED. Upon the merger, consolidation or other business
combination involving the Company or upon the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the Company's
properties and assets, the Surviving Person (if other than the Company)
resulting from such Disposition shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Agreement with the
same effect as if such Surviving Person had been named as the Company in the
Agreement.
14. GOVERNING LAW. This Senior Discount Note shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to the conflict of laws provisions thereof.
A-5
<PAGE>
15. CUSIP NUMBERS. The Company will use reasonable efforts to cause CUSIP
numbers to be printed on the Senior Discount Notes and to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Senior Discount Notes
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers printed on the securities.
16. COPIES OF AGREEMENT. The Company will furnish to any Holder upon
written request and without charge a copy of the Agreement, which has in it the
text of this Senior Discount Note. Requests may be made to: Silicon Gaming,
Inc., 2800 W. Bayshore Road, Palo Alto, California 94303, Attn: President.
17. CERTAIN INFORMATION OBLIGATIONS. To the extent permitted by applicable
law or regulation, whether or not the Company is subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the
Commission all quarterly and annual reports and such other information,
documents or other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) required to be filed
pursuant to such provisions of the Exchange Act. At any time when the Company is
not permitted by applicable law or regulations to file the aforementioned
reports, the Company shall mail to the Holders, within five days after it would
have been required to file the same with the Commission, all information that
the Company would have had to provide to the Commission if the Company had been
subject to Section 13 or 15(d) of the Exchange Act. Also, at any time when the
Company is not permitted by applicable law or regulations to file the
aforementioned reports, upon the request of a Holder of a Senior Discount Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Senior Discount Note, as the case may be, in order to permit compliance by
such Holder with Rule 144A under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-6
<PAGE>
ASSIGNMENT FORM
To assign this Senior Discount Note, fill in the form below:
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto ___________________________________________________________________________
________________________________________________________________________________
(Please insert social security or other identifying number of assignee)
at _____________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the within Senior Discount Note and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ to transfer
said Senior Discount Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
----------------- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Senior Discount Note)
Signature Guarantee:____________________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.12 of the Agreement, check the box: [ ]
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.13 of the Agreement, check the box: [ ]
If you elect to have only part of this Senior Discount Note purchased by
the Company pursuant to Section 7.12 or 7.13 of the Agreement, state the amount
(multiples of $1,000 only):
$_________________
Date: Your Signature:
----------------- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Senior Discount Note)
Signature Guarantee:____________________________________
A-1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES PURCHASE
AGREEMENT DATED AS OF September 30, 1997, as amended, A COMPLETE AND CORRECT
COPY OF THE FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE. SUCH AGREEMENT, AMONG OTHER THINGS,
RESTRICTS THE DETACHMENT OF THIS SENIOR DISCOUNT NOTE FROM THE COMMON STOCK
PURCHASE WARRANTS ATTACHED HERETO.
SILICON GAMING, INC.
SENIOR DISCOUNT NOTE DUE NOVEMBER 24, 2004
No. $7,500,000
Silicon Gaming, Inc., a California corporation (hereinafter called the
"COMPANY", which term includes any successor entity under the Agreement
hereinafter referred to), for value received, hereby promises to pay to B III
CAPITAL PARTNERS, L.P., a Delaware limited partnership, or registered assigns,
the principal sum of Seven Million Five Hundred Thousand Dollars on November 24,
2004.
Interest Payment Dates: January 1 and July 1 beginning on January 1, 2000
Record Dates: December 15 and June 15
Reference is hereby made to the further provisions of this Senior Discount
Note set forth on the following five (5) pages, which further provisions shall
for all purposes have the same effect as if set forth at this place.
Reference is hereby made to the Restructuring Agreement, dated as of
November 24, 1999, by and between the Company and B III Capital Partners, L.P.
(the "RESTRUCTURING AGREEMENT"). All capitalized terms not defined herein shall
have the meanings ascribed to them in the Restructuring Agreement.
IN WITNESS WHEREOF, the Company has caused this Senior Discount Note to be
signed manually or by facsimile by its duly authorized officers and a facsimile
of its seal to be affixed hereto or imprinted hereto.
SILICON GAMING, INC.
By: /s/ Andrew Pascal
------------------------------------
Name: Andrew Pascal
Title: President and Chief Executive
Officer
<PAGE>
Senior Discount Note due November 24, 2004
1. INTEREST. The Company promises to pay interest on the principal amount
of this Senior Discount Note at the rate and in the manner specified below.
Interest on this Senior Discount Note will accrue at 10% per annum from July 15,
1999 until maturity and will be payable semiannually in cash, subject to Section
2 set forth below, on January 1 and July 1 of each year beginning on January 1,
2000, or if any such day is not a Business Day on the next succeeding Business
Day (each an "INTEREST PAYMENT DATE"), to the holder of record on the
immediately preceding June 15, or December 15, as the case may be. Interest on
this Senior Discount Note will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from July 15, 1999,
provided that the first Interest Payment Date shall be January 1, 2000. The
Company shall pay interest on overdue principal and premium, if any, from time
to time on demand at the rate of 1.5% per annum in excess of the interest rate
then in effect and shall pay interest on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on this Senior Discount
Note (except defaulted interest) to the Person who is the registered Holder of
this Senior Discount Note at the close of business on the record date for the
next Interest Payment Date even if such Senior Discount Note is canceled after
such record date and on or before such Interest Payment Date. Interest may be
paid, at the Company's option, in cash or by the issuance of additional Senior
Discount Notes. The issuance of such promissory notes shall constitute "payment"
of the interest for all purposes of this Note. Notwithstanding the two
immediately preceding sentences, the Company will be required to pay interest on
this Note in cash if on any Interest Payment Date the Company's EBITDA/total
debt ratio for the 12 month period ending the September 30 (in the case of
payments due January 1) or March 31 (in the case of payments due July 1)
immediately preceding such Interest Payment Date exceeds 2.5 to 1.0. Holders
must surrender Senior Discount Notes to the Company to collect principal
payments on such Senior Discount Notes. Other than payment of interest in the
form of additional Senior Discount Notes, the Company will pay principal,
premium, if any, and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal, premium, if any, and interest by wire transfer of
Federal funds, or interest by check payable in such money, and any such check
may be mailed to a Holder's registered address.
3. RESTRUCTURING AGREEMENT. Pursuant to the Restructuring Agreement, dated
as of November 24, 1999, by and between the Company and the Purchaser named
therein, this Senior Discount Note is issued in replacement of, and in full
substitution for, Senior Discount Notes No. 1 and No. B-1 due September 30,
2002.
The Company issued the Senior Discount Notes No. 1 and No. B-1 pursuant to
a Securities Purchase Agreement, dated as of September 30, 1997, by and between
the Company, as issuer of the Senior Discount Notes, and the Purchaser named
therein and as amended by Amendment No. 1 to the Securities Purchase Agreement
and Amendment No. 2 to the Securities Purchase Agreement (collectively referred
to herein as the "AGREEMENT"). The terms of the Senior Discount Notes are those
stated in the Agreement and herein. The Senior Discount Notes are subject to,
and qualified by, all such terms, certain of which are summarized herein, and
Holders are referred to the Agreement (all capitalized terms not defined herein
shall have the meanings assigned them in the Agreement). The Senior Discount
Notes are general obligations of the Company limited to $7,500,000 in aggregate
principal amount. Reference is hereby made to the Agreement for a description of
the properties and assets in which a security interest has been granted, the
nature of the security, the terms and conditions upon which the security
interests were granted.
<PAGE>
4. REDEMPTION PROVISIONS. The Senior Discount Notes will be subject to
redemption, in whole or from time to time in part (in multiples of $1,000 of
principal amount) at the option of the Company at a price equal to 100% of the
aggregate outstanding principal amount at maturity.
Notwithstanding the foregoing, if any Gaming Authority requires that any
Purchaser, Holder or beneficial owner of the Senior Discount Notes must be
licensed, qualified or found suitable under any Gaming Laws and such Purchaser,
Holder or beneficial owner of the Senior Discount Notes fails to apply for a
license, qualification or finding of suitability within 30 days after being
requested to do so by any Gaming Authority (or such lesser period that may be
required by such Gaming Authority), or, if any Purchaser, Holder or beneficial
owner of the Senior Discount Notes is not so licensed, qualified or found
suitable, the Purchaser, Holder or beneficial owner of the Senior Discount Notes
shall comply with any order by such Gaming Authorities requiring that such
Person dispose of any Securities held by it; provided, however, that in the
event the Purchaser, Holder or beneficial owner of the Senior Discount Notes
does not comply with such order within the required period, the Company shall
have the option as its sole remedy with respect to the Senior Discount Notes to
call for redemption the Senior Discount Notes held by such Purchaser, Holder or
beneficial owner at a price equal to the Accreted Value thereof on the
Redemption Date, plus accrued and unpaid interest to the Redemption Date.
In addition, if not previously redeemed, the Senior Discount Notes will be
subject to redemption (a "CHANGE OF CONTROL REDEMPTION") at the option of the
Holders, in whole or in part, at any time within 30 days after the completion of
an Offer made as a result of a Change of Control, at a redemption price equal to
101% of the principal amount thereof, plus accrued and unpaid interest to the
Purchase Date, subject to certain conditions set forth in the Agreement.
In addition, the Senior Discount Notes will be subject to redemption
("SECURITIES SALE REDEMPTION") at the option of the Holders, in whole or in
part, following a Securities Sale or a Mezzanine Debt Financing, from the Net
Cash Proceeds of such Securities Sale or Mezzanine Debt Financing, subject to
the provisions of Section 7.13 of the Agreement; provided that an Offer to make
a Securities Sale Redemption shall be made by the Company only if, and to the
extent that, the aggregate amount of Net Cash Proceeds from all such Securities
Sales or Mezzanine Debt Financings occurring on or after the date hereof exceed
$5,000,000. In the event of a Securities Sale Redemption, the Senior Discount
Notes will be redeemable at the aggregate principal amount plus any accrued and
unpaid interest to the Purchase Date.
5. MANDATORY OFFERS. (a) Within 10 days after any Change of Control Trigger
Date, any Repayment Trigger Date or any Excess Proceeds Date, the Company shall
mail a notice to each Holder stating a number of items as set forth in Section
of the Agreement.
(b) Holders may tender all or, subject to Section 7 below, any portion
of their Senior Discount Notes in an Offer by completing the form below entitled
"OPTION OF HOLDER TO ELECT PURCHASE."
(c) Promptly after consummation of an Offer, (i) the Company shall
mail to each Holder of Senior Discount Notes or portions thereof accepted for
payment an amount equal to the purchase price for, plus any accrued and unpaid
interest on, such Senior Discount Notes, (ii) with respect to any tendered
Senior Discount Note not accepted for payment in whole or in part, the Company
shall return such Senior Discount Note to the Holder thereof, and (iii) with
respect to any Senior Discount Note accepted for payment in part, the Company
shall authenticate and mail to each such Holder a new Senior Discount Note equal
in principal amount to the unpurchased portion of the tendered Senior Discount
Note.
<PAGE>
(d) The Company will (i) publicly announce the results of the Offer to
Holders on or as soon as practicable after the Purchase Date, and (ii) comply
with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations to the extent applicable to any Offer.
6. NOTICE OF REDEMPTION OR PURCHASE. At least 30 days but not more than 60
days before any Redemption Date the Company shall mail by first class mail a
notice of redemption to each Holder of Senior Discount Notes or portions thereof
that are to be redeemed.
7. SENIOR DISCOUNT NOTES TO BE REDEEMED OR PURCHASED. The Senior Discount
Notes may be redeemed or purchased in part, but only in whole multiples of
$1,000 unless all Senior Discount Notes held by a Holder are to be redeemed or
purchased. On or after any date on which Senior Discount Notes are redeemed or
purchased, interest ceases to accrue on the Senior Discount Notes or portions
thereof called for redemption or accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Discount Notes are in
registered form without coupons in denominations of $100,000 and integral
multiples thereof (subject to adjustment as provided in the Agreement). The
transfer of Senior Discount Notes may be registered and Senior Discount Notes
may be exchanged as provided in the Agreement. Holders seeking to transfer or
exchange their Senior Discount Notes may be required, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Agreement. The Company need not
exchange or register the transfer of any Senior Discount Note or portion of a
Senior Discount Note selected for redemption or tendered pursuant to an Offer.
9. PERSONS DEEMED OWNERS. The registered holder of a Senior Discount Note
may be treated as its owner for all purposes.
10. AMENDMENTS AND WAIVERS. (a) Subject to certain exceptions, the
Agreement and the Senior Discount Notes may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Discount Notes, and any existing Default
or Event of Default or compliance with any provision of the Agreement or the
Senior Discount Notes may be waived with the consent of the Holders of at least
a majority in principal amount of the then outstanding Senior Discount Notes.
(b) Notwithstanding Section 10(a) above, the Company may amend or
supplement the Agreement or the Senior Discount Notes without the consent of any
Holder to: cure any ambiguity, defect or inconsistency; provide for
uncertificated Senior Discount Notes in addition to or in place of certificated
Senior Discount Notes; or make any change that would provide any additional
rights or benefits to Holders or not adversely affect the legal rights under the
Agreement of any Holder.
(c) Certain provisions of the Agreement cannot be amended,
supplemented or waived without the consent of each Holder of Senior Discount
Notes affected.
11. DEFAULTS AND REMEDIES. Events of Default include: (i) the Company's
failure to make any payment in respect of (A) the principal of or premium, if
any, on the Senior Discount Notes as the same shall become due, whether at
maturity, upon acceleration, redemption, or otherwise, or (B) interest on or in
respect of any Senior Discount Notes as the same shall become due and such
failure shall continue for a period of 15 Business Days; (ii) failure by the
Company for 30 days after receipt of notice from the Holders of at least 25% of
the outstanding Senior Discount Notes to comply with any other provisions of the
Agreement or the Senior Discount Notes; (iii) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
<PAGE>
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness now exists, or is created after
the date hereof, if (A) such default results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such Indebtedness at final maturity of such Indebtedness, and (B) the
principal amount of any such Indebtedness that has been accelerated or not paid
at maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$250,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $250,000, which judgments are
not paid, discharged, bonded or stayed for a period of 60 days after the date of
entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 90 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; and
(vi) any of the Transactions Documents shall cease for any reason, to be in full
force and effect, in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing.
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or shareholder of the Company shall have any liability for any
obligation of the Company under the Agreement or the Senior Discount Notes or
for any claim based on, in respect of, or by reason of, any such obligation or
the creation of any such obligation. Each Holder by accepting a Senior Discount
Note waives and releases such Persons from all such liability, and such waiver
and release is part of the consideration for the Issuance of the Senior Discount
Notes.
13. SUCCESSOR SUBSTITUTED. Upon the merger, consolidation or other business
combination involving the Company or upon the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the Company's
properties and assets, the Surviving Person (if other than the Company)
resulting from such Disposition shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Agreement with the
same effect as if such Surviving Person had been named as the Company in the
Agreement.
14. GOVERNING LAW. This Senior Discount Note shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to the conflict of laws provisions thereof.
15. CUSIP NUMBERS. The Company will use reasonable efforts to cause CUSIP
numbers to be printed on the Senior Discount Notes and to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Senior Discount Notes
or as contained in any notice of redemption and reliance may be placed only on
the other identification numbers printed on the securities.
16. COPIES OF AGREEMENT. The Company will furnish to any Holder upon
written request and without charge a copy of the Agreement, which has in it the
text of this Senior Discount Note. Requests may be made to: Silicon Gaming,
Inc., 2800 W. Bayshore Road, Palo Alto, California 94303, Attn: President.
17. CERTAIN INFORMATION OBLIGATIONS. To the extent permitted by applicable
law or regulation, whether or not the Company is subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the
<PAGE>
Commission all quarterly and annual reports and such other information,
documents or other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) required to be filed
pursuant to such provisions of the Exchange Act. At any time when the Company is
not permitted by applicable law or regulations to file the aforementioned
reports, the Company shall mail to the Holders, within five days after it would
have been required to file the same with the Commission, all information that
the Company would have had to provide to the Commission if the Company had been
subject to Section 13 or 15(d) of the Exchange Act. Also, at any time when the
Company is not permitted by applicable law or regulations to file the
aforementioned reports, upon the request of a Holder of a Senior Discount Note,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Senior Discount Note, as the case may be, in order to permit compliance by
such Holder with Rule 144A under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ASSIGNMENT FORM
To assign this Senior Discount Note, fill in the form below:
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto ___________________________________________________________________________
________________________________________________________________________________
(Please insert social security or other identifying number of assignee)
at _____________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the within Senior Discount Note and all rights thereunder, hereby irrevocably
constituting and appointing ________________________________________ to transfer
said Senior Discount Note on the books of the Company. The agent may substitute
another to act for him.
Date: Your Signature:
----------------- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Senior Discount Note)
Signature Guarantee:____________________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.12 of the Agreement, check the box: [ ]
If you elect to have this Senior Discount Note purchased by the Company
pursuant to Section 7.13 of the Agreement, check the box: [ ]
If you elect to have only part of this Senior Discount Note purchased by
the Company pursuant to Section 7.12 or 7.13 of the Agreement, state the amount
(multiples of $1,000 only):
$_________________
Date: Your Signature:
----------------- ------------------------------------------
(Sign exactly as your name appears on the
other side of this Senior Discount Note)
Signature Guarantee:____________________________________
SILICON GAMING, INC.
-------------------------
SECURITIES PURCHASE AGREEMENT
-------------------------
$5,000,000 AGGREGATE PRINCIPAL AMOUNT OF
13% SENIOR SECURED NOTES
DUE NOVEMBER 24, 2004
OF
SILICON GAMING, INC.
DATED AS OF NOVEMBER 24, 1999
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
----
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................. 1
1.1 Definitions........................................................ 5
1.2 Accounting Terms................................................... 26
ARTICLE II PURCHASE AND SALE OF NOTES....................................... 26
2.1 Issuance of New Notes.............................................. 26
2.2 Sale and Purchase of New Notes..................................... 26
2.3 Closing of Sale of New Notes....................................... 27
ARTICLE III CONDITIONS TO CLOSING........................................... 27
3.1 Conditions Precedent to Obligations of the Purchaser
on the Closing Date................................................ 27
3.2 Conditions Precedent to Obligations of the Company
on the Closing Date................................................ 30
ARTICLE IV REPRESENTATIONS AND WARRANTIES, ETC.............................. 31
4.1 Organization and Qualification; Authority.......................... 31
4.2 Subsidiaries....................................................... 31
4.3 Licenses........................................................... 32
4.4 Corporate and Governmental Authorization; Contravention............ 32
4.5 Validity and Binding Effect........................................ 33
4.6 Capitalization..................................................... 33
4.7 Preemptive or Other Rights......................................... 33
4.8 Litigation; Defaults............................................... 33
4.9 Outstanding Debt................................................... 34
4.10 No Material Adverse Change......................................... 34
4.11 Employee Programs.................................................. 34
4.12 Private Offering................................................... 36
4.13 Broker's or Finder's Commissions................................... 37
4.14 Disclosure......................................................... 37
4.15 Foreign Assets Control Regulation, Etc............................. 37
4.16 Federal Reserve Regulations and Other Matters...................... 37
4.17 Investment Company Act............................................. 38
4.18 Public Utility Holding Company Act................................. 38
4.19 Interstate Commerce Act............................................ 38
4.20 Environmental Regulation, Etc...................................... 38
4.21 Properties and Assets.............................................. 39
4.22 Insurance.......................................................... 39
4.23 Employment Practices............................................... 40
4.24 Financial Statements............................................... 40
4.25 Intellectual Property.............................................. 41
4.26 Taxes.............................................................. 42
4.27 Transactions with Affiliates....................................... 43
4.28 Limitation on Subsidiary Payment Restrictions...................... 43
4.29 No Other Business.................................................. 43
i
<PAGE>
ARTICLE V PURCHASE FOR INVESTMENT; SOURCE OF FUNDS.......................... 43
5.1 Purchase for Investment............................................ 43
5.2 Authority.......................................................... 43
5.3 Broker's or Finder's Commissions................................... 43
5.4 Acknowledgment of Gaming Restrictions.............................. 44
ARTICLE VI REDEMPTIONS, OFFERS TO PURCHASE, AND CONVERSIONS................. 44
6.1 Notice of Redemption............................................... 44
6.2 Selection of New Notes to be Redeemed or Purchased................. 44
6.3 Effect of Notice of Redemption..................................... 45
6.4 Payment of Redemption Price........................................ 45
6.5 New Notes Redeemed in Part......................................... 45
6.6 Optional and Mandatory Redemption.................................. 45
6.7 Mandatory Offers................................................... 45
ARTICLE VII COVENANTS....................................................... 47
7.1 Payment of New Notes............................................... 47
7.2 Reports............................................................ 47
7.3 Compliance Certificate............................................. 48
7.4 Stay, Extension and Usury Laws..................................... 49
7.5 Limitation on Restricted Payments.................................. 49
7.6 Corporate Existence................................................ 49
7.7 Limitation on Indebtedness......................................... 49
7.8 Limitation on Transactions with Affiliates......................... 51
7.9 Limitation on Liens................................................ 51
7.10 Payment of Taxes and Other Claims.................................. 52
7.11 Restrictions Against Limitations on Upstream Payments.............. 52
7.12 Change of Control.................................................. 53
7.13 Redemption from the Proceeds of Securities Sales and
Mezzanine Debt Financings.......................................... 53
7.14 Maintenance of Properties.......................................... 54
7.15 Maintenance of Insurance........................................... 54
7.16 Compliance with Laws............................................... 54
7.17 Limitation on Issuances and Dispositions of Capital Stock
of Subsidiaries.................................................... 54
7.18 Limitation on Sale of Assets....................................... 55
ARTICLE VIII SUCCESSORS..................................................... 55
8.1 Merger or Consolidation............................................ 55
8.2 Surviving Person Substituted....................................... 55
ARTICLE IX DEFAULTS AND REMEDIES............................................ 55
9.1 Events of Default.................................................. 55
9.2 Acceleration....................................................... 56
9.3 Other Remedies..................................................... 57
9.4 Waiver of Past Defaults............................................ 57
9.5 Control by a Majority.............................................. 58
9.6 Rights of Holders to Receive Payment............................... 58
9.7 Holders May File Proofs of Claim................................... 58
9.8 Undertaking for Costs.............................................. 58
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ARTICLE X AMENDMENTS........................................................ 58
10.1 Amendments and Supplements Permitted Without Consent of Holders.... 58
10.2 Amendments and Supplements Requiring Consent of Holders;
Other Consents..................................................... 58
10.3 Revocation and Effect of Consents.................................. 59
10.4 Notation on or Exchange of New Notes............................... 60
10.5 Board Approval..................................................... 60
ARTICLE XI THE CONVERTIBLE NOTES............................................ 60
11.1 Form and Dating.................................................... 60
11.2 Execution and Authentication....................................... 60
11.3 Transfer and Exchange.............................................. 61
11.4 Replacement New Notes.............................................. 61
11.5 Outstanding New Notes.............................................. 61
11.6 Treasury New Notes................................................. 62
11.7 Temporary New Notes................................................ 62
11.8 Cancellation....................................................... 62
11.9 Defaulted Interest................................................. 62
11.10 Record Date........................................................ 62
11.11 CUSIP Number....................................................... 62
11.12 Restrictive Legends................................................ 63
11.13 Notice of Transfer; Opinions of Counsel............................ 63
11.14 Security........................................................... 64
ARTICLE XII INDEMNIFICATION................................................. 66
12.1 Indemnification; Expenses, Etc..................................... 66
ARTICLE XIII MISCELLANEOUS.................................................. 68
13.1 Survival of Representations and Warranties; Severability........... 68
13.2 Notices, Etc....................................................... 68
13.3 Successors and Assigns............................................. 69
13.4 Descriptive Headings............................................... 69
13.5 Satisfaction Requirement........................................... 69
13.6 Governing Law...................................................... 70
13.7 Service of Process................................................. 70
13.8 Counterparts....................................................... 70
13.9 Disclosure to Other Persons........................................ 70
13.10 No Adverse Interpretation of Other Agreements...................... 71
13.11 Waiver of Jury Trial............................................... 71
13.12 Merger............................................................. 71
13.13 Expenses........................................................... 71
13.14 Cooperation with Gaming Authorities................................ 71
13.15 Gaming Laws; Requisite Gaming Approvals............................ 72
13.16 Assistance with Gaming Approvals................................... 71
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SCHEDULES
Schedule 4.1 -- Qualified Jurisdictions
Schedule 4.2 -- Subsidiaries
Schedule 4.4 -- Approvals
Schedule 4.6 -- Agreements Affecting Securities
Schedule 4.7 -- Preemptive or Other Rights
Schedule 4.8 -- Litigation; Defaults
Schedule 4.9 -- Debt and Other Liabilities
Schedule 4.10 -- Material Developments
Schedule 4.11 -- ERISA
Schedule 4.20 -- Environmental
Schedule 4.21 -- Liens
Schedule 4.22 -- Insurance
Schedule 4.23 -- Employment Matters
Schedule 4.25 -- Intellectual Property
Schedule 4.26 -- Taxes
Schedule 4.27 -- Transactions with Affiliates
Schedule 4.28 -- Subsidiary Payment Restrictions
EXHIBITS
Exhibit A -- Form of New Note
Exhibit B -- Legal Opinion of Corporate Counsel
Exhibit C -- Legal Opinion of Special Counsel
Exhibit D -- Legal Opinion of Gaming Counsel
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SILICON GAMING, INC.
THIS SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of November
24, 1999, is entered into by and between Silicon Gaming, Inc., a California
corporation (the "COMPANY"), and the purchaser listed on the signature page
hereto (the "PURCHASER"). Unless otherwise defined, capitalized terms used in
this Agreement are defined in Article I; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement; references to a "section" or a "subdivision" are, unless
otherwise specified, to a section or a subdivision of this Agreement.
In consideration of the mutual covenants and agreements set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Purchaser and the Company agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. In addition to any terms defined elsewhere in this
Agreement, unless otherwise specifically provided herein, the following terms
shall have the following meanings for all purposes when used in this Agreement,
and in any note, agreement, certificate, report or other document made or
delivered in connection with this Agreement:
"Additional Interest" has the meaning ascribed thereto in Section 11.14(f)
hereof.
"Acquired Indebtedness" means, with respect to any specified Person, (a)
Indebtedness of an Acquired Person existing at the time of such acquisition,
including Indebtedness issued in connection with, or in contemplation of, such
acquisition, and (b) Indebtedness incurred by such Person or its Subsidiaries
(i) the proceeds of which have been used to finance an Investment in a Related
Business, and (ii) which is secured by a Lien solely on the assets or Property
constituting such an Investment in a Related Business.
"Acquired Person" means, with respect to any specified Person, any other
Person acquired by such specified Person, whether by purchase, merger,
consolidation, other business combination or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
(a) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (b) that directly or
indirectly owns more than 10% of the voting securities of such Person. A Person
shall be deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliate Transaction" has the meaning ascribed thereto in Section 7.8
hereof.
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"Agreement" means this Agreement, as amended, modified or supplemented from
time to time, together with any exhibits, schedules or other attachments
thereto.
"Amended Notes" means the $7.5 million aggregate principal amount of Senior
Discount Notes not exchanged for Series D Preferred Stock of the Company under
the Restructuring Agreement and certain terms and provisions of which were
amended pursuant to Amendment No. 2 to the Securities Purchase Agreement."
"Amended Notes Securities Purchase Agreement" means the Original Securities
Purchase Agreement, as amended by Amendment No. 1 to the Securities Purchase
Agreement and Amendment No. 2 to the Securities Purchase Agreement.
"Amendment No. 2 to the Securities Purchase Agreement" means that certain
Amendment No. 2 to the Securities Purchase Agreement initially entered into and
dated September 30, 1997 (the "Original Securities Purchase Agreement"), and as
amended by Amendment No. 1 to the Securities Purchase Agreement dated July 8,
1998 (the "Amendment No. 1 to the Securities Purchase Agreement"), by and
between the Company and BIII Capital Partners, L.P.
"Approvals" means each and every approval, consent, filing or registration
by, or with any Governmental Body, or any creditor or shareholder of the
Company, necessary (a) to authorize or permit the execution, delivery or
performance by the Company of the Transaction Documents, and (b) for the
validity or enforceability of any of such Transaction Documents against the
Company.
"Asset Disposition" means any sale, lease, transfer, conveyance or other
disposition (in one transaction or a series of related transactions), including
any such disposition by means of a merger, consolidation or similar transaction,
of shares of Capital Stock of a Subsidiary (other than directors' qualifying
shares), Property or other assets (each referred to for the purposes of this
definition as a "disposition") by the Company or any of its Subsidiaries, but
excluding the following: (a) a disposition by a Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly Owned Subsidiary, (b) a disposition of
tangible property or assets which have become obsolete or are otherwise not used
or useful, so long as such disposition is at fair market value (as determined by
the Company in good faith) in the ordinary course of business, (c) a disposition
that constitutes a Restricted Payment or a Public Offering, in each case so long
as effected in accordance with all applicable provisions of this Agreement, and
(d) a disposition of inventory in the ordinary course of business, in each case
so long as effected in accordance with all applicable provisions of this
Agreement.
"Authorized Common Stock Amendment" means the Amendment to the Articles of
Incorporation of the Company approved by the Board of Directors of the Company
to increase the number of authorized shares of Common Stock of the Company from
50,000,000 to 750,000,000.
"Bankruptcy Law" means Title 11, United States Code, or any similar Federal
or state law for the relief of debtors.
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"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP. The stated
maturity of such obligation shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon which such lease
may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares of, or interests,
rights, participations, and/or other equivalents in (however designated),
corporate stock or equity securities of such Person, including each class of
common stock and preferred stock of such Person and partnership or limited
liability company interests, whether general or limited, of such Person, and
including any securities convertible into or exercisable or exchangeable for, or
any right to acquire, any equity interest in such Person.
"Cash Equivalents" means: (a) marketable obligations issued or
unconditionally guaranteed by the United States government, in each case
maturing within 360 days after the date of acquisition thereof; (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 360 days after the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (c) commercial paper maturing no
more than 360 days after the date of acquisition thereof, issued by a
corporation organized under the laws of any state of the United States or of the
District of Columbia and, at the time of acquisition, having a rating in one of
the two highest rating categories obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc.; (d) money market funds whose
investments are made solely in securities described in clause (a) maturing
within 360 days after the date of acquisition thereof; (e) certificates of
deposit maturing within 360 days after the date of acquisition thereof, issued
by any commercial bank that is a member of the Federal Reserve System that has
capital, surplus and undivided profits (as shown on its most recent statement of
condition) aggregating not less than $100,000,000 and is rated A or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation; and (f)
repurchase agreements entered into with any commercial bank of the nature
referred to in clause (e), secured by a fully perfected Lien in any obligation
of the type described in any of clauses (a) through (e), having a fair market
value at the time such repurchase agreement is entered into of not less than
100% of the repurchase obligation thereunder of such commercial bank.
7
<PAGE>
"Change of Control" means any transaction or series of transactions in
which any of the following occurs: (a) any Person or group (within the meaning
of Rule 13d-3 under the Exchange Act and Sections 13(d) and 14(d) of the
Exchange Act) becomes the direct or indirect "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of 25% or more of the issued and outstanding
shares of Capital Stock entitled to vote in the election of directors of the
Company or the Surviving Person (if other than the Company); (b) a merger or
consolidation of the Company with or into another corporation in which less than
a majority of the outstanding voting power of the surviving or consolidated
corporation immediately following such event is held by persons or entities who
were stockholders of the Company immediately prior to such event; (c) the sale
of all or substantially all of the properties and assets of the Company and its
Subsidiaries; (d) the redemption or repurchase of shares representing a majority
of the voting power of the outstanding shares of capital stock of the Company;
or (e) individuals who at the Closing constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of at least a majority of the directors of the Company
then still in office who were either directors at the Closing or whose election
or nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office;
provided however, that a conversion of Series D Preferred Stock into Common
Stock, an issuance of Common Stock under the Management Incentive Plan, issuance
of the Units, an issuance of Common Stock upon exercise of Old Equity Warrants,
issuance of the Series E Warrant, an issuance of Series E Preferred Stock upon
exercise of the Series E Warrant, and an issuance of Common Stock upon
conversion of the Series E Preferred Stock, shall not, individually or in the
aggregate in and of itself, constitute a Change of Control.
"Change of Control Trigger Date" has the meaning ascribed thereto in
Section 7.12 hereof.
"Charter Documents" has the meaning ascribed thereto in Section 4.1 hereof.
"Closing" has the meaning ascribed thereto in Section 2.3 hereof.
"Closing Date" has the meaning ascribed thereto in Section 2.3 hereof.
"Code" means the Internal Revenue Code of 1986, as the same may be amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Collateral" means all of the assets of the Company and its Subsidiaries,
excluding the Capital Stock of the Gaming Subsidiaries, and including, without
limitation, all right, title and interest of the Company and its Subsidiaries
now owned or hereafter acquired in and to the following: (a) all equipment and
fixtures (including, without limitation, furniture, vehicles and other machinery
and office equipment), together with all additions and accessions thereto and
replacements therefor; (b) all inventory (including, without limitation, (i) all
raw materials, work in progress and finished goods and (ii) all such goods which
are returned to or repossessed by the Company), together with all additions and
8
<PAGE>
accessions thereto, replacements therefor, products thereof and documents
therefor; (c) all accounts, chattel paper, contract rights and rights to the
payment of money; (d) all general intangibles (including, without limitation,
(i) customer and supplier lists and contracts, books and records, insurance
policies, tax refunds, contracts for the purchase of real or personal property,
(ii) all copyrights, trademarks, trade names and service marks, (iii) all
patents, and all registrations, recordings, reissues, continuations,
continuations-in-part and extensions thereof, and all pending applications
therefor, (iv) all licenses to use, applications for, and other rights to, such
patents, copyrights, trademarks, trade names and service marks (other than
licenses whose terms prohibit the granting of a security interest therein), and
(v) all goodwill of the Company); (e) all deposit accounts, money, certificated
and uncertificated securities, instruments and documents; and (f) all proceeds
of the foregoing (including, without limitation, whatever is receivable or
received when Collateral or proceeds is sold, collected, exchanged, returned,
substituted or otherwise disposed of, whether such disposition is voluntary or
involuntary, including rights to payment and return premiums and insurance
proceeds under insurance with respect to any Collateral, and all rights to
payment with respect to any cause of action affecting or relating to the
Collateral).
"Commission" means the United States Securities and Exchange Commission or
any other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, par value $.001 per share, of the
Company.
"Company" means the party named as such above until a successor replaces it
and thereafter means the successor.
"Consolidated" or "consolidated," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"Consolidated EBIT" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person and its consolidated Subsidiaries for
such period, plus or minus (a) a provision for taxes based on income or profits,
to the extent such provision for taxes was included in computing such
Consolidated Net Income, plus (b) Consolidated Interest Expense for such period,
all as determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated EBIT of such Person and its consolidated Subsidiaries for such
period, plus depreciation, amortization and all other non-cash charges, to the
extent such depreciation, amortization and other non-cash charges were deducted
in computing such Consolidated EBIT (including amortization of goodwill and
other intangibles), all as determined on a consolidated basis in accordance with
GAAP.
"Consolidated Interest Coverage Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated EBITDA for the period of the
most recent two consecutive fiscal quarters for which financial statements are
available to (b) Consolidated Interest Expense for such two fiscal quarters;
PROVIDED, HOWEVER, that (i) if the Company or any Subsidiary has issued any
9
<PAGE>
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio is an issuance of Indebtedness, or both, Consolidated EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been issued on the first day of such period and with respect to the discharge of
any other Indebtedness refinanced, refunded, exchanged or otherwise discharged
with the proceeds of such new Indebtedness as if any such discharge had occurred
on the first day of such period, (ii) if since the beginning of such period the
Company or any Subsidiary shall have made any Asset Disposition, Consolidated
EBITDA for such period shall be reduced by an amount equal to the Consolidated
EBITDA (if positive) directly attributable to the assets which are the subject
of such Asset Disposition for such period, or increased by an amount equal to
the Consolidated EBITDA (if negative) directly attributable thereto for such
period and Consolidated Interest Expense for such period shall be reduced by an
amount equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Subsidiary refinanced, refunded, exchanged or
otherwise discharged with respect to the Company and its continuing Subsidiaries
in connection with such Asset Dispositions for such period (or if the Capital
Stock of any Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Subsidiary to the
extent the Company and its continuing Subsidiaries are no longer liable for such
Indebtedness after such sale), and (iii) if since the beginning of such period
the Company or any Subsidiary (by merger or otherwise) shall have made an
Investment in any Subsidiary (or any person which becomes a Subsidiary) or an
acquisition of assets or stock, including any acquisition of assets or stock
occurring in connection with a transaction causing a calculation to be made
hereunder, which constitutes all of an operating unit of a business,
Consolidated EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the issuing of any
Indebtedness), as if such Investment or acquisition occurred on the first day of
such period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Indebtedness issued in connection therewith, the pro forma calculations shall be
determined in good faith by a responsible financial or accounting Officer of the
Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest on such Indebtedness shall be calculated as
if the rate in effect on the date of determination had been the applicable rate
for the entire period.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, (a) the total aggregate amount of interest expense (including
amortization of original issue discount and non-cash interest payments or
accruals and the interest component of any Capital Lease Obligations, but
excluding any intercompany interest owed by any Subsidiary to any other
Subsidiary of such Person) of such Person and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, (b) all fees,
commissions, discounts and other charges of such Person and its consolidated
Subsidiaries with respect to letters of credit and bankers' acceptances,
determined on a consolidated basis in accordance with GAAP and (c) the product
of (i) the total amount of dividends declared on Disqualified Capital Stock
other than common stock (whether accrued or paid) of such Person and its
consolidated Subsidiaries, times (ii) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined federal,
state and local effective income tax rate of such Person, expressed as a
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<PAGE>
decimal, in each case, on a consolidated basis and in accordance with GAAP
(after consideration of any deferred tax assets of such Person then available
including without limitation, any amounts of available net operating loss
carryover).
"Consolidated Net Income," means, with respect to any Person, for any
period, the aggregate of the net income (or loss) of such Person and its
consolidated Subsidiaries for such period, before payment or accrual of
preferred dividends, on a consolidated basis, determined in accordance with
GAAP; PROVIDED that (a) the net income of any other Person in which such Person
or any of its Subsidiaries has an interest (which interest does not cause the
net income of such other Person to be consolidated with the net income of such
Person and its Subsidiaries in accordance with GAAP) shall be included only to
the extent of the amount of dividends or distributions actually paid to such
Person or such Person's Subsidiaries by such other Person in such period; (b)
the net income of any Subsidiary of such Person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such Person or a Subsidiary of such Person not subject to any
Payment Restriction, PROVIDED, HOWEVER, that with respect to the Consolidated
Net Income of the Company, the Consolidated Net Income of the Company's
Subsidiaries shall not be so excluded, notwithstanding the existence of any such
Payment Restriction, so long as the terms of any such Payment Restriction
limiting the payment of dividends by the Company's Subsidiaries are not more
restrictive at the time of determination of Consolidated Net Income than the
Payment Restrictions limiting such payment of dividends in effect on the date
hereof; (c) the net income (or loss) of any other Person shall not be included
for any periods during which such other Person is not a consolidated subsidiary
of such Person and the net income (or loss) of any successor to such Person by
consolidation or merger or transfer of all or substantially all assets shall not
be included for any periods prior to such consolidation, merger, or transfer of
all or substantially all assets; and (d) there shall be excluded the following:
(i) such Person's share, determined in accordance with GAAP, of the net loss of
any other Person in which such Person or any of its Subsidiaries has an interest
(which interest does not cause the net loss of such other Person to be
consolidated with the net income or loss of such Person and its Subsidiaries in
accordance with GAAP), (ii) the net income of any other Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (iii) all gains realized upon or in connection with or as a
consequence of the issuance of the Capital Stock of such Person or any of its
Subsidiaries, any gains on pension reversions received by such Person or any of
its Subsidiaries, or any proceeds from life insurance policies received by such
Person or any of its Subsidiaries, (iv) all gains, together with any related
provision for taxes, realized in connection with any sale of assets by such
Person or any of its Subsidiaries during such period (including, without
limitation, dispositions pursuant to sale and leaseback transactions), (v) all
gains realized in connection with the acquisition of debt securities for a cost
less than principal plus accrued interest, (vi) all extraordinary gains,
together with any related provision for taxes, realized by such Person or any of
its Subsidiaries during such period, and (vii) the cumulative effect of a change
in accounting principles in the year of adoption of such change.
"Consolidated Net Worth" means, with respect to any Person, as of the date
of determination, the Net Worth of such Person and its consolidated
Subsidiaries, determined in accordance with GAAP, as of the end of the most
recent fiscal quarter of such Person for which financial statements are
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<PAGE>
available prior to the taking of any action for the purpose of which the
determination is being made.
"Current Affiliate" has the meaning ascribed thereto in Section 4.10
hereof.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets in one
transaction or a series of related transactions.
"Disqualified Capital Stock" means, (a) with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such Person or its Subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the stated
maturity date of the New Notes, or (b) any other Capital Stock of such Person or
its Subsidiaries designated as Disqualified Capital Stock by such Person at the
time of issuance.
"Dollars" and "$" mean lawful currency of the United States of America.
"Employee Program" has the meaning ascribed thereto in Section 4.10 hereof.
"Environment" means soil, surface waters, groundwater, land, stream
sediments, surface or subsurface strata and ambient air.
"Environmental Law(s)" means and includes any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the Environment, health, safety or
natural resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, or any successor thereto, and the rules
and regulations issued thereunder, as from time to time in effect.
"Event of Default" has the meaning ascribed thereto in Section 9.1 hereof.
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"Excess Proceeds" has the meaning ascribed thereto in Section 7.18(b).
"Excess Proceeds Date" has the meaning ascribed thereto in Section 7.18(d).
"Exchange Act" means the Securities Exchange Act of 1934, as the same may
be amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Fair Market Value" or "fair market value" means, with respect to any
assets or properties, the amount at which such assets or properties would change
hands between a willing buyer and a willing seller, within a commercially
reasonable time, each having reasonable knowledge of the relevant facts, neither
being under a compulsion to sell or buy, as such amount is reasonably determined
by (a) the Board of Directors of the Company acting reasonably and in good faith
or (b) at the request of the holders of a majority of the outstanding New Notes
an appraisal or valuation firm of national or regional standing selected by the
Company (with the reasonable consent of the holders of a majority of the
outstanding New Notes), with experience in the appraisal or valuation of
properties or assets of the type for which Fair Market Value is being
determined; PROVIDED, HOWEVER, that if the Common Stock is traded on the Nasdaq
National Market or the NYSE (or successor thereof), the Fair Market Value of the
Common Stock shall be the average of the closing prices for the 10 trading days
immediately prior to the date of determination.
"Financial Statements" has the meaning ascribed thereto in Section 4.23
hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, as in
effect from time to time.
"Gaming Authorities" means, collectively, the Mississippi Gaming
Commission, the Nevada Gaming Commission, the Nevada State Gaming Control Board,
and any other Governmental Body that holds regulatory, licensing or permit
authority over gaming activities conducted by the Company or its Gaming
Subsidiaries within its jurisdiction.
"Gaming Laws" means, collectively, (a) the Nevada Gaming Control Act, as
codified in Chapter 463 of the Nevada Revised Statutes, as amended from time to
time, together with the regulations of the Nevada Gaming Commission promulgated
thereunder, as amended from time to time, (b) the Mississippi Gaming Control
Act, as codified in Chapter 76 of the Mississippi Code Annotated, as amended
from time to time, together with the regulations of the Mississippi Gaming
Commission promulgated thereunder, as amended from time to time, and (c) all
other laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over gaming activities conducted by
the Company or its Gaming Subsidiaries within its jurisdiction.
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"Gaming Subsidiaries" means Silicon Gaming-Nevada, Inc., Silicon
Gaming-Mississippi, Inc., and any other Subsidiary that is subject to the
regulatory, licensing or permit authority and jurisdiction of any Gaming
Authority.
"Gaming Subsidiaries Stock Restrictions" means the negative pledge (i.e.,
the agreement not to encumber pursuant to Section 7.9), and the restrictions on
transfers (i.e., pursuant to Sections 7.17 and 7.18), of the capital stock of
the Company's Gaming Subsidiaries, in each case only to the extent such negative
pledge or restrictions require the approval of any Gaming Authority pursuant to
the Gaming Laws.
"Governmental Body" means any governmental or quasi-governmental authority
including, without limitation, any federal, state, territorial, county,
municipal or other governmental or quasi-governmental agency, board, branch,
bureau, commission, court, department or other instrumentality or political unit
or subdivision, whether domestic or foreign and any of the Gaming Authorities.
"Gross Proceeds" means, when used with respect to a Public Offering or a
private offering of Capital Stock, the number of shares of Capital Stock sold by
the Company in such offering multiplied by the price paid for such shares by the
purchasers thereof.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Indebtedness of any other Person (the "Primary
Obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (a) to purchase or pay (or advance or
supply funds, for the purchase or payment of) such Indebtedness or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Indebtedness, (b) to purchase property, securities or services for the
purpose of assuring the holder of such Indebtedness of the payment of such
Indebtedness, or (c) to maintain working capital, equity capital or other
financial statement, condition or liquidity of the Primary Obligor so as to
enable the Primary Obligor to pay such Indebtedness (and "Guaranteed,"
"Guaranteeing" and "Guarantor" shall have meanings correlative to the
foregoing); PROVIDED, HOWEVER, that the Guarantee by any Person shall not
include endorsements by such Person for collection or deposit, in either case,
in the ordinary course of business.
"Hazardous Materials" means petroleum or petroleum products, by-products or
breakdown products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas, and any other chemicals, materials or
substances designated, classified or regulated as hazardous or toxic or as a
pollutant or contaminant under any Environmental Law.
"Hazardous Waste" means and includes any hazardous waste as defined or
regulated under any Environmental Law.
"Holder" means a Person in whose name a New Note is registered.
"Illegal Transfer Notice" has the meaning ascribed thereto in Section 11.13
hereof.
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"Incur" or "incur" means, with respect to any Indebtedness or other
obligation of any Person, to create, issue, incur (by conversion, exchange or
otherwise), suffer to exist, assume, Guarantee or otherwise become liable in
respect of such Indebtedness or other obligation, including by way of merger or
acquisition of another Person, or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet of
such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing).
"Indebtedness" means, with respect to any Person, (a) all liabilities,
contingent or otherwise, of such Person (i) for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
to a portion thereof and whether short-term or long-term, secured or unsecured),
(ii) evidenced by bonds, notes, debentures, drafts accepted or similar
instruments or letters of credit (including such liabilities representing the
balance deferred and unpaid of the purchase price of any property, other than
any such liability that represents an account payable or any other monetary
obligation to a trade creditor created, incurred, assumed or guaranteed by such
Person in the ordinary course of business in connection with obtaining goods,
materials or services, which account is not overdue according to the original
terms of sale, unless such account payable is being contested in good faith),
(iii) for the payment of money relating to Capital Lease Obligations; or (iv)
under the terms of any amendment, renewal, extension or refunding of any
liability of the types referred to in the preceding clauses (i), (ii) or (iii);
(b) the maximum fixed repurchase price of all Disqualified Capital Stock of such
Person or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (c) outstanding reimbursement obligations of such Person with respect
to letters of credit or bankers' acceptances issued for the benefit of such
Person; (d) net obligations of such Person with respect to Interest Rate or
Currency Protection Agreements; (e) all liabilities of others of the kind
described in the preceding clause (a), (b), (c) or (d) that such Person has
Guaranteed or that is otherwise its legal liability; and (f) all obligations of
others secured by a Lien to which any of the Property or assets of such Person
are subject (other than obligations of a lessor under any operating lease
pursuant to which the Company or any of its Subsidiaries leases Property, if
such lessor grants a Lien on such lease to secure such lessor's Indebtedness),
whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability (PROVIDED that if the
obligations so secured have not been assumed by such Person or are not otherwise
such Person's legal liability, such obligations shall be deemed to be in an
amount equal to the fair market value of such Properties or assets, as
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Agreement, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution. For purposes hereof, Indebtedness incurred by any Person that
is a general partnership (other than non-recourse Indebtedness) shall be deemed
to have been incurred by the general partners of such partnership pro rata in
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accordance with their respective interests in the liabilities of such
partnership unless any such general partner shall, in the reasonable
determination of the Board of Directors of the Company, be unable to satisfy its
pro rata share of the liabilities of the partnership, in which case the pro rata
share of any Indebtedness attributable to such partner shall be deemed to be
incurred at such time by the remaining general partners on a pro rata basis in
accordance with their interests.
"Indemnified Party" or "Indemnified Parties" has the meaning ascribed
thereto in Section 12.1(a) hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to the Company and its Affiliates.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
(a) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (b) any assignment for the benefit
of creditors or any other marshaling of assets and liabilities of such Person.
"Intellectual Property" means all patent, copyright, trade secret,
trademark, or other proprietary rights used in or necessary to the business of
the Company or any of its Subsidiaries and material to the Company and its
Subsidiaries on a consolidated basis.
"Interest Payment Date" means the first of each month commencing January 1,
2000, until the New Notes are paid in full.
"Interest Rate or Currency Protection Agreements" means any interest rate
swap agreement, interest rate cap agreement, currency swap agreement or other
financial agreement or arrangement designed to protect the Company or any
Subsidiary against fluctuations in interest rates or currency exchange rates and
which shall have a notional amount no greater than the payments due with respect
to Indebtedness being hedged thereby.
"Investment" means any investment by any Person in any other Person,
whether by a purchase of assets, in any transaction or series of related
transactions, individually or in the aggregate, purchase of Capital Stock,
capital contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, and other similar
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other Person, and any Guarantee of Indebtedness of such other Person.
"IRS" means the Internal Revenue Service or any successor agency.
"Issue Date" means the date of original issuance of the New Notes.
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"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in New York City, New York, or Boston, Massachusetts, or at such
place of payment, are not required to be open.
"License" or "Licenses" has the meaning ascribed thereto in Section 4.3
hereof.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind, whether or not filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); PROVIDED that in no event shall an operating lease (as
opposed to a Capital Lease Obligation) or a license with respect to any
intangible asset with any Person who is not an Affiliate be deemed to constitute
a Lien hereunder.
"Losses" has the meaning ascribed thereto in Section 12.1(a) hereof.
"Management Incentive Plan" means the Silicon Gaming, Inc. 1999 Long-Term
Compensation Plan adopted by the Board of Directors of the Company,
contemporaneously with the Closing, under which grants and sales of up to
116,190,084 shares of Common Stock and options to purchase shares of Common
Stock of the Company may be made.
"Management Options" means any options to purchase the Common Stock of the
Company sold or grated to any eligible participant under the Management
Incentive Plan.
"Management Shares" means the shares issued under the Management Incentive
Plan or upon exercise of the options granted under that plan.
"Material Adverse Effect" means a material adverse effect on the business,
Property, operations or condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole.
"Mezzanine Debt Financing" means the issuance, transfer, conveyance, sale,
or other disposition for cash by the Company or any of its Subsidiaries of
unsecured Subordinated Indebtedness.
"Multiemployer Plan" has the meaning ascribed thereto in Section 4.10
hereof.
"Net Cash Proceeds" means, with respect to (a) any Mezzanine Debt
Financing, or (b) any Securities Sale, as the case may be, the aggregate amount
of cash or Cash Equivalents actually received from time to time (whether as
initial consideration or through payment or disposition of deferred
consideration) by or on behalf of the Person issuing the Indebtedness or
securities, as the case may be, in connection with such transaction after
deducting therefrom only (without duplication) (i) brokerage commissions,
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underwriting fees and discounts, legal fees, finder's fees, accountants' fee and
expenses, printers' fees and expenses, road show expenses and other similar
transaction fees and commissions incurred in connection with such transaction,
and (ii) the amount of Taxes payable in connection with or as a result of such
transaction as determined in accordance with GAAP, but only to the extent that
the amounts so deducted are properly attributable to such transaction and are,
in the case of clause (i), at the time of receipt of such cash, actually paid to
a Person that is not an Affiliate of such Person and, in the case of clause
(ii), on the earlier of the dates on which the tax return covering such taxes is
filed or required to be filed, actually paid to a Person that is not an
Affiliate of such Person.
"Net Worth" means, with respect to any Person, the total of the amounts
shown on the balance sheet of such Person, determined in accordance with GAAP,
as of the end of the most recent fiscal quarter of such Person ending at least
45 days prior to the taking of any action for the purpose of which the
determination is being made, as (a) the par or stated value of all outstanding
Capital Stock of such Person plus (b) paid-in capital or capital surplus
relating to such Capital Stock plus (c) any retained earnings or earned surplus
less (i) any accumulated deficit, and (ii) any amounts attributable to (A)
unamortized debt discount, (B) capitalized expenses associated with the issuance
of Indebtedness if such Indebtedness is incurred after the date hereof, or (C)
write-ups of assets subsequent to the date hereof other than in connection with
the acquisitions of such assets.
"New Notes" means the 13% Senior Secured Notes of the Company issued
pursuant to this Agreement.
"Notice of Default" has the meaning ascribed thereto in Section 9.1(b)
hereof.
"Obligations" with respect to any instrument or agreement means any and all
principal, interest, penalties, premiums, fees, indemnifications,
reimbursements, damages and other charges, obligations and liabilities existing
from time to time under such instrument or agreement, whether direct or
indirect, joint or several, actual, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise, including any obligations or
liabilities to repay, redeem, repurchase, retire, acquire or defease any
Indebtedness under such instrument or agreement, or any obligation to establish
a sinking fund for any such purpose.
"Offer" means an irrevocable offer by the Company to repurchase for cash
New Notes after any Change of Control Trigger Date, Repayment Trigger Date or
Excess Proceeds Date.
"Officer" means, with respect to any Person, the Chairman of the Board (if
an officer), the Chief Executive Officer, the President, any Vice President, the
Chief Financial Officer, the Treasurer or the Secretary of such Person.
"Officers' Certificate" means a certificate executed on behalf of the
Company by an Officer of the Company or by an Assistant Secretary of the
Company.
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"Old Equity Warrants" means the warrants to purchase the Common Stock of
the Company issuable to the stockholders of the Company as of the Record Date
set pursuant to the Restructuring Agreement, and the terms and provisions of
which are set forth in the Warrant Agreement by and between the Company and the
Warrant Agent (as defined in the Warrant Agreement).
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Purchaser.
"PARI PASSU" means, when used with respect to the ranking of any
Indebtedness or Capital Stock of any Person in relation to other Indebtedness or
Capital Stock of such Person, that each such Indebtedness (a) either (i) is not
subordinated or junior in right of payment to any other Indebtedness of such
Person or (ii) is subordinate in right of payment to the same Indebtedness or
Capital Stock of such Person as is the other and is so subordinate to the same
extent and (b) is not subordinate in right of payment to the other or to any
Indebtedness or Capital Stock of such Person as to which the other is not so
subordinate.
"Pari Passu Indebtedness" means any Indebtedness of the Company, other than
the New Notes, whether outstanding on the date hereof or Incurred hereafter,
which (a) ranks PARI PASSU with the New Notes and (b) by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred, (i) does not provide for payments of principal of such Indebtedness at
the final stated maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances, but excluding any retirement required by virtue of
acceleration of such Indebtedness upon an event of default thereunder), in each
case prior to the final stated maturity of the New Notes and (ii) does not
permit redemption or other retirement (including pursuant to an offer to
purchase made by the issuer) of such other Indebtedness at the option of the
holder thereof prior to the final stated maturity of the New Notes, other than a
redemption or other retirement at the option of the holder of such Indebtedness
(including pursuant to an offer to purchase made by the issuer) which is
conditioned upon the change of control of the Company pursuant to provisions
substantially similar to those contained in Section 7.12 hereof.
"Payment Restriction" means, with respect to a Subsidiary of any Person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (a) such Subsidiary
to (i) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (ii) make loans or advances to such Person or
any other Subsidiary of such Person, or (iii) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person, or (b) such Person
or any other Subsidiary of such Person to receive or retain any such (i)
dividends, distributions or payments, (ii) loans or advances, or (iii) transfers
of properties or assets.
"Permitted Disposition" means (a) any transfer, conveyance, sale, lease,
license or other disposition (a "sale") by the Company or any of its
Subsidiaries of its inventory or license of its intangible Property in the
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ordinary course of its business; (b) any sale by the Company or any of its
Subsidiaries in the ordinary course of its business of its equipment or other
tangible or intangible Property that is obsolete or no longer useful or
necessary to its business; (c) any sale by the Company or any of its
Subsidiaries in the ordinary course of its business, and in a manner consistent
with its customary and usual cash management practices, of its Permitted
Investments of the kind described in clause (c) of the definition thereof; (d)
the creation or Incurrence of any Liens in any Property of the Company or any of
its Subsidiaries that are permitted by this Agreement and (e) any sale of
Property by or at the direction of a secured party holding a Lien on such
Property, which Lien is permitted by this Agreement, pursuant to the exercise by
such secured party of its rights as a creditor.
"Permitted Investment" by any Person means (a) any Investment in a Related
Business which becomes a Subsidiary following such Investment (including any
Investments held by such Subsidiary (or any Subsidiaries thereof) on the date
such Subsidiary is acquired), (b) Investments in securities or other Property
not constituting cash or Cash Equivalents and received in connection with any
disposition of assets not constituting an Asset Disposition, (c) Investments in
cash and Cash Equivalents, (d) Investments existing on the date hereof, (e)
Investments by any Subsidiary in other Subsidiaries, (f) Investments by the
Company in any of its Subsidiaries required by any instrument or agreement
governing Indebtedness to the extent that such Investments consist of (i)
performance under Guarantees Incurred by the Company in compliance with this
Agreement with respect to Indebtedness of its Subsidiaries not Incurred in
violation of this Agreement or (ii) Liens securing the Company's Obligations
with respect to any Guarantee described in the foregoing clause (i), (g)
Investments in the form of accounts receivable arising from sales of goods or
services in the ordinary course of business, PROVIDED that for any accounts
receivable that are more than 120 days overdue, appropriate reserves or
allowances have been established in accordance with GAAP, (h) Investments in the
form of advances or prepayments to suppliers or employees in the ordinary course
of business and (i) Strategic Investments which do not exceed an aggregate of
$5,000,000.
"Permitted Liens" shall mean (a) Liens for Taxes, assessments, and similar
governmental charges to the extent (1) not delinquent or (2) being contested in
good faith by appropriate proceedings and as to which reserves have been set
aside on the books of the Company to the extent required by GAAP; (b) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen, or other like Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been made
on the books of the Company; (c) pledges or deposits in the ordinary course of
business to secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or other social security benefits; (d)
Liens to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (e) zoning restrictions, easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any Subsidiary incurred in the ordinary course of
business; (f) Liens in respect of purchase money or similar acquisition
Indebtedness Incurred to acquire furniture, fixtures, equipment or other
operating assets, provided that the principal amount of the Indebtedness secured
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by such Lien does not exceed the acquisition cost of such assets; (g) Liens
securing Indebtedness which secures assets leased pursuant to Capital Lease
Obligations; (h) Liens on any assets of any Acquired Person securing Acquired
Indebtedness which assets or Acquired Person are acquired by the Company or a
Subsidiary subsequent to the date of the Agreement, and which Liens were in
existence on or prior to the acquisition of such assets or Acquired Person (to
the extent that such Liens were not created in connection with or in
contemplation of such acquisition), provided that such Liens are limited to the
assets or Acquired Person so acquired and the proceeds thereof; (i) Liens
securing Senior Indebtedness permitted to be incurred by Section 7.7(b)(iv); (j)
Liens imposed pursuant to condemnation or eminent domain or substantially
similar proceedings; provided that in the case of clauses (f), (g) and (h), any
Indebtedness secured by such Liens was not Incurred in violation of Section 7.7;
and (k) the Securityholder Lien.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, or Governmental Body.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Stock" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a debt security means the principal of the security
including the premium, if any, on the security.
"Property" or "property" means any assets or property of any kind or nature
whatsoever, real, personal, or mixed (including fixtures), whether tangible or
intangible.
"Public Offering" with respect to any Person, means a firm commitment
underwritten primary public offering of Capital Stock of such Person.
"Purchase Date" has the meaning ascribed thereto in Section 6.7 hereof.
"Purchaser" has the meaning ascribed thereto in the introduction hereof.
"Qualified Capital Stock" means, with respect to any Person, any and all
Capital Stock issued by such Person after the date hereof that is not
Disqualified Capital Stock.
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"Record Date" means a record date specified in the New Notes whether or not
such record date is a Business Day.
"Redemption Date" means, when used with respect to any New Note to be
redeemed, the date fixed for such redemption pursuant to this Agreement and the
New Notes.
"Redemption Price" means, when used with respect to any New Note to be
redeemed, the price fixed for such redemption pursuant to this Agreement and the
New Notes, which shall include, without duplication, in each case, accrued and
unpaid interest to the Redemption Date (subject to Section 6.4 hereof).
"Refinancing Indebtedness" means Indebtedness of the Company or any of its
Subsidiaries Incurred or given in exchange for, or the proceeds of which are
used to, extend, refinance, renew, replace, substitute, defease or refund any
other Indebtedness of the Company or any of its Subsidiaries (and related
interest, premium, penalties, breakage costs, fees, expenses and other amounts
owing in respect of such Indebtedness, to the extent permitted to be Incurred by
Section 7.7(c)(iii)) Incurred in accordance with the terms of this Agreement,
including Section 7.7.
"Related Business" means the businesses conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the date hereof and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses. Without limiting the generality of
the foregoing, Related Business shall include the design, development,
production, marketing and sale of interactive slot machines.
"Release" means any releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, disposing, or
dumping into the Environment.
"Repayment Trigger Date" has the meaning ascribed thereto in Section
7.13(b) hereof.
"Restricted Payment" means, with respect to any Person, without
duplication: (a) any dividend or other distribution, whether in cash or in
Property or securities, declared or paid on any shares of such Person's Capital
Stock (other than (i) in the case of the Company, dividends or distributions
payable solely in shares of Qualified Capital Stock of the Company or options,
warrants or other rights to acquire Qualified Capital Stock of the Company and
(ii) any dividends, distributions or other payments in respect of any Capital
Stock made by any Subsidiary to the Company or a Wholly-Owned Subsidiary), or
the making by such Person or any of its Subsidiaries of any other distribution
in respect of such Person's Capital Stock or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than
exchangeable or convertible Indebtedness of such person); (b) the redemption,
repurchase, retirement or other acquisition for value by such Person or any of
its Subsidiaries, directly or indirectly, of such Person's Capital Stock (and,
in the case of a Subsidiary, Capital Stock of the Company) other than Capital
Stock owned by the Company or a Wholly-Owned Subsidiary, or any warrants, rights
or options to purchase or acquire shares of any class of such Capital Stock
(other than exchangeable or convertible Indebtedness of such Person), and other
than, in the case of the Company, through the issuance in exchange therefor
solely of Qualified Capital Stock of the Company; (c) any payment to purchase,
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redeem, defease or otherwise acquire or retire for value any Pari Passu
Indebtedness or Subordinated Indebtedness (other than with the proceeds of
Refinancing Indebtedness permitted under this Agreement), except in accordance
with the mandatory redemption or repayment provisions set forth in the original
documentation governing such Indebtedness; and (d) any Investment other than
Permitted Investments.
"Restricted Security" has the meaning ascribed thereto in Section 11.13
hereof.
"Restructuring Agreement" shall mean that certain Restructuring Agreement
by and between the Company and BIII Capital Partners, L.P., dated as of November
24, 1999.
"Rule 144" means Rule 144 as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Rule 144A" means Rule 144A as promulgated by the Commission under the
Securities Act, and any successor rule or regulation thereto.
"Sale" means any sale, lease, conveyance, exchange, transfer, assignment,
pledge, hypothecation or other disposition of any Property.
"SEC Reports" means the Company's Annual Report on Form 10-K under the
Exchange Act for the fiscal year ended December 31, 1998, as filed with the
Commission, together with each other registration statement, periodic report,
proxy statement, and other filing made by the Company with the Commission on or
after January 1, 1999.
"Securities" means the New Notes.
"Securities Act" means the Securities Act of 1933, as the same may be
amended from time to time, or any successor thereto, and the rules and
regulations issued thereunder, as from time to time in effect.
"Securities Sale" means the issuance or sale by the Company or any of its
Subsidiaries, for cash, of shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests, or any securities convertible
into or exercisable or exchangeable for, or options, warrants, rights or any
other interests with respect to, any shares of Capital Stock or other ownership
interests of the Company or any such Subsidiary; PROVIDED, HOWEVER, that the
exercise of (a) warrants or (b) compensatory options to purchase Capital Stock
shall not constitute a Securities Sale.
"Security Date" has the meaning ascribed thereto in Section 11.14(a)
hereof.
"Security Documents" has the meaning ascribed thereto in Section 3.1(h)(iv)
hereof.
"Securityholder Lien" has the meaning ascribed thereto in Section 11.14(a)
hereof.
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"Security Opinion Date" means the date on which the Company delivers to the
Purchaser the opinion of counsel contemplated in Section 11.14(c) hereof.
"Senior Discount Notes" means the Company's Senior Discount Notes (Series
A) and (Series B), due September 30, 2002, issued pursuant to the Securities
Purchase Agreement, dated as of September 30, 1997, by and between the Company
and the Purchaser (as defined therein), as amended by Amendment No. 1 to the
Agreement, dated as of July 8, 1999, and as amended by Amendment No. 2 to the
Agreement.
"Senior Indebtedness" means and includes all principal of, premium and
interest (including Post-Petition Interest) on and other Obligations with
respect to any Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the date hereof or hereafter Incurred,
other than the New Notes and the Amended Notes; PROVIDED, HOWEVER, that the
following shall not constitute Senior Indebtedness: (a) any Indebtedness which
by the terms of the instrument creating or evidencing the same is PARI PASSU,
subordinated or junior in right of payment to the New Notes and the Amended
Notes in any respect; (b) that portion of any Indebtedness Incurred in violation
of this Agreement; (c) any Preferred Stock; or (d) any Indebtedness of the
Company which is subordinated to or junior in right of payment in any respect to
any other Indebtedness of the Company. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the New Notes and
the Amended Notes and the Senior Discount Notes, (ii) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (iii) any liability for
foreign, Federal, state, local or other Taxes owed or owing by the Company, (iv)
Indebtedness of the Company to the extent such liability constitutes
Indebtedness to a Subsidiary or any other Affiliate of the Company or any of
such Affiliate's Subsidiaries, (v) Indebtedness for the purchase of goods or
materials in the ordinary course of business or (vi) Indebtedness owed by the
Company for compensation to employees or for services.
"Series D Certificate of Determination" means the Certificate of
Determination for the Company's Series D Preferred Stock.
"Series D Preferred Stock" means the Series D Convertible Redeemable
Preferred Stock of the Company.
"Series E Certificate of Determination" means the Certificate of
Determination for the Company's Series E Preferred Stock.
"Series E Preferred Stock" means the Series E Convertible Redeemable
Preferred Stock of the Company.
"Series E Warrant" means the Warrant to purchase shares of Series E
Preferred Stock initially issued to B III Capital Partners, L.P. pursuant to the
Restructuring Agreement.
"Stockholders Agreement" means the Stockholders Agreement, dated as of the
Closing Date of the Restructuring Agreement, by and among the Company and the
Purchaser, and certain stockholders of the Company as the same may be amended,
modified, or supplemented from time to time in accordance with the terms
thereof.
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"Strategic Investments" means any Investment which in the good faith
judgment of the Board of Directors of the Company (a) relates to a Related
Business and (b) adds strategic value or offers a potential competitive
advantage to the Company.
"Subordinated Indebtedness" means Indebtedness of the Company which is
subordinated or junior in right and priority of payment to the New Notes.
"Subsidiary" of any Person means any other Person with respect to which
either (i) more than 50% of the interests having ordinary voting power to elect
a majority of the directors or individuals having similar functions of such
other Person (irrespective of whether at the time interests of any other class
or classes of such Person shall or might have voting power upon the occurrence
of any contingency), or (ii) more than 50% of the equity interests of such other
Person is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more of
such Person's other Subsidiaries. When used herein without reference to any
Person, Subsidiary means a Subsidiary of the Company.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Taxes" any present or future federal, state, county, local, foreign or
other income, Property, excise, franchise, sales, use, value added, employees'
income withholding, social security, unemployment and other taxes, of any nature
whatsoever now or hereafter imposed, levied, collected, withheld, or assessed by
any Governmental Body, which have become due or payable by the Company or any of
its Subsidiaries, or by any predecessors thereto, including any fines or
penalties with respect thereto or interest thereon, whether disputed or not.
"Threat of Release" means a substantial likelihood of a Release which under
applicable Environmental Laws requires action to prevent or mitigate damage to
the Environment which may result from such Release.
"Transaction Documents" means, collectively, the Restructuring Agreement,
the Amended Notes, the Amendment No. 2 to the Securities Purchase Agreement, the
New Notes, the Securities Purchase Agreement for the New Notes, the Series D
Certificate of Determination, the Series E Certificate of Determination, the
Series E Warrant, the Management Incentive Plan, the Warrant Agreement, the Old
Equity Warrants, and any and all agreements, certificates, instruments and other
documents contemplated thereby or executed and delivered in connection
therewith.
"Units" means the Units consisting of one share of Common Stock and one Old
Equity Warrant that the Company intends to issue as soon as is practicable
following the Closing of the Restructuring.
"Warrant Agent" has the meaning ascribed to it in the Warrant Agreement.
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"Warrant Agreement" means the Warrant Agreement between the Company and the
Warrant Agent (as defined in the Warrant Agreement) which sets forth the terms
and provisions of the Old Equity Warrants.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
100% of the equity interests in which (however measured) are owned by such
Person or a Wholly-Owned Subsidiary of such Person or such Person and one or
more Wholly-Owned Subsidiaries of such Person taken together, except in any case
for the minimum equity interest required to be held by directors, if any, to
satisfy the requirements of any applicable statute requiring that directors own
qualifying shares.
1.2 ACCOUNTING TERMS. All accounting terms used and not defined in this
Agreement shall be construed in accordance with GAAP and all financial data
required to be delivered hereunder shall be prepared in accordance with such
principles.
ARTICLE II
PURCHASE AND SALE OF NOTES
2.1 ISSUANCE OF NEW NOTES. The Company has authorized the issuance and sale
of up to $5,000,000 aggregate principal amount of its 13% Senior Secured Notes,
to be issued pursuant to and in accordance with the terms of this Agreement.
Each New Note will be issued in substantially the form set forth in EXHIBIT A
hereto, with such changes thereto, if any, as may be approved by the Purchaser
and the Company and in the principal amount listed beside the name of each
Purchaser in SCHEDULE 2.1.
2.2 SALE AND PURCHASE OF NEW NOTES. The Company has agreed to issue to the
Purchaser, and the Purchaser has agreed to purchase from the Company, up to Five
Million Dollars ($5,000,000) in aggregate principal amount of 13% Senior Secured
Notes (the "NEW NOTES"). The New Notes will be issuable in tranches as follows:
2.2.1 AT CLOSING. At the Closing, the Company will issue to the
Purchaser New Notes in the aggregate principal amount of Two Million Dollars
($2,000,000) and the Purchaser will purchase such New Notes from the Company for
such aggregate principal amount of Two Million Dollars ($2,000,000) in readily
available funds.
2.2.2 UPON THE COMPANY ENTERING INTO A JOINT VENTURE. At such time
following the Closing, if the Company enters into a joint venture with a casino
operator having at least $1.0 billion in Market Capitalization and the joint
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venture provides that the casino operator will pay at least fifty percent (50%)
of the costs of development of an Exclusive New Game, and such casino operator
purchases, or commits to purchase, at least 100 units of the Exclusive New Game,
then the Company will issue to the Purchaser additional New Notes in the
aggregate principal amount of One Million Dollars ($1,000,000) and the Purchaser
will purchase such New Notes from the Company for One Million Dollars
($1,000,000) in immediately available funds.
2.2.3 UPON THE COMPANY REACHING CERTAIN FINANCIAL GOALS. At such time
following the Closing, if the Company reaches financial hurdles, to be
determined by the Purchaser in its sole discretion, the Company will issue to
the Purchaser up to Two Million Dollars ($2,000,000) in New Notes and the
Purchaser will purchase such New Notes from the Company for Two Million Dollars
($2,000,000) in immediately available funds.
2.3 CLOSING OF SALE OF NEW NOTES. The purchase and delivery of the New
Notes to be purchased by the Purchaser shall take place at 10:00 a.m., Arizona
Time, at the offices of Squire, Sanders & Dempsey L.L.P., 40 North Central
Avenue, Phoenix, Arizona, at a closing (the "CLOSING") on the date hereof, or at
such other place or on such other date as the Purchaser and the Company may
agree upon (such date on which the Closing shall have actually occurred, the
"CLOSING DATE"). At the Closing, the Company will deliver or cause to be
delivered to the Purchaser the New Notes to be purchased by it against payment
of the purchase price therefor. Unless the Purchaser otherwise notifies the
Company at least two Business Days prior to the Closing Date, the New Notes to
be purchased hereunder shall be in the form of a single New Note dated the date
of the Closing and registered in the Purchaser's name or that of its nominee as
set forth on the signature page hereto. If at the Closing the Company shall fail
to tender to the Purchaser any of the New Notes to be purchased by it as
provided in this Article II, or any of the conditions specified in Article III
for the benefit of the Purchaser or the Company, as the case may be, shall not
have been satisfied or waived in writing by the Purchaser or the Company, as
applicable, the Purchaser or the Company, as the case may be, shall, at its
election, be relieved of all further obligations under this Agreement, without
thereby waiving any other rights it may have by reason of such failure or such
non-fulfillment.
ARTICLE III
CONDITIONS TO CLOSING
3.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER ON THE CLOSING
DATE. The Purchaser's obligation to purchase and pay for the New Notes to be
sold to it at the Closing is subject to the fulfillment to its satisfaction,
prior to or at the Closing, of the following conditions, provided that any or
all of the following conditions may be waived, in whole or in part, by the
Purchaser with respect to this Agreement in its sole and absolute discretion:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and its Subsidiaries contained in this Agreement and in the other
Transaction Documents shall be correct in all respects when made and at the time
of the Closing, after giving effect to the sale of the New Notes, except that
any representations and warranties that relate to a particular date or period
shall be correct in all respects only as of such date or for such period.
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(b) PERFORMANCE; NO DEFAULT. The Company shall have performed and
complied in all respects with all agreements and conditions contained in this
Agreement and the other Transaction Documents required to be performed or
complied with prior to or at the Closing, and at the time of the Closing, after
giving effect to the sale of the New Notes, no Default or Event of Default shall
have occurred and be continuing.
(c) COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchaser an Officers' Certificate, dated the Closing Date, certifying on behalf
of the Company that the conditions specified in Sections 3.1(a) and (b) have
been fulfilled.
(d) OPINION OF COUNSEL. The Purchaser shall have received (i) from
Gray, Cary, Ware and Freidenrich, corporate counsel to the Company, a favorable
opinion substantially in the form set forth in EXHIBIT B, addressed to the
Purchaser, dated as of the Closing Date, and otherwise satisfactory in substance
and form to the Purchaser, (ii) from Squire, Sanders & Dempsey L.L.P., a
favorable opinion substantially in the form set forth in EXHIBIT C addressed to
the Purchaser, dated as of the Closing Date, and otherwise satisfactory in
substance and form to the Purchaser, and (iii) from special gaming counsel to
the Company, favorable opinions, each substantially in the form set forth in
EXHIBIT D, addressed to the Purchaser, dated as of the Closing Date, and
otherwise satisfactory in substance and form to the Purchaser.
(e) LEGAL INVESTMENT. On the Closing Date, the Purchaser's purchase of
the New Notes shall be permitted by the laws and regulations of the jurisdiction
to which the Purchaser is subject (including, without limitation, Section 5 of
the Securities Act and Regulations G, T, U, or X of the Board of Governors of
the Federal Reserve System), and credit controls (whether voluntary or
mandatory) or similar restraints applicable to the Purchaser and shall not
subject the Purchaser to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation (other than
applicable securities law restrictions on resale of the New Notes), and shall
not be enjoined (temporarily or permanently) under, prohibited by or contrary to
any injunction, order or decree applicable to the Purchaser.
(f) COMPLIANCE WITH SECURITIES LAWS. The offering, issuance and sale
of the New Notes under this Agreement shall have complied with all applicable
requirements of the Federal securities laws and the Purchaser shall have
received evidence, if any, of such compliance in form and substance reasonably
satisfactory to the Purchaser.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
contemplated by this Agreement, including, without limitation, the matters set
forth in the Transaction Documents and all of the other documents and
instruments incident thereto, shall be reasonably satisfactory to the Purchaser,
and the Purchaser shall have received all such counterpart originals or
certified or other copies of such documents as the Purchaser may reasonably
request.
(h) COMPLETION OF OTHER TRANSACTIONS. Simultaneously with or prior to
the issuance and sale to the Purchaser of the New Notes to be purchased by the
Purchaser at the Closing:
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(i) the Company and the Purchaser shall have duly entered into
the Restructuring Agreement, such agreement shall be in full force and
effect, and all conditions precedent to the consummation of the
transaction contemplated thereby set forth in Section 6.2 thereof
shall have been satisfied or waived;
(ii) the Company and the Purchaser shall have duly entered into
the Amendment No. 2 to the Securities Purchase Agreement, and such
agreement shall be in full force and effect;
(iii) each of the other Transaction Documents and any other
agreements and documents contemplated thereby and in connection
therewith shall have been executed and delivered by all respective
parties thereto and shall be in full force and effect; and
(iv) the Company shall have executed and delivered any security
agreements, mortgages, financing statements, pledge agreements or
security documents (the "SECURITY DOCUMENTS") as Purchaser shall
reasonably require or request in order to grant a security interest to
the Holders in the Collateral other than the Capital Stock of the
Gaming Subsidiaries.
(i) RELATED MATTERS. As of the Closing, the Company's Charter
Documents shall not have been modified or amended since the date delivered to
the Purchaser by the Company, except as contemplated under the Restructuring
Agreement and the Transaction Documents.
(j) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation,
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any governmental body, department or agency of the United States, nor
shall any decision of any court of competent jurisdiction within the United
States have been rendered which, in the Purchaser's reasonable judgment, could
materially and adversely affect any of the New Notes or any part thereof as an
investment. There shall be no action, suit, investigation or proceeding pending
or threatened against or affecting the Purchaser, any of its properties or
rights, or any of its Affiliates, associates, officers or directors (in such
capacity), before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise
affect the transactions contemplated by this Agreement and the other Transaction
Documents, or (ii) questions the validity or legality of any such transactions
or seeks to recover damages or to obtain other relief in connection with any
such transactions, and, to the Purchaser's knowledge, there shall be no valid
basis for any such action, proceeding or investigation.
(k) GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. Except as set
forth on SCHEDULE 4.4, the Company and its Subsidiaries shall have duly applied
for and obtained all Approvals from each Governmental Body, or pursuant to any
agreement to which the Company or any of its Subsidiaries is a party or to which
any of them or any of their assets is subject, which are required in connection
with this Agreement, the other Transaction Documents or any other agreements and
documents contemplated thereby and in connection therewith.
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(l) SECRETARY'S CERTIFICATE. The Purchaser shall have received a
certificate, dated the Closing Date, of the Secretary or Assistant Secretary of
each of the Company and each of its Subsidiaries, on behalf of such entity, (i)
certifying as true, complete and correct its Charter Documents and in the case
of the Company, resolutions relating to the transactions contemplated hereby
attached thereto, (ii) in the case of the Company, as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
the Company, (iii) in the case of any Subsidiary, as to the absence of
proceedings or other action for dissolution, liquidation or reorganization of
such Subsidiary, (iv) as to the incumbency and specimen signatures of officers
who shall have executed instruments, agreements and other documents in
connection with the transactions contemplated hereby, (v) in the case of the
Company, as to the effect that certain agreements, instruments and other
documents are in the form approved in the resolutions referred to in clause (i)
above, and (vi) covering such other matters, and with such other attachments
thereto, as Purchaser's legal counsel may reasonably request at least one
Business Day before the Closing Date, which certificates and attachments thereto
shall be reasonably satisfactory in form and substance to such Purchaser.
(m) PAYMENT OF FEES. The Company shall have paid contemporaneously
with the Closing, the fees, expenses and disbursements of the Purchaser's legal
counsel reflected in statements of such counsel rendered prior to or on the
Closing Date and agreed to pay such additional fees, expenses and disbursements
reflected in statements of such counsel rendered after the Closing Date.
3.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY ON THE CLOSING DATE.
The Company's obligation to issue the New Notes at the Closing is subject to the
fulfillment to its satisfaction, prior to or at the Closing, of the following
conditions, provided that any or all of the following conditions may be waived,
in whole or in part, by the Company with respect to this Agreement in its sole
and absolute discretion:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Purchaser contained in this Agreement and in the other Transaction
Documents shall be correct in all respects when made and at the time of the
Closing, after giving effect to the sale of the New Notes, except that any
representations and warranties that relate to a particular date or period shall
be correct in all respects only as of such date or for such period.
(b) PERFORMANCE; NO DEFAULT. The Purchaser shall have performed and
complied in all respects with all agreements and conditions contained in this
Agreement and the other Transaction Documents required to be performed or
complied with prior to or at the Closing, and at the time of the Closing, after
giving effect to the sale of the New Notes, no Default or Event of Default shall
have occurred and be continuing.
(c) RELATED MATTERS. Contemporaneously with the Closing, the Company
shall have received payment in full for the New Notes to be issued pursuant to
this Agreement.
(d) NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. No legislation,
order, rule, ruling or regulation shall have been enacted or made by or on
behalf of any Governmental Body, nor shall any decision of any court of
competent jurisdiction within the United States have been rendered which, in the
Company's reasonable judgment, could materially and adversely affect any of the
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New Notes or any part thereof as an investment. There shall be no action, suit,
investigation or proceeding pending or threatened in writing, against or
affecting the Company, any of its properties or rights, or any of its
Affiliates, associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise affect the transactions contemplated by this
Agreement and the other Transaction Documents, or (ii) questions the validity or
legality of any such transactions or seeks to recover damages or to obtain other
relief in connection with any such transactions, and, to the Company's
knowledge, there shall be no valid basis for any such action, proceeding or
investigation.
(e) GOVERNMENTAL AND THIRD PARTY PERMITS, CONSENTS, ETC. The Purchaser
and its Subsidiaries shall have duly applied for and obtained all prior
Approvals from each Governmental Body, or pursuant to any agreement to which the
Purchaser is a party or to which its assets are subject, which may be required
in connection with this Agreement, the other Transaction Documents or any other
agreements and documents contemplated thereby and in connection therewith.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES, ETC.
In order to induce the Purchaser to purchase the New Notes, the Company
represents and warrants that the statements contained in this Article IV are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made at and as of the date of this
Agreement and as though the Closing Date were substituted for the date of this
Agreement throughout Article IV):
4.1 ORGANIZATION AND QUALIFICATION; AUTHORITY. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to own
and lease its properties and carry on its business as presently conducted, is
duly qualified, registered or licensed as a foreign corporation to do business
and is in good standing in each jurisdiction in which the ownership or leasing
of its properties or the character of its present operations makes such
qualification, registration or licensing necessary, except where the failure so
to qualify or be in good standing would not have a Material Adverse Effect. The
Company has heretofore delivered, or prior to the Closing Date will deliver, to
Purchaser complete and correct copies of the Articles of Incorporation, the
Certificate of Determination for the Series D Preferred Stock, and the by-laws
of the Company and the Articles of Incorporation and the by-laws of each of its
Subsidiaries, each as amended to date and as presently in effect (collectively,
with respect to any such Person, "CHARTER DOCUMENTS"). A list of all
jurisdictions in which the Company is qualified, registered or licensed to do
business as a foreign corporation is attached hereto as Schedule 4.1. 4.2
SUBSIDIARIES. The Company's Subsidiaries are set forth on SCHEDULE 4.2 hereto.
Each of the Subsidiaries is a corporation, limited liability company or
partnership duly incorporated or formed, validly existing and in good standing
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under the laws of the jurisdiction of its organization, has full corporate,
limited liability company or partnership power and authority, as the case may
be, to own and lease its properties, and carry on its business as presently
conducted, is duly qualified, registered or licensed as a foreign corporation,
limited liability company or partnership to do business and is in good standing
in each jurisdiction in which the ownership or leasing of its properties or the
character of its present operations make such qualification, registration or
licensing necessary, except where the failure so to qualify or be in good
standing would not have a Material Adverse Effect. A list of all jurisdictions
in which each of the Subsidiaries is qualified, registered or licensed to do
business as a foreign corporation, limited liability company or partnership is
attached hereto as SCHEDULE 4.2. Except as disclosed on SCHEDULE 4.2, the
Company owns, directly or indirectly, all of the outstanding shares of Capital
Stock or other evidences of equity ownership of each of its Subsidiaries free of
any Lien, restriction (other than restrictions generally applicable to
securities under federal, provincial or state securities laws) or encumbrance,
and said shares have been duly issued and are validly outstanding.
4.3 LICENSES. The Company and its Subsidiaries hold all material licenses,
franchises, permits, consents, registrations, certificates and other approvals
(including, without limitation, those relating to environmental matters, public
and worker health and safety, buildings, highways or zoning) (individually, a
"License" and collectively, "Licenses") required for the conduct of its business
as now being conducted, and is operating in substantial compliance therewith,
except where the failure to hold any such License or to operate in compliance
therewith would not have a Material Adverse Effect. The Company and its
Subsidiaries are in compliance with all laws, regulations, orders and decrees
applicable to it, except in each case where the failure so to comply would not
have a Material Adverse Effect, or a material adverse effect on the ability of
the Company or any of its Subsidiaries to perform on a timely basis any
obligation that it has or will have under any Transaction Document to which it
is a party.
4.4 CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. Except as set
forth on SCHEDULE 4.4, the execution, delivery and performance by the Company of
the Transaction Documents to which it is a party and all other instruments or
agreements to be executed at the Closing Date in connection therewith, and the
issuance and sale to the Purchaser of the New Notes pursuant to this Agreement,
are within the Company's corporate power, having been duly authorized by all
necessary corporate action on the part of the Company; do not require any
License, authorization, consent, registration, permit, certificate, franchise,
approval, qualification or formal exemption from, or other action by or in
respect of, or filing of a declaration or registration with, any court,
Governmental Body, agency or official or other Person (except such as have been
obtained or as may be required under the Securities Act or state securities or
Blue Sky laws); do not contravene or constitute a default under or violation of
(a) any provision of applicable law or regulation of any Governmental Body, or
(b) the respective Charter Documents of the Company or any of its Subsidiaries,
(c) any agreement (or require the consent of any Person under any agreement that
has not been obtained) to which the Company or any of its Subsidiaries is a
party, or (d) any judgment, injunction, order, decree or other instrument
binding upon the Company, and of its Subsidiaries or any of their respective
properties, except where such contravention, default or violation would not have
a Material Adverse Effect; and do not and will not result in the creation or
imposition of any Lien on any asset of the Company or any of its Subsidiaries,
other than Permitted Liens.
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4.5 VALIDITY AND BINDING EFFECT. Each of the Transaction Documents will be
duly executed and delivered by the Company and will be the valid and binding
agreement of the Company, enforceable against the Company in accordance with
their respective terms, except for (a) the effect upon the Transaction Documents
of bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally, (b) limitations
imposed by a court of competent jurisdiction under general equitable principles
upon the specific enforceability of any of the remedies, covenants or other
provisions of the Transaction Documents and upon the availability of injunctive
relief or other equitable remedies, and (c) any applicable laws relating to the
maximum permissible rate of interest.
4.6 CAPITALIZATION. SCHEDULE 4.6 hereto sets forth the authorized, issued
and outstanding Capital Stock (including any options, warrants and convertible
securities, the exercise or conversion price of such options, warrants and
convertibles securities, and indicating the record owners thereof) of the
Company (i) as of the date hereof and (ii) immediately after giving effect to
the consummation of the transactions contemplated hereby (including, without
limitation, the exchange of Senior Discount Notes for Series D Preferred Stock
and the Series E Warrant contemplated by the Restructuring Agreement, the
issuance of the Units, conversion of the Series B1 Preferred Stock and the
adoption of the Management Incentive Plan). Except as set forth on SCHEDULE 4.6
hereto, there are no outstanding subscriptions, options, warrants, rights,
convertible or exchangeable securities or other agreements or commitments of any
character obligating the Company or its Subsidiaries to issue any securities.
Except as set forth on SCHEDULE 4.6, there are no voting trusts or other
agreements or understandings to which the Company or its Subsidiaries is a party
with respect to the voting of the Capital Stock of the Company or the
Subsidiaries. Except as set forth on SCHEDULE 4.6 or as contemplated by the
Stockholders Agreement, neither the Company nor any of its Subsidiaries has
entered into any agreement to register its equity or debt securities under the
Securities Act.
4.7 PREEMPTIVE OR OTHER RIGHTS. Except as set forth on SCHEDULE 4.7 hereto,
as of the Closing and after giving effect to the transactions contemplated
hereby, other than rights set forth herein or in the Transaction Documents,
there are (i) no preemptive rights, rights of first refusal, put or call rights
or obligations or anti-dilution rights with respect to the issuance, sale or
redemption of the New Notes, and (ii) no rights to have the New Notes registered
for sale to the public in connection with the laws of any jurisdiction.
4.8 LITIGATION; DEFAULTS. Except as set forth on SCHEDULE 4.8 or SCHEDULE
4.20, there is no action, suit, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or affecting the Company, any of
its Subsidiaries, or any properties of any of the foregoing, before or by any
court or arbitrator or any Governmental Body which (individually or in the
aggregate) could reasonably be expected to (i) have a Material Adverse Effect,
or (ii) impair the ability of the Company or any Subsidiary to perform fully on
a timely basis any material obligation which the Company or such Subsidiary has
or will have under any Transaction Document to which the Company or such
Subsidiary is a party. Except as set forth on SCHEDULE 4.8 or SCHEDULE 4.20,
neither the Company nor any of its Subsidiaries is in violation of, or in
default under (and there does not exist any event or condition which, after
notice or lapse of time or both, would constitute such a default under), any
term of its respective Charter Documents, or of any term of any agreement,
instrument, judgment, decree, order, statute, injunction, governmental
regulation, rule or ordinance (including, without limitation, those relating to
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zoning, city planning or similar matters) applicable to the Company or any of
its Subsidiaries or to which the Company or any of its Subsidiaries is bound, or
to any properties of the Company or any of its Subsidiaries, except in each case
to the extent that such violations or defaults, individually or in the
aggregate, could not reasonably be expected to (a) affect the validity or
enforceability of any Transaction Document, (b) have a Material Adverse Effect,
or (c) impair the ability of the Company or any Subsidiary to perform fully on a
timely basis any material obligation which the Company or any Subsidiary has or
will have under any Transaction Document to which the Company is a party.
4.9 OUTSTANDING DEBT. Except as set forth on SCHEDULE 4.9 hereto, neither
the Company nor any of its Subsidiaries has outstanding Indebtedness other than
short-term debt incurred in the ordinary course of business. SCHEDULE 4.9
contains a complete and accurate list of all material guarantees, assumptions,
purchase agreements and similar agreements and arrangements whereby the Company
or any of its Subsidiaries is or may become directly or indirectly liable or
responsible for the Indebtedness or other obligations of a Person other than the
Company or any of its Subsidiaries, except for negotiable instruments endorsed
for collection or deposit in the ordinary course of its business, identifying,
with respect to each of the respective parties, amounts and maturities.
4.10 NO MATERIAL ADVERSE CHANGE. Except as set forth on SCHEDULE 4.10 or in
the SEC Reports, since September 30, 1999, there has been (a) no material
adverse change in the condition (financial or other), assets, business, results
of operations or prospects of the Company or any of its Subsidiaries, (b) no
obligation or liability (contingent or other) incurred by the Company or any of
its Subsidiaries, other than obligations and liabilities incurred in the
ordinary course of business, and no Lien placed on any of the properties of the
Company or any of its Subsidiaries which remains in existence on the date
hereof, other than Permitted Liens and liabilities and Liens described on
SCHEDULE 4.21 hereto, and (c) no acquisition or disposition of any material
assets by the Company or any of its Subsidiaries (or any contract or arrangement
therefor), or any other material transaction, other than (i) for fair value in
the ordinary course of business, or (ii) Permitted Dispositions.
4.11 EMPLOYEE PROGRAMS. SCHEDULE 4.11 sets forth a list of every Employee
Program maintained by the Company or any Current Affiliate (as defined below) at
any time during the five-year period ending on the Closing Date or with respect
to which a liability of the Company or an Affiliate (as defined below) exists.
Each Employee Program (other than a Multiemployer Plan) which has been
maintained by the Company during the five-year period ending on the Closing Date
and which has been intended to qualify under Section 401(a) or Section 501(c)(9)
of the Code has received a favorable determination or approval letter from the
Internal Revenue Service regarding its qualification under such section or the
remedial amendment period under Section 401(b) of the Code has not yet expired
with respect to such Employee Program and, to the knowledge of the Company,
nothing has occurred that would adversely affect such qualification since the
date of such letter or application for a determination or approval letter has
been timely made and to the knowledge of the Company, no reason exists why a
favorable determination or approval shall not be granted. Except as set forth on
SCHEDULE 4.11, the Company has no knowledge of any failure of any party to
comply with any laws applicable with respect to the Employee Programs that have
been maintained by the Company or any Current Affiliate, and no such failure
will result from completion of the transactions contemplated hereby. With
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respect to any Employee Program ever maintained by the Company or an Affiliate,
there has been no "prohibited transaction," as defined in Section 406 of ERISA
or Code Section 4975, or breach of any duty under ERISA or other applicable law
or any agreement which in any such case could subject the Company to material
liability either directly or indirectly (including, without limitation, through
any obligation of indemnification or contribution) for any damages, penalties,
or taxes, or any other loss or expense. No litigation or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program (other than a Multiemployer Plan).
Neither the Company nor any of its Current Affiliates have incurred any
liability under title IV of ERISA which has not been paid in full prior to the
Closing. Neither the Company nor any of its Current Affiliates is liable for any
material "accumulated funding deficiency" (whether or not waived) with respect
to any Employee Program ever maintained by the Company or any Affiliate and
subject to Code Section 412 or ERISA Section 302. With respect to any Employee
Program subject to title IV of ERISA, there has been no (and the transactions
contemplated by this Agreement will not result in any) (a) "reportable event,"
within the meaning of ERISA Section 4043 or the regulations thereunder (for
which the notice requirement is not waived under 29 C.F.R. Part 2615) or (b)
other event or condition which presents a material risk of plan termination or
any other event that may cause the Company or any Current Affiliate to incur
material liability or have a material Lien imposed on its assets under title IV
of ERISA. All payments and/or contributions required to have been made by the
Company and its Current Affiliates (under the provisions of any agreements or
other governing documents or applicable law) with respect to all Employee
Programs subject to title IV of ERISA ever maintained by the Company or any
Affiliate, for all periods prior to the Closing, have been timely made. Except
as described on SCHEDULE 4.11, no Employee Program maintained by the Company or
an Affiliate and subject to title IV of ERISA (other than a Multiemployer Plan)
has any "unfunded benefit liabilities" within the meaning of ERISA Section
4001(a)(18), as of the Closing Date. With respect to Multiemployer Plans
maintained by the Company or any Affiliate, SCHEDULE 4.11 states the aggregate
amount of withdrawal liability or other termination liability that would be
incurred by the Company or any Affiliate if there were a withdrawal from any
such plan as determined by the most recent withdrawal liability calculation
prepared by such plan. Except as disclosed on SCHEDULE 4.11, none of the
Employee Programs which is a welfare plan maintained by the Company or any
Affiliate provides health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of title I of ERISA or comparable statutes or regulations) or has
ever promised to provide such post-termination benefits.
For purposes of this section:
(i) "Employee Program" means (A) any employee benefit plan within the
meaning of Section 3(3) of ERISA and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA, and (B)
any stock option plans, bonus or incentive award plans, severance pay
policies or agreements, deferred compensation arrangements, supplemental
income arrangements, vacation plans, and all other employee benefit plans,
agreements, and arrangements not described in (A) above, and (C) any trust
used to fund benefits under the foregoing maintained by the Company or any
Affiliate.
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(ii) For purposes of this Section 4.11, an entity is an "Affiliate" of
the Company if it would have ever been considered a single employer with
the Company under ERISA Section 4001(b) or part of the same "controlled
group" as the Company for purposes of ERISA Section 302(d)(8)(C); an entity
is a "Current Affiliate" if it currently would be considered a single
employer with the Company under ERISA Section 4001(b) or part of the same
"controlled group" as the Company for purposes of ERISA Section
302(d)(8)(C); and each reference to the Company includes its Subsidiaries.
(iii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee Program,
or has any obligation (by agreement or under applicable law) to contribute
to or provide benefits under such Employee Program, or if such Employee
Program provides benefits to or otherwise covers employees of such entity
(or, in respect of such employees, their spouses, dependents, or
beneficiaries).
(iv) "Multiemployer Plan" means a (pension or non-pension) employee
benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
4.12 PRIVATE OFFERING. No form of general solicitation or general
advertising, including, but not limited to, advertisements, articles, notices or
other communications, published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising, was used
by the Company or any of its Subsidiaries or any of the Company's or such
Subsidiary's representatives, or, to the knowledge of the Company, any other
Person acting on behalf of the Company or any of its Subsidiaries, in connection
with the offering of the New Notes being purchased under this Agreement. Except
for the Amended Notes, the Series D Preferred Stock, the Units, and the Old
Equity Warrants, during the six months prior to the Closing, neither the
Company, any of its Subsidiaries nor any Person acting on the Company's or such
Subsidiary's behalf has directly or indirectly offered the New Notes, or any
part thereof or any other similar securities, for sale to, or sold or solicited
any offer to buy any of the same from, or otherwise approached or negotiated in
respect thereof with any Person or Persons other than the Purchaser. The Company
further represents to the Purchaser that, assuming the accuracy of the
representations of the Purchaser as set forth in Section 5 hereof, neither the
Company, any of its Subsidiaries nor any Person acting on the Company's or such
Subsidiary's behalf has taken or will take any action which would subject the
issue and sale of the New Notes to the provisions of Section 5 of the Securities
Act, except as contemplated by the Stockholders Agreement. The Company has not
sold the New Notes to anyone other than the Purchaser designated in this
Agreement. Except for the Amended Note issued pursuant to the Restructuring
Agreement and the Amendment No. 2 to the Securities Purchase Agreement, during
the six months prior to the Closing, no securities of the same class or series
as the securities comprising the New Notes have been issued and sold by the
Company. Each New Note certificate shall bear substantially the same legend set
forth in Section 11.12 hereof, as applicable, for at least so long as such
restrictions apply.
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4.13 BROKER'S OR FINDER'S COMMISSIONS. Neither the Company nor any of its
Subsidiaries has engaged any broker or finder or has incurred or become liable
for any broker's commission or finder's fee relating to or in connection with
the transactions contemplated by this Agreement. In addition to and not in
limitation of any other rights hereunder, the Company and its Subsidiaries agree
that they will indemnify and hold harmless the Purchaser from and against any
and all claims, demands or liabilities for broker's, finder's, placement agent's
or other similar fees or commissions and any and all liabilities with respect to
any taxes (including interest and penalties) payable or incurred or alleged to
have been incurred by the Company or any of its Subsidiaries or any Person
acting or alleged to have been acting on the Company's or such Subsidiary's
behalf, in connection with this Agreement, the issuance or sale of the New Notes
or any other transaction contemplated by any of the Transaction Documents.
4.14 DISCLOSURE.
(a) The historical financial and operating information delivered to
the Purchaser has been derived from the consolidated books and records of the
Company and its Subsidiaries prepared in accordance with GAAP.
(b) There is no fact known to the Company which the Company has not
disclosed to the Purchaser in writing which has or, insofar as the Company can
reasonably foresee, may have or will have a Material Adverse Effect or a
material adverse effect on the ability of the Company to perform its obligations
under any of the Transaction Documents or in respect of the New Notes or any
document contemplated hereby or thereby or which, insofar as the Company can
reasonably foresee, may or will cause any of the representations and warranties
herein to be untrue.
4.15 FOREIGN ASSETS CONTROL REGULATION, ETC. Neither the issue and sale of
the New Notes by the Company nor its use of the proceeds thereof as contemplated
by this Agreement will violate the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the
Nicaraguan Trade Control Regulations, the South African Transactions Control
Regulations, the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations,
the Panamanian Transactions Regulations, the Haitian Transactions Regulations,
or the Iraqi Sanctions Regulations of the United States Treasury Department (31
C.F.R., Subtitle B, Chapter V, as amended) or Executive Orders 12722 and 12724
(transactions with Iraq).
4.16 FEDERAL RESERVE REGULATIONS AND OTHER MATTERS. Neither the Company nor
any of its Subsidiaries will, directly or indirectly, use any of the proceeds
from the sale of the New Notes for the purpose, whether immediate, incidental or
ultimate, of buying any "margin stock," or of maintaining, reducing or retiring
any indebtedness originally incurred to purchase any stock that is currently a
"margin stock," or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit," in each case within the meaning of
Regulations G or U of the Board of Governors of the Federal Reserve System (12
C.F.R. 207 and 221, as amended, respectively), or otherwise take or permit to be
taken any action which would involve a violation of such Regulation G or
Regulation U or of Regulations T or X of the Board of Governors of the Federal
Reserve System (12 C.F.R. 220 and 224, as amended, respectively) or any other
regulation of such Board. No indebtedness that may be maintained, reduced or
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retired with the proceeds from the sale of the New Notes was incurred for the
purpose of purchasing or carrying any "margin stock" and neither the Company nor
any of its Subsidiaries own any such "margin stock" or have any present
intention of acquiring, directly or indirectly any such "margin stock."
4.17 INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.18 PUBLIC UTILITY HOLDING COMPANY ACT. To the Company's knowledge,
neither the Company nor any of its Subsidiaries is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended.
4.19 INTERSTATE COMMERCE ACT. To the Company's knowledge, neither the
Company nor any of its Subsidiaries is, nor will be, a "rail carrier," or a
Person controlled by or affiliated with a "rail carrier," within the meaning of
Title 49, U.S.C. Neither the Company nor any of its Subsidiaries is a "carrier"
or other Person to which 49 U.S.C. Section 11301(b)(1) is applicable.
4.20 ENVIRONMENTAL REGULATION, ETC.
(a) Except as set forth on SCHEDULE 4.20, to the knowledge of the
Company, each of the Company and its Subsidiaries (i) has no liability under any
Environmental Law or common law cause of action relating to or arising from
environmental conditions which could have a Material Adverse Effect, and any
property owned, operated, leased, or used by the Company and its Subsidiaries
and any facilities and operations thereon comply with all applicable
Environmental Laws except to the extent that failure to comply could have a
Material Adverse Effect; (ii) has not entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental; and (iii) has no reason
to believe that any of the items enumerated in clause (ii) of this paragraph
will be forthcoming.
(b) Except as set forth on SCHEDULE 4.20, to the knowledge of the
Company: (i) neither the Company nor any of its Subsidiaries has ever generated,
transported, used, stored, treated, disposed of, or managed any Hazardous Waste,
except in accordance with applicable Environmental Laws; (ii) no Release or
Threat of Release of a Hazardous Material at any site presently or formerly
owned, operated, leased, or used by the Company or any of its Subsidiaries has
occurred; (iii) neither the Company nor any of its Subsidiaries has ever had
Hazardous Material transported from any site presently or formerly owned,
operated, leased, or used by the Company or any of its Subsidiaries for
treatment, storage, or disposal at any other place, except in accordance with
applicable Environmental Laws except such noncompliance which could not
reasonably be expected to have a Material Adverse Effect; (iv) neither the
Company nor any of its Subsidiaries presently owns, operates, leases or uses any
site on which underground storage tanks are or were located; (v) neither the
Company nor any of its Subsidiaries has ever placed underground storage tanks on
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any site owned, operated, leased or used by the Company or any of its
Subsidiaries; (vi) neither the Company nor any of its Subsidiaries has ever
removed underground storage tanks from any site presently or formerly owned,
operated, leased or used by the Company or any of its Subsidiaries; and (vii)
neither the Company nor any its Subsidiaries has ever had a Lien imposed by any
Governmental Body on any property, facility, machinery, or equipment owned,
operated, leased, or used by the Company or any of its Subsidiaries in
connection with the presence of any Hazardous Material.
4.21 PROPERTIES AND ASSETS. The Company and its Subsidiaries have good
record and marketable fee title to (or, in the case of licensed Property, valid
licenses to) all real Property and all other Property and assets, whether
tangible or intangible, owned by or licensed to them and reasonably necessary in
the conduct of business of the Company or such Subsidiaries, except defects in
title which do not and will not have a Material Adverse Effect. All of the
leases necessary in any material respect for the operation of their respective
properties and assets, under which the Company or any of its Subsidiaries holds
any Property or assets, real or personal, are valid, subsisting and enforceable
and afford peaceful and undisturbed possession of the subject matter of the
lease, and no material default by the Company or any of its Subsidiaries exists
under any of the provisions thereof. All buildings, machinery and equipment of
the Company and its Subsidiaries are in good repair and working order, except
for ordinary wear and tear, and except as would have a Material Adverse Effect.
All material current and proposed uses of such Property or assets of the Company
and its Subsidiaries are permitted as of right and no regulation or ordinance
interferes with such current or proposed uses. To the knowledge of the Company,
there is no pending or formally proposed change in any such laws, regulations
and ordinances which would have a Material Adverse Effect. Except as set forth
on SCHEDULE 4.21, no condemnation proceeding is pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries. All
Property and assets of any kind (real or personal, tangible or intangible) of
the Company and its Subsidiaries are free from all Liens except for (a) Liens
which would not have a Material Adverse Effect; (b) Liens disclosed on SCHEDULE
4.21 hereto; and (c) Permitted Liens. Except as set forth on SCHEDULE 4.21
hereto, neither the Company nor any of its Subsidiaries has signed any material
financing statement, as debtor or lessee, or any security agreement authorizing
any secured party thereunder to file any such financing statement.
4.22 INSURANCE. A list of all insurance policies and fidelity bonds
maintained by or on behalf of the Company covering the assets, business,
equipment, properties, operations, employees, officers and directors of the
Company and under which the Company or any of its Subsidiaries or any of their
employees, officers and directors may derive any material benefit is set forth
on SCHEDULE 4.22 hereof. There is no claim by the Company or any of its
Subsidiaries pending under any of such policies or bonds as to which coverage
has been questioned, reserved, denied or disputed by the underwriters of such
policies or bonds or their agents where such question, reservation, denial or
dispute would have a Material Adverse Effect. All premiums due and payable under
all such policies and bonds have been paid, and the Company and its Subsidiaries
are otherwise in full compliance with the terms and conditions of all such
policies and bonds. Except as set forth on SCHEDULE 4.22, such policies of
insurance and bonds (or other policies and bonds providing substantially similar
insurance coverage) are and have been in full force and effect for at least the
last year or since the inception of the Company or any of its Subsidiaries, as
the case may be, and remain in full force and effect. Such policies of insurance
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and bonds are of the type and in amounts customarily carried by Persons
conducting business similar to that presently conducted by the Company and its
Subsidiaries. The Company knows of no threatened termination of any such
policies or bonds.
4.23 EMPLOYMENT PRACTICES. Except as set forth on SCHEDULE 4.23 hereto,
neither the Company nor any of its Subsidiaries is a party to or in the process
of negotiating any collective bargaining or labor agreement or union contract.
As of the date of this Agreement, there is no (a) charge, complaint or suit
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries respecting employment, hiring for employment,
terminating from employment, employment practices, employment discrimination,
terms and conditions of employment, safety, wrongful termination, or wages and
hours, (b) unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened against, or decision or order in effect and
binding on, the Company or any of its Subsidiaries before or of the National
Labor Relations Board, (c) grievance or arbitration proceeding arising out of or
under collective bargaining agreements pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, (d) strike,
labor dispute, slow-down, work stoppage or other interference with work pending
or, to the knowledge of the Company, threatened against the Company or its
Subsidiaries, or (e) to the knowledge of the Company, union organizing
activities or union representation question threatened or existing with respect
to any groups of employees of the Company or any of its Subsidiaries, which in
the case of (a)-(e) above could be reasonably expected to have a Material
Adverse Effect.
4.24 FINANCIAL STATEMENTS.
(a) The consolidated financial statements contained in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999
together with the notes thereto (the "FINANCIAL STATEMENTS") fairly present in
all material respects the financial position of the Company and its Subsidiaries
on a consolidated basis on the dates of such statements and the results of their
operations on the applicable basis for the periods covered thereby in accordance
with GAAP, except, with respect to unaudited financial statements, the absence
of notes thereto and statements of cash flows and subject to customary year-end
adjustments; and have been prepared in accordance with GAAP consistently
applied, except as otherwise stated therein.
(b) As of September 30, 1999 and as of the date hereof and the Closing
Date, and except as set forth in the Schedules hereto, there are no material
liabilities or claims or obligations relating to the Company or its Subsidiaries
of any nature, whether accrued, absolute, contingent or otherwise, asserted or,
to the Company's knowledge, unasserted, except liabilities or claims stated or
adequately reserved against in the Financial Statements or liabilities or claims
incurred in the ordinary course of the Company's and its Subsidiaries'
operations which are not required to be reflected in the Financial Statements or
in the notes thereto under GAAP. Nothing has come to the attention of the
Company since the date of the Financial Statements which would indicate that the
Financial Statements did not fairly present in all material respects the
financial position of the Company and its Subsidiaries as of the respective
dates thereof.
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4.25 INTELLECTUAL PROPERTY.
(a) Except as described on SCHEDULE 4.25, the Company and its
Subsidiaries have exclusive ownership of, or exclusive license to use, all
patent, copyright, trade secret, trademark, or other proprietary rights used in
the business of the Company or any of its Subsidiaries and material to the
Company and its Subsidiaries on a consolidated basis (collectively,
"INTELLECTUAL PROPERTY"). There are no claims or demands of any other Person
pertaining to any of such Intellectual Property and no proceedings have been
instituted, or are pending or, to the knowledge of the Company, threatened,
which challenge the rights of the Company or any of its Subsidiaries in respect
thereof. The Company and its Subsidiaries have the right to use, free and clear
of claims or rights of other Persons, all customer lists, designs, manufacturing
or other processes, computer software systems, data compilations, research
results and other information required for or incident to their products or
their business as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or any of its Subsidiaries or used or to be used by the
Company or any of its Subsidiaries in their business as presently conducted, and
which are material to the Company and its Subsidiaries on a consolidated basis
are listed on SCHEDULE 4.25. All of such patents, patent applications,
trademarks, trademark applications and registrations and registered copyrights
have been duly registered in, filed in or issued by the United States Patent and
Trademark Office, the United States Register of Copyrights, or the corresponding
offices of other jurisdictions as identified on SCHEDULE 4.25, and have been
properly maintained and renewed in accordance with all applicable provisions of
law and administrative regulations in the United States and each such
jurisdiction.
(c) All material licenses or other agreements under which the Company
or any of its Subsidiaries is granted rights in Intellectual Property are listed
on SCHEDULE 4.25. Except as set forth on SCHEDULE 4.25, all said licenses or
other agreements are in full force and effect and there is no material default
by any party thereto.
(d) The Company and its Subsidiaries have taken all steps required in
accordance with sound business practice and business judgment to establish and
preserve their ownership of all material copyright, trade secret and other
proprietary rights with respect to their products and technology. The Company
and its Subsidiaries regularly require all professional and technical employees,
and other employees having access to valuable non-public information of the
Company or any of its Subsidiaries, to execute agreements under which such
employees are required to convey to the Company or any of its Subsidiaries, as
applicable, ownership of all inventions and developments conceived or created by
them in the course of their employment and to maintain the confidentiality of
all such information of the Company and its Subsidiaries. To the Company's
knowledge, neither the Company nor its Subsidiaries made any such information
available to any Person other than employees of the Company or any of its
Subsidiaries except pursuant to written agreements requiring the recipients to
maintain the confidentiality of such information and appropriately restricting
the use thereof. To the knowledge of the Company, there are no infringements by
others of any of its or any Subsidiary's Intellectual Property rights.
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(e) To the knowledge of the Company, the present business, activities
and products of the Company or any of its Subsidiaries do not infringe any
intellectual property of any other Person, except where such infringement would
not have a Material Adverse Effect. No proceeding charging the Company or any of
its Subsidiaries with infringement of any adversely held Intellectual Property
has been filed or is, to the knowledge of the Company, threatened to be filed.
To the Company's knowledge, there exists no unexpired patent or patent
application which includes claims that would be infringed by or otherwise have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is
making unauthorized use of any confidential information or trade secrets of any
Person, including without limitation any former employer of any past or present
employee of the Company or any of its Subsidiaries, except where such use would
not have a Material Adverse Effect. Except as set forth on SCHEDULE 4.25,
neither the Company or any of its Subsidiaries nor, to the knowledge of the
Company, any of its or any Subsidiary's employees have any agreements or
arrangements with any Persons other than the Company or any of its Subsidiaries
related to confidential information or trade secrets of such Persons or
restricting any such employee's engagement in business activities of any nature.
The activities of the Company or any of its Subsidiaries or any of its or any
Subsidiary's employees on behalf of the Company or any of its Subsidiaries do
not violate any such agreements or arrangements known to the Company which any
such employees have with other Persons (to the extent that such agreements and
arrangements are enforceable under applicable law).
4.26 TAXES. The Company and its Subsidiaries, and any predecessors to the
Company and any of its Subsidiaries, have filed or obtained extensions of all
Tax returns heretofore required by law to be filed by any of them. All material
Taxes have been paid in full or are adequately provided for in accordance with
GAAP on the financial statements of the applicable Person. All material
deposits, Taxes and other assessments and levies required by law to be made,
withheld, collected or provided for by the Company or any of its Subsidiaries
including deposits with respect to Taxes constituting employees' income
withholding taxes, have been duly made, withheld, collected or provided for and
have been paid over to the proper federal, state or local authority, or are held
by the applicable Person for such payment. No Liens arising from or in
connection with Taxes have been filed and are currently in effect against the
Company or any of its Subsidiaries, except for Liens for Taxes which are not yet
due. Except as set forth on SCHEDULE 4.26 hereto, neither the Company nor any of
its Subsidiaries, nor any predecessors thereto, has executed or filed with the
IRS or any other taxing authority any agreement or document extending, or having
the effect of extending, the period for assessment or collection of any Taxes.
The federal income tax returns of the Company and each of its Subsidiaries, and
any predecessors thereto, have been examined by the IRS, or the statute of
limitations with respect to federal income taxes has expired, for all tax years
to and including the fiscal year ended December 31, 1994 and, except as set
forth on SCHEDULE 4.26, any deficiencies have been paid in full or are being
contested in good faith by appropriate action or appropriate reserves therefor
in accordance with GAAP have been established on the Company's or applicable
Subsidiaries' books. Except as set forth on SCHEDULE 4.26, neither the Company
nor any of its Subsidiaries is a party to any tax sharing agreement or
arrangement. Except as set forth on SCHEDULE 4.26, no audits or investigations
are pending or, to the knowledge of the Company, threatened with respect to any
tax returns or taxes of the Company or any of its Subsidiaries, or any
predecessor thereto.
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4.27 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 4.27,
and the Management Incentive Plan, there are no material transactions,
agreements or understandings, existing or presently contemplated between or
among the Company or any of its Subsidiaries and any of its officers or
directors or stockholders or any of their Affiliates or associates.
4.28 LIMITATION ON SUBSIDIARY PAYMENT RESTRICTIONS. Except as set forth on
SCHEDULE 4.28 hereto, neither the Company nor any of its Subsidiaries is subject
to any consensual restriction on the ability of any such Subsidiary (a) to pay
dividends or make any other distributions on such Subsidiary's Capital Stock to,
or pay any indebtedness owing to, or repurchase or redeem any of such
Subsidiary's Capital Stock from, the Company or any other Subsidiary of the
Company, (b) to make any loans or advances to the Company or any other
Subsidiary of the Company, or (c) to transfer any of its Property or assets to
the Company or any other Subsidiary.
4.29 NO OTHER BUSINESS. The Company has not and is not engaged in any
material respect in any business other than the design, development, production,
marketing and sale of interactive slot machines.
ARTICLE V
PURCHASE FOR INVESTMENT; SOURCE OF FUNDS
5.1 PURCHASE FOR INVESTMENT. The Purchaser represents that (a) by reason of
its business and financial experience, and the business and financial experience
of those persons, if any, retained by it to advise it with respect to its
investment in the New Notes, it together with such advisers have such knowledge,
sophistication and experience in business and financial matters as to be capable
of evaluating the merits and risk of the prospective investment, (b) it is an
accredited investor as defined in Regulation D under the Securities Act and (c)
it is purchasing the New Notes for its own account or for one or more separate
accounts maintained by it or for the account of one or more institutional
investors on whose behalf the Purchaser has authority to make this
representation for investment and not with a view to the distribution or other
disposition thereof or with any present intention of distributing or selling any
of the New Notes except in compliance with the Securities Act and except to one
or more such institutional investors, provided that the disposition of the
Purchaser's or such investor's property shall at all times be within its
control. The Purchaser understands and agrees that the New Notes have not been
registered under the Securities Act and may be resold (which resale is not now
contemplated) only if registered pursuant to the provisions thereunder or if an
exemption from registration is available.
5.2 AUTHORITY. The Purchaser represents that it has full power and
authority and has taken all action necessary to authorize it to enter into and
perform its obligations under this Agreement and all other Transaction Documents
and other documents or instruments contemplated hereby or thereby. This
Agreement is the legal, valid and binding obligation of such Purchaser, and is
enforceable against it in accordance with its terms.
5.3 BROKER'S OR FINDER'S COMMISSIONS. In addition to and not in limitation
of any other rights hereunder, the Purchaser agrees that it will indemnify and
hold harmless the Company and its Subsidiaries from and against any and all
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claims, demands or liabilities for broker's, finder's, placement agent's or
other similar fees or commissions and any and all liabilities with respect to
any taxes (including interest and penalties) payable or incurred or alleged to
have been incurred by the Purchaser or any Person acting or alleged to have been
acting on the Purchaser's behalf, in connection with this Agreement, the
issuance or sale of the New Notes or any other transaction contemplated by any
of the Transaction Documents.
5.4 ACKNOWLEDGMENT OF GAMING RESTRICTIONS. The Purchaser acknowledges that
pursuant to the Gaming Laws approvals from the Gaming Authorities shall be
required in order for the Purchaser or any Holder to acquire control (as defined
in the Gaming Laws) of the Company.
ARTICLE VI
REDEMPTIONS, OFFERS TO PURCHASE, AND CONVERSIONS
6.1 NOTICE OF REDEMPTION. If the Company elects to redeem New Notes
pursuant to Section 6.6 hereof, at least 30 days but not more than 60 days
before any Redemption Date, the Company shall mail by first class mail a notice
of redemption to the registered address of each Holder of New Notes or portions
thereof that are to be redeemed. With respect to any redemption of New Notes,
the notice shall identify the New Notes or portions thereof to be redeemed and
shall state: (i) the Redemption Date; (ii) the Redemption Price for the New
Notes and the amount of unpaid and accrued interest on such New Notes as of the
date of redemption; (iii) if any New Note is being redeemed in part, the portion
of the principal amount of such New Note to be redeemed and that, after the
Redemption Date, upon surrender of such New Note, a new New Note or New Notes in
principal amount equal to the unredeemed portion will be issued; (iv) that New
Notes called for redemption must be surrendered to the Company to collect the
Redemption Price for such New Notes; (v) that, unless the Company defaults in
paying the Redemption Price, interest on New Notes called for redemption ceases
to accrue on and after the Redemption Date and the only remaining right of the
Holders of such New Notes is to receive payment of the Redemption Price upon
surrender to the Company of the New Notes redeemed; and (vi) if fewer than all
the New Notes are to be redeemed, the identification of the particular New Notes
(or portion thereof) to be redeemed, as well as the aggregate principal amount
of New Notes to be redeemed and the aggregate principal amount of New Notes to
be outstanding after such partial redemption.
6.2 SELECTION OF NEW NOTES TO BE REDEEMED OR PURCHASED. If less than all
outstanding New Notes are to be redeemed or if less than all New Notes tendered
pursuant to an Offer are to be accepted for payment, the Company shall select
the outstanding New Notes to be redeemed or accepted for payment in compliance
with the requirements of the principal national securities exchange, if any, on
which the New Notes are listed or, if the New Notes are not listed on a
securities exchange, on a pro rata basis, by lot or by any other method that the
Company deems fair and appropriate. The Company shall select for redemption or
purchase New Notes or portions of New Notes in principal amounts of $1,000 or
integral multiples thereof; except that if all of the New Notes of a Holder are
selected for redemption or purchase, the aggregate principal amount of the New
Notes held by such Holder, even if not a multiple of $1,000, may be redeemed or
purchased. Except as provided in the preceding sentence, provisions of this
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Agreement that apply to New Notes called for redemption or tendered pursuant to
an Offer also apply to portions of New Notes called for redemption or tendered
pursuant to an Offer.
6.3 EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed to
the Holders, New Notes called for redemption become due and payable on the
Redemption Date at the Redemption Price. Upon surrender to the Company, the New
Notes called for redemption shall be paid at the Redemption Price on the
Redemption Date.
6.4 PAYMENT OF REDEMPTION PRICE. On or prior to any Redemption Date, the
Company shall segregate money sufficient to pay the Redemption Price of all New
Notes to be redeemed on that date. Unless the Company defaults in the payment of
such Redemption Price, interest on the New Notes to be redeemed will cease to
accrue on such New Notes on the applicable Redemption Date, whether or not such
New Notes are presented for payment. If a New Note is redeemed on or after an
interest Record Date but on or prior to the related Interest Payment Date, then
any accrued and unpaid interest shall be paid to the Person in whose name such
New Note was registered at the close of business on such Record Date. If any New
Note called for redemption shall not be so paid upon surrender for redemption,
interest will be paid on the unpaid principal, premium, if any, and interest
from the Redemption Date until such principal, premium and interest is paid, at
the rate of interest provided in the New Notes and Section 7.1. If a Redemption
Date is a non-Business Day, payment shall be made on the next succeeding
Business Day and no interest shall accrue for the period from the Redemption
Date to such succeeding Business Day.
6.5 NEW NOTES REDEEMED IN PART. Upon surrender of a New Note that is
redeemed in part, the Company shall issue to the Holder thereof at the Company's
expense a new New Note equal in principal amount to the unredeemed portion of
the New Note surrendered.
6.6 OPTIONAL AND MANDATORY REDEMPTION.
(a) The New Notes will be subject to redemption, in whole or from time
to time in part (in multiples of $1,000 of principal amount) at the option of
the Company at a purchase price equal to 100% of the principal amount thereof,
plus any accrued and unpaid interest to the Redemption Date, plus a premium
which when taken together with the interest earned on the New Notes results in
an annualized rate of return to the Holder from the Closing Date through and
including the Redemption Date equal to 25%.
(b) Upon any partial prepayment or redemption of the New Notes, the
principal amount so prepaid or redeemed shall be allocated to all New Notes at
the time outstanding in proportion to the respective outstanding principal
amounts thereof, and a corresponding pro rata adjustment shall be made in the
minimum denomination of a New Note pursuant to Section 11.1.
6.7 MANDATORY OFFERS.
(a) Within 10 Business Days after any Change of Control Trigger Date,
any Repayment Trigger Date or any Excess Proceeds Date, the Company shall mail a
notice to each Holder containing all instructions and materials necessary to
enable such Holders to tender New Notes pursuant to the Offer and stating: (i)
that an Offer is being made pursuant to Section 7.12, or 7.13, as the case may
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be, the length of time the Offer shall remain open, and the maximum aggregate
principal amount of New Notes that the Company is required to purchase pursuant
to such Offer; (ii) the purchase price for the New Notes (as set forth in
Section 7.12 or 7.13, as the case may be), the amount of accrued and unpaid
interest on such New Notes as of the purchase date, and the purchase date (which
shall be no earlier than 30 days nor later than 40 days from the date such
notice is mailed (the "Purchase Date")); (iii) that any New Note not tendered
will continue to accrue interest if interest is then accruing; (iv) that, unless
the Company defaults in the payment of the purchase price on the Purchase Date,
interest shall cease to accrue on such New Notes on the Purchase Date; (v) that
Holders electing to tender any New Note or portion thereof will be required to
surrender their New Note, with a form entitled "Option of Holder to Elect
Purchase" completed, to the Company at the address specified in Section 13.2
hereof prior to the close of business on the Business Day preceding the Purchase
Date, PROVIDED that Holders electing to tender only a portion of any New Note
must tender a principal amount of $1,000 or integral multiples thereof; (vi)
that Holders will be entitled to withdraw their election to tender New Notes if
the Company receives, not later than the close of business on the second
Business Day preceding the Purchase Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of New Notes delivered for purchase, and a statement that such Holder is
withdrawing his election to have such New Notes purchased; (vii) that Holders
whose New Notes are accepted for payment in part will be issued new New Notes
equal in principal amount to the unpurchased portion of New Notes surrendered,
PROVIDED that only New Notes in a principal amount of $1,000 or integral
multiples thereof will be accepted for payment in part and (viii) if the Offer
is made with respect to a Change of Control, the circumstances and relevant
facts regarding such Change of Control.
(b) On the Purchase Date for any Offer, the Company shall (i) in the
case of an Offer resulting from a Change of Control, accept for payment all New
Notes or portions thereof tendered pursuant to such Offer, and (ii) in the case
of an Offer resulting from one or more Securities Sales or Mezzanine Debt
Financings accept for payment all New Notes or portions thereof tendered
pursuant to such Offer that are required to be purchased pursuant to Section
7.13 hereof.
(c) With respect to any Offer, (i) if less than all of the New Notes
tendered pursuant to an Offer are to be accepted for payment by the Company for
any reason, the Company shall select on or prior to the Purchase Date the New
Notes or portions thereof to be accepted for payment pursuant to Section 6.2;
and (ii) unless the Company defaults in the payment of the purchase price for
such New Notes on the Purchase Date, interest shall cease to accrue on such New
Notes on the Purchase Date; PROVIDED, HOWEVER, that if the Company fails to
purchase all New Notes accepted for payment, the Company shall purchase on a pro
rata basis all New Notes accepted for payment and interest shall continue to
accrue on all New Notes not purchased.
(d) Promptly after the Purchase Date with respect to an Offer, (i) the
Company shall mail to each Holder of New Notes or portions thereof accepted for
payment an amount equal to the purchase price for, plus any accrued and unpaid
interest on, such New Notes, (ii) with respect to any tendered New Note not
accepted for payment in whole or in part, the Company shall return such New Note
to the Holder thereof, and (iii) with respect to any New Note accepted for
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payment in part, the Company shall authenticate and mail to each such Holder a
new New Note equal in principal amount to the unpurchased portion of the
tendered New Note.
(e) The Company will (i) publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date, and (ii) comply with Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable to any Offer.
(f) Notwithstanding Section 7.12 and Section 6.7, upon the occurrence
of a Change in Control Trigger Date, in lieu of repurchasing New Notes as
required by Section 7.12, the Company may elect, instead, to call for redemption
all New Notes pursuant to Section 6.1 provided that the related Notice of
Redemption is mailed to all holders not later than the last date that it would
be required to commence a Mandatory Offer pursuant to Section 6.7 in respect of
such Change in Control.
ARTICLE VII
COVENANTS
7.1 PAYMENT OF NEW NOTES. The Company shall pay the principal of, and
premium, if any, and interest on, the New Notes on the dates and in the manner
provided in the New Notes. Holders must surrender their New Notes to the Company
to collect principal payments. Principal, premium, or interest shall be
considered paid on the date due if, by 2:00 p.m., Boston, Massachusetts time, on
such date, the Company shall have executed wire transfers in immediately
available funds designated for and sufficient to pay such principal, premium or
interest. To the extent lawful, the Company shall pay interest (including
Post-Petition Interest) on overdue principal, premium and interest (without
regard to any applicable grace period) at a rate equal to 1.5% per annum in
excess of the then applicable interest rate on the New Notes.
7.2 REPORTS.
(a) To the extent permitted by applicable law or regulation, whether
or not the Company is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission all quarterly and
annual reports and such other information, documents or other reports (or copies
of such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) required to be filed pursuant to such provisions of the
Exchange Act. The Company shall mail to the holders of the New Notes at their
addresses appearing in the register of New Notes at the time of such mailing,
within 10 days after it files the same with the Commission, all information,
documents and reports that it is required to file with the Commission pursuant
to this Section 7.2. If the Company is not permitted by applicable law or
regulations to file the aforementioned reports, the Company (at its own expense)
shall mail to the holders of the New Notes at their addresses appearing in the
register of New Notes, at the time of such mailing within 5 days after it would
have been required to file such information with the Commission, all information
and financial statements, including any notes thereto and with respect to annual
reports, an auditors' report by an accounting firm of established national
reputation, and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," comparable to the disclosure that the Company would
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have been required to include in annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, if the Company was subject to the requirements of such
Section 13 or 15(d) of the Exchange Act.
(b) At any time when the Company is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a holder of
a New Note, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such holder or to a prospective
purchaser of such New Note designated by such holder, as the case may be, in
order to permit compliance by such holder with Rule 144A under the Securities
Act.
7.3 COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Holders, within 135 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that (i) a review of the activities of the Company and its Subsidiaries during
the preceding fiscal year has been made to determine whether the Company has
kept, observed, performed and fulfilled all of its obligations under this
Agreement and the New Notes, (ii) such review was supervised by the Officers of
the Company signing such certificate, and (iii) that to the best knowledge of
each Officer signing such certificate, (A) the Company has kept, observed,
performed and fulfilled each and every covenant contained in this Agreement and
is not in default in the performance or observance of any of the terms,
provisions and conditions of this Agreement (or, if a Default or Event of
Default occurred, describing all such Defaults or Events of Default of which
each such Officer may have knowledge and what action the Company has taken or
proposes to take with respect thereto), and (B) no event has occurred and
remains in existence by reason of which payments on account of the principal of,
or premium, if any, or interest on, the New Notes are prohibited or if such
event has occurred, a description of the event and what action the Company is
taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the Officers' Certificate
delivered pursuant to Section 7.3(a) shall be accompanied by a written statement
of Deloitte & Touche LLP, the Company's independent public accountants (or
another independent accounting firm of established national reputation
reasonably satisfactory to the Holders), that in making the examination
necessary for certification of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Sections 7.1, 7.5, 7.7, 7.10, 7.13, or Article VIII, or if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company will, so long as any of the New Notes are outstanding,
deliver to the Holders, promptly after any Officer of the Company becomes aware
of (i) any Default or Event of Default, or (ii) any default or event of default
under any other mortgage, agreement or instrument that could result in an Event
of Default under Section 9.1, an Officers' Certificate specifying such Default,
Event of Default or default and what action the Company is taking or proposes to
take with respect thereto.
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7.4 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that might affect the covenants or the performance of its obligations under this
Agreement and the New Notes; and the Company (to the extent it may lawfully do
so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay or impede
the execution of any power granted to the Holders pursuant to this Agreement,
but will suffer and permit the execution of every such power as though no such
law has been enacted.
7.5 LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, make any Restricted Payment, except payments,
prepayments, repurchases, redemptions and acquisitions with respect to
Indebtedness not incurred in violation of Section 7.7.
(b) Notwithstanding Section 7.5(a), the following Restricted Payments
may be made: (i) the redemption of the Series D Preferred Stock, the Amended
Notes, and the New Notes under the terms and provisions of the relevant
agreement controlling each instrument; (ii) repurchase of any Common Stock
pursuant to the provisions of the Management Incentive Plan at a redemption
price no greater than the price at which such shares were originally sold; (iii)
the issuance of the Units; and (iv) the issuance of the Series E Warrant.
7.6 CORPORATE EXISTENCE. Subject to Article VIII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate or similar existence of each of
its Subsidiaries in accordance with the respective organizational documents of
each of its Subsidiaries and the rights (charter and statutory), licenses and
franchises of the Company and each of its Subsidiaries; provided, however, that
the Company shall not be required to preserve any such right, license or
franchise, or the corporate or similar existence of any Subsidiary, if the
Company's Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries taken as a whole and that the loss thereof is not adverse in any
material respect to the holders of the New Notes and the Warrants.
7.7 LIMITATION ON INDEBTEDNESS.
(a) Except as set forth in this Section 7.7, the Company shall not,
and shall not permit any Subsidiary, after the date hereof, directly or
indirectly, to Incur any Indebtedness (including Acquired Indebtedness) without
the prior written consent of the holders of a majority of the then outstanding
New Notes. For purposes of this Agreement, Indebtedness of any Acquired Person
that is not a Subsidiary, which Indebtedness is outstanding at the time such
Person is acquired by the Company or a Subsidiary or becomes, or is merged into
or consolidated with, a Subsidiary, shall be deemed to have been Incurred by the
Company or the acquiring Subsidiary at the time such Acquired Person becomes, or
is merged into or consolidated with, a Subsidiary.
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(b) Notwithstanding Section 7.7(a) the Company and its Subsidiaries
may Incur, after the date hereof, any of the following Indebtedness:
(i) Indebtedness outstanding at the date hereof as set forth on
SCHEDULE 4.8, including the Indebtedness evidenced by the New Notes
and the Amended Notes, including any Indebtedness evidenced by notes
issued as payment-in-kind for interest payments due and payable under
the Amended Notes and the New Notes;
(ii) Indebtedness to any Wholly-Owned Subsidiary of the Company
or Indebtedness of any Subsidiary to the Company (provided that such
Indebtedness is at all times held by the Company or a Wholly-Owned
Subsidiary of the Company); PROVIDED, HOWEVER, that for purposes of
this Section 7.7, upon either (A) the transfer or other disposition by
any such Wholly-Owned Subsidiary of any Indebtedness so permitted to a
Person other than the Company or another Wholly-Owned Subsidiary of
the Company or (B) the issuance, sale, lease, transfer or other
disposition of shares of Capital Stock (including by consolidation or
merger) of such Wholly-Owned Subsidiary to a Person other than the
Company or another such Wholly-Owned Subsidiary, the provisions of
this clause (ii) shall no longer be applicable to such Indebtedness
and such Indebtedness shall be deemed to have been Incurred by the
Company at the time of such transfer or other disposition;
(iii) Refinancing Indebtedness with respect to Indebtedness that
was Incurred prior to the date hereof or, if incurred after the date
hereof, was Incurred in compliance with the provisions of this
Agreement; PROVIDED, HOWEVER, that (A) the principal amount of such
Refinancing Indebtedness shall not exceed the principal amount (or
accreted value, in the case of Indebtedness issued at a discount) of
the Indebtedness so extended, refinanced, renewed, replaced,
substituted, defeased or refunded (plus the amount of fees, costs and
expenses incurred and the amount of any premium, penalties, breakage
costs and other similar amounts required to be paid in connection with
such refinancing pursuant to the terms of the instrument governing the
Indebtedness so extended, refinanced, renewed, replaced, substituted,
defeased or refunded or the amount of any premium reasonably
determined by the Company as necessary to accomplish a refinancing by
means of a tender offer or privately negotiated repurchase, which
determination shall be supported by a fairness opinion from an
Independent Financial Advisor, plus the fees, costs and expenses of
such tender offer or repurchase); and (B) the Refinancing Indebtedness
shall (1) have a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of the Indebtedness being
extended, refinanced, renewed, replaced, substituted, defeased or
refunded; (2) not have a final scheduled maturity earlier than the
final scheduled maturity of the Indebtedness being extended,
refinanced, replaced, renewed, substituted, defeased or refunded; (3)
not permit redemption at the option of the holder earlier than the
earliest date of redemption at the option of the holder of the
Indebtedness being extended, refinanced, renewed, replaced,
substituted, defeased or refunded; and (4) rank no more senior or be
at least as subordinated, as the case may be, in right of payment to
the New Notes, the Series D Preferred Stock and the Senior Discount
Notes as the Indebtedness being extended, refinanced, replaced,
renewed, substituted, defeased or refunded;
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(iv) Senior Indebtedness of the Company not to exceed an
aggregate of $4,000,000 (inclusive of amounts outstanding as of the
date of this Agreement), including without limitation, Indebtedness
owed to Silicon Valley Bank under the Company's secured credit
facility, or any successor or similar secured credit facility.
7.8 LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) Neither the Company nor any of its Subsidiaries shall enter into
any transaction or series of transactions to sell, lease, transfer, exchange or
otherwise dispose of any of its properties or assets to or to purchase any
property or assets from, or for the direct or indirect benefit of, an Affiliate
of the Company or of any Subsidiary of the Company, make any Investment in or
enter into any contract, agreement, understanding, loan, advance or Guarantee
with, or for the direct or indirect benefit of, an Affiliate of the Company or
of any Subsidiary of the Company (each, including any series of transactions
with one or more Affiliates, an "Affiliate Transaction"), unless (i) the Board
of Directors of the Company or the relevant Subsidiary determines, as evidenced
by a Board Resolution, that the terms of such Affiliate Transaction are fair and
reasonable to the Company and no less favorable to the Company or the relevant
Subsidiary than those that could have been obtained at that time in a comparable
arms-length transaction by the Company or such Subsidiary with an unrelated
Person, (ii) such transaction has been approved by a majority of the Board of
Directors of the Company or the relevant Subsidiary who have no direct or
indirect interest in the Affiliate Transaction or in the Affiliate that is a
party to the Affiliate Transaction, or in any other party that is an Affiliate
of any such Affiliate, and (iii) the Company shall have delivered to the Holders
an Officers' Certificate certifying that the conditions set forth in clauses (i)
and (ii) above have been satisfied.
(b) Neither the Company nor any of its Subsidiaries shall enter into
an Affiliate Transaction involving or having a potential aggregate value of more
than $1,000,000 unless, in addition to the requirements of (a) above, the Board
of Directors of the Company or the relevant Subsidiary shall first have received
a written opinion from an Independent Financial Advisor for the benefit of the
Company and the Holders, which firm is not receiving any contingent fee or other
consideration directly or indirectly related to the successful completion of the
Affiliate Transaction, to the effect that the proposed Affiliate Transaction is
fair to the Company from a financial point of view.
(c) The provisions of this Section 7.8 shall not apply to (i) any
Restricted Payment that is made in compliance with the provisions of Section
7.5, (ii) the reasonable and customary fees and compensation paid to or
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Subsidiary, as determined by the Board of Directors of the
Company or such Subsidiary or the senior management thereof in good faith, (iii)
transactions exclusively between or among the Company and any Wholly-Owned
Subsidiary or exclusively between or among Wholly-Owned Subsidiaries provided
such transactions are not otherwise prohibited by this Agreement, and (iv) any
Affiliate Transaction in existence as of the date hereof (including but not
limited to the Management Incentive Plan), the terms of which are listed on
SCHEDULE 4.27.
7.9 LIMITATION ON LIENS. The Company shall not, and shall not permit any of
its Subsidiaries to, Incur, assume, suffer to exist, create or otherwise cause
to be effective any Lien on any asset now owned or hereafter acquired, or any
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income or profits therefrom or assign or convey any right to receive income
therefrom to secure any Indebtedness except: (a) Permitted Liens (other than
Permitted Liens described in clause (i) of the definition thereof), (b) Liens
existing as of the date hereof (and any extension, renewal or replacement Liens
upon the same Property subject to such Liens, provided the principal amount of
Indebtedness secured by each Lien constituting such an extension, renewal or
replacement Lien shall not exceed the principal amount of Indebtedness secured
by the Lien theretofore existing, plus amounts described in Section
7.7(b)(iii)(A) with respect to permitted Refinancing Indebtedness), (c) after
the Security Opinion Date, Liens securing Indebtedness of any Subsidiary of the
Company, PROVIDED that (i) such Liens are limited to Property or assets of such
Subsidiary, (ii) the Indebtedness secured by such Liens was not Incurred in
violation of this Agreement and (iii) the Indebtedness secured by such Liens is
not subordinated to or junior in right or priority of payment in any respect to
any other Indebtedness of such Subsidiary; (d) after the Security Opinion Date,
Liens as defined in clause (i) of the definition of Permitted Liens; and (e)
Liens replacing, extending or renewing, in whole or in part, any Lien described
in the foregoing clauses (a) through (d), including in connection with any
refinancing of the Indebtedness, in whole or in part, secured by any such Lien
effected in accordance with Section 7.7, PROVIDED that if any such clauses limit
the amount secured by or the Property or assets subject to such Liens, no such
replacement, extension or renewal shall increase the amount of Indebtedness or
the Property or assets subject to such Liens.
7.10 PAYMENT OF TAXES AND OTHER CLAIMS. The Company shall, and shall cause
each of its Subsidiaries to, pay or discharge, before the same shall become
delinquent, (a) all Taxes, assessments and governmental charges (including
withholding taxes and penalties, interest and additions to taxes) levied or
imposed upon it or any of its Subsidiaries or properties of the Company or any
of its Subsidiaries and (b) all lawful claims for labor, materials and supplies
that, if unpaid might by law become a Lien upon the Property of it or any of its
Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such Tax, assessment, charge
or claim if either (i) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by GAAP or (ii) the failure to
make such payment or effect such discharge (together with all other such
failures) would not have a Material Adverse Effect.
7.11 RESTRICTIONS AGAINST LIMITATIONS ON UPSTREAM PAYMENTS. The Company
shall not, and shall not permit any Subsidiary of the Company to, create or
otherwise cause or suffer to exist or to become effective any Payment
Restriction or other encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends or make any other distributions on its
Capital Stock or any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or a Subsidiary
of the Company, (b) make loans or advances to the Company or a Subsidiary of the
Company, or (c) transfer any of its Properties or assets to the Company or any
Subsidiary of the Company, except for such Payment Restrictions or encumbrances
existing under or by reason of: (i) applicable law; (ii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was Incurred in contemplation of or in connection
with such acquisition), PROVIDED, that such restriction is not applicable to any
Person, or the Property or assets of any Person, other than the Acquired Person;
(iii) non-assignment provisions in leases entered into in the ordinary course of
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business and consistent with past practices; (iv) instruments governing purchase
money Indebtedness for Property acquired in the ordinary course of business that
only impose restrictions on the Property so acquired; (v) any agreement for the
sale or disposition of the Capital Stock or assets of such Subsidiary, PROVIDED
that such restriction is only applicable to such Subsidiary or assets, as
applicable; or (vi) Refinancing Indebtedness permitted under this Agreement with
respect to Indebtedness described in clauses (ii), (iii) or (iv), PROVIDED that
the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained in
the instrument governing the Indebtedness being refinanced immediately prior to
such refinancing.
7.12 CHANGE OF CONTROL. Upon the occurrence of a Change of Control (such
date being the "Change of Control Trigger Date"), each Holder will have the
right to require the Company to repurchase all or any part of such Holder's New
Notes pursuant to the Offer (but, with respect to any partial tender of New
Notes, the Company shall only be required to purchase principal amounts in
integral multiples of $1,000) at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest to the
Purchase Date. The Offer shall be effected in accordance with Section 6.7 and
Article VI (to the extent applicable) and the provisions of this Section 7.12;
provided, however, that this Section 7.12 shall not apply if the Company instead
elects to redeem all New Notes as provided in Section 6.7(f).
7.13 REDEMPTION FROM THE PROCEEDS OF SECURITIES SALES AND MEZZANINE DEBT
FINANCINGS.
(a) The Company will not, and will not permit any of its Subsidiaries
to, undertake any Securities Sale or any Mezzanine Debt Financing, unless: (i)
the Company or the applicable Subsidiary receives consideration, which, at the
time of such Securities Sale or Mezzanine Debt Financing, is at least equal to
the fair market value of the Capital Stock or other equity or debt securities
sold or otherwise disposed of (as determined in good faith by the Board of
Directors of the Company evidenced by a Board Resolution); and (ii) the Net Cash
Proceeds received by the Company or such Subsidiary, as the case may be, from
such Securities Sale or Mezzanine Debt Financing are applied in accordance with
this Section 7.13.
(b) As soon as practicable, but in no event later than 10 Business
Days after any date (with respect to both a Securities Sale or a Mezzanine Debt
Financing, a "Repayment Trigger Date") that the aggregate amount of Net Cash
Proceeds from all such Securities Sales or Mezzanine Debt Financings occurring
on or after the date hereof, then:
(i) if such Net Cash Proceeds exceed $5,000,000, but are less
than or equal to $10,000,000, then the Company shall commence an Offer
to purchase the maximum principal amount of Amended Notes (and if no
Amended Notes remain outstanding then New Notes) that may be purchased
using Fifty Percent (50%) of any such Net Cash Proceeds in excess of
$5,000,000 but less than or equal to $10,000,000; or
(ii) if such Net Cash Proceeds exceed $10,000,000, then the
Company shall commence an Offer to purchase the maximum principal
amount of Amended Notes (and if no Amended Notes remain outstanding
than New Notes) that may be purchased using One Hundred (100%) of any
such Net Cash Proceeds in excess of $10,000,000;
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in any case, subject to reduction in the event holders of New Notes or Amended
Notes tender such Notes for redemption pursuant to Section 6.7 of this Agreement
or the Amended Notes Securities Purchase Agreement, as applicable, at an offer
price of $1.00 for every $1.00 of principal amount, plus accrued and unpaid
interest to the Purchase Date. The Offer shall be effected in accordance with
Section 6.7 and Article VI (to the extent applicable) and the provisions of this
Section 7.13. To the extent that any such Net Cash Proceeds remain after
completion of an Offer, the Company may use the remaining amount for any purpose
permitted by this Agreement.
7.14 MAINTENANCE OF PROPERTIES. The Company will cause all properties used
or useful in the conduct of its business or the business of any Subsidiary of
the Company to be maintained and kept in good condition, repair and working
order, subject to normal wear and tear, and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 7.14 shall prevent the Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, as determined by the Company in good faith, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
7.15 MAINTENANCE OF INSURANCE. The Company shall, and shall cause its
Subsidiaries to, (a) keep at all times all of their properties which are of an
insurable nature insured against loss or damage with financially sound and
reputable insurers to the extent that property of similar character is usually
so insured by corporations similarly situated and owning like properties in
accordance with good business practice, and (b) will maintain with financially
sound and reputable insurers insurance against other hazards and risks and
liability to persons and property to the extent and in a manner customary for
corporations in similar business similarly situated. The Company shall, and
shall cause its Subsidiaries to, use the proceeds from any such insurance policy
to repair, replace or otherwise restore the property to which such proceeds
relate, except to the extent that a different use of such proceeds is, as
determined by the Company, in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders.
7.16 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause each
of its Subsidiaries to comply, with all applicable statutes, rules, regulations,
orders and restrictions of the United States of America, all states and
municipalities thereof, and of any governmental department, commission, board,
regulatory authority, bureau, agency and instrumentality of the foregoing, in
respect of the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliance as would not in the
aggregate have a Material Adverse Effect.
7.17 LIMITATION ON ISSUANCES AND DISPOSITIONS OF CAPITAL STOCK OF
SUBSIDIARIES. The Company (a) shall not, and shall not permit any Subsidiary to,
transfer, convey, sell, or otherwise dispose of any Capital Stock, or securities
convertible into or exercisable or exchangeable for, or options, warrants,
rights or any other interest with respect to, Capital Stock of a Subsidiary to
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any Person (other than the Company or a Wholly-Owned Subsidiary) unless such
transfer, conveyance, sale, lease or other disposition is of 100% of the Capital
Stock of such Subsidiary held by the Company and the Net Cash Proceeds from such
transfer, conveyance or sale are applied in accordance with Section 7.18 hereof
and (b) shall not permit any Subsidiary to issue shares of its Capital Stock
(other than directors' qualifying shares), or securities convertible into or
exercisable or exchangeable for, or options, warrants, rights or any other
interest with respect to, its Capital Stock to any Person.
7.18 LIMITATION ON SALE OF ASSETS. The Company shall not, and shall not
permit any of its Subsidiaries to undertake any Asset Disposition.
ARTICLE VIII
SUCCESSORS
8.1 MERGER OR CONSOLIDATION.
(a) The Company shall not (i) consolidate with or merge into any other
Person; (ii) permit any other Person to consolidate with or merge into the
Company; (iii) permit any other Person to consolidate with, merge into or be
merged into by, any Subsidiary (in a transaction in which such Subsidiary (or
successor Person) remains (or becomes) a Subsidiary); and (iv) directly or
indirectly, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety (except for any
Permitted Disposition, or the merger or consolidation of any Subsidiary of the
Company with or into, or the disposition of all or substantially all of the
assets of any Subsidiary of the Company to, the Company or any Wholly-Owned
Subsidiary of the Company).
(b) For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries, the
Capital Stock of which constitutes all or substantially all of the properties
and assets of the Company, shall be deemed to be the transfer of all or
substantially all of the properties and assets of the Company.
8.2 SURVIVING PERSON SUBSTITUTED. Upon any consolidation or merger, or any
transfer of assets in accordance with Section 8.1, the Surviving Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this Agreement
with the same effect as if such Surviving Person had been named as the Company
herein. When a Successor Company assumes all of the obligations of the Company
hereunder and under the Convertible Notes and agrees to be bound hereby and
thereby, the predecessor shall be released from such obligations.
ARTICLE IX
DEFAULTS AND REMEDIES
9.1 EVENTS OF DEFAULT.
(a) Each of the following constitutes an "Event of Default": (i) the
Company shall fail to make any payment in respect of (A) the principal of or
premium, if any, on the New Notes or the Senior Discount Notes as the same shall
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become due, whether at maturity, upon acceleration, redemption or otherwise, or
(B) interest on or in respect of any New Notes or the Senior Discount Notes as
the same shall become due, and such failure shall continue for a period of 15
Business Days; (ii) failure by the Company for 30 days after receipt of notice
from the Holders of at least 25% of the principal amount of the outstanding New
Notes to comply with any other provisions of this Agreement, the Amendment No. 2
to the Securities Purchase Agreement, the Restructuring Agreement, the Senior
Discount Notes or any New Notes; (iii) default under any mortgage, agreement or
instrument under which there may be Incurred or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness now exists, or is created after the date
hereof if (A) such default results in the acceleration of such Indebtedness
prior to its express maturity or shall constitute a default in the payment of
such Indebtedness at final maturity of such Indebtedness, and (B) the principal
amount of any such Indebtedness that has been accelerated or not paid at
maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$250,000, (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $250,000, which judgments are
not paid, discharged, bonded or stayed for a period of 90 days after the date of
entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its Property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 60 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; (vi)
any of the Transaction Documents shall cease, for any reason, to be in full
force and effect in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing; and (vii) if the Secretary of State for the
State of California fails to accept, within twenty (20) days after the initial
submission thereof, the Series D Certificate of Determination or the Series E
Certificate of Determination (each as defined in the Agreement) in the forms
attached to the Restructuring Agreement (as defined in the Agreement) as EXHIBIT
A and EXHIBIT B, respectively, or with such changes as would not individually or
in the aggregate, in the reasonable opinion of the Purchaser, adversely affect
the rights, privileges or preferences of the holders of the Series D Preferred
Stock or the Series E Preferred Stock.
(b) Any notice of default delivered to the Company by the Holders of
New Notes must be in writing and must specify the Event of Default, demand that
it be remedied and state that the notice is a "Notice of Default."
9.2 ACCELERATION.
(a) If an Event of Default (other than an Event of Default under
Section 9.1(a)(v)) occurs and is continuing, the Holders of at least 25% in
principal amount of the then outstanding New Notes may declare all outstanding
New Notes to be due and payable immediately and, upon such declaration, the
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principal amount of, and premium, if any, and any accrued and unpaid interest
on, all such New Notes, to the date of payment shall be due and payable
immediately.
(b) Notwithstanding anything to the contrary in this Agreement, if an
Event of Default arises under Section 9.1(a)(v) the principal amount of, and
premium, if any, and any accrued and unpaid interest on, all outstanding New
Notes shall IPSO FACTO become and be immediately due and payable without any
declaration or other act on the part of any Holder.
(c) To the extent permitted under Section 10.2(b), the Holders of a
majority in aggregate principal amount of the then outstanding New Notes by
notice to the Company may rescind any declaration of acceleration of such New
Notes and its consequences if (i) the rescission would not conflict with any
judgment or decree, (ii) if all existing Defaults and Events of Default (other
than the nonpayment of principal of, or premium, if any, or interest on, the New
Notes which shall have become due by such declaration) shall have been cured or
waived, and (iii) the Company has delivered to the Holders an Officers'
Certificate to the effect of clauses (i) and (ii) above.
(d) In the event of a declaration of acceleration under this Agreement
because an Event of Default set forth in Section 9.1(a)(iii) has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if either (i) the holders of the Indebtedness which is the subject
of such Event of Default have waived such failure to pay at maturity or have
rescinded the acceleration in respect of such Indebtedness within 10 days of
such maturity or declaration of acceleration, as the case may be, and no other
Event of Default has occurred during such 10-day period which has not been cured
or waived, or (ii) such Indebtedness shall have been discharged or the maturity
thereof shall have been extended such that it is not then due and payable, or
the underlying default has been cured within 10 days of such maturity or
declaration of acceleration as the case may be.
9.3 OTHER REMEDIES. If an Event of Default occurs and is continuing, the
Holders may pursue any available remedy to collect the payment of principal of,
or premium, if any, or interest on the New Notes or to enforce the performance
of any provision of the New Notes or this Agreement. A delay or omission by any
Holder in exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. All remedies are cumulative to the extent permitted by law.
9.4 WAIVER OF PAST DEFAULTS. Subject to the provisions of Sections 9.6 and
10.2 hereof, the Holders of a majority in aggregate principal amount of the then
outstanding New Notes by notice to the Company may on behalf of all Holders
waive any existing Default or Event of Default and its consequences under this
Agreement, except a continuing Default or Event of Default in the payment of the
principal of, or premium, if any, or interest on, any Note (which may only be
waived with the consent of each Holder affected). Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Agreement; PROVIDED that
no such waiver shall extend to any subsequent or other Default or impair any
right consequent thereon.
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9.5 CONTROL BY A MAJORITY. The Holders of a majority in principal amount of
the New Notes may direct the time, method and place of conducting any proceeding
for any remedy available to the Holders.
9.6 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other
provision of this Agreement, the right of any Holder of a New Note to receive
payment of principal of, and premium, if any, and interest on such New Note, on
or after the respective dates expressed in such New Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of such Holder.
9.7 HOLDERS MAY FILE PROOFS OF CLAIM. The Holders may file such proofs of
claim and other papers or documents as may be necessary or advisable to have the
claims of the Holders allowed in any Insolvency or Liquidation Proceeding or
other judicial proceeding relative to the Company (or any other obligor upon the
New Notes), its creditors or its property.
9.8 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or
remedy under this Agreement, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant.
ARTICLE X
AMENDMENTS
10.1 AMENDMENTS AND SUPPLEMENTS PERMITTED WITHOUT CONSENT OF HOLDERS.
Notwithstanding Section 10.2, the Company may amend or supplement this Agreement
or the New Notes without the consent of any Holder to: (i) cure any ambiguity,
defect or inconsistency; provided that such amendment does not adversely affect
the rights of any Holder; (ii) provide for uncertificated New Notes in addition
to or in place of certificated New Notes; (iii) provide for the assumption of
the Company's obligations to the Holders in the event of any Disposition
involving the Company that is permitted under Article VIII in which the Company
is not the Surviving Person; or (iv) make any change that would (A) provide any
additional rights or benefits to Holders or (B) not adversely affect the legal
rights under this Agreement of any Holder.
10.2 AMENDMENTS AND SUPPLEMENTS REQUIRING CONSENT OF HOLDERS; OTHER
CONSENTS.
(a) Except as otherwise provided in Sections 10.1 and 10.2(c), this
Agreement and the New Notes may be amended or supplemented with the written
consent of the Holders of at least a majority of the aggregate principal amount
of the then outstanding New Notes (including consents obtained in connection
with a tender offer or exchange offer for the New Notes), and any existing
Default or Event of Default or compliance with any provision of this Agreement
or the New Notes may be waived with the consent of Holders of at least a
majority of the aggregate principal amount of the then outstanding New Notes
(including consents obtained in connection with a tender offer or exchange offer
for the New Notes).
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(b) Without the consent of each Holder affected, no amendment,
supplement or waiver to this Agreement shall: (i) reduce the principal amount of
New Notes whose Holders must consent to an amendment, supplement or waiver; (ii)
reduce the principal of or change the fixed maturity of any New Note, or alter
the provisions with respect to the redemption of the New Notes in a manner
adverse to the Holders; (iii) reduce the rate of or change the time for payment
of interest on any New Note; (iv) waive a Default or Event of Default in the
payment of principal of, or premium, if any, or interest on, the New Notes
(except that Holders of at least a majority in aggregate principal amount of the
then outstanding New Notes may (A) rescind an acceleration of the New Notes that
resulted from a non-payment default, and (B) waive the payment default that
resulted from such acceleration); (v) make any New Note payable in money other
than that stated in the New Notes; (vi) make any change in the provisions of
this Agreement relating to waivers of past Defaults or the rights of Holders to
receive payments of principal of, or premium, if any, or interest on, the New
Notes; (vii) waive a redemption payment with respect to any New Note; or (viii)
make any change in Section 9.4, Section 9.6 or this sentence.
(c) It shall not be necessary for the consent of the Holders under
this Section 10.2 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof. After an amendment, supplement or waiver under this Section 10.2
becomes effective, the Company shall mail to each Holder affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Agreement or waiver.
(d) Except as otherwise specified in this Agreement, if any consent or
approval of the Holders is required pursuant to the terms of this Agreement,
such consent or approval shall be deemed to have been given if given by at least
a majority of the aggregate principal amount of then outstanding New Notes.
10.3 REVOCATION AND EFFECT OF CONSENTS.
(a) Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a New Note is a continuing consent by the Holder
and every subsequent holder of a New Note or portion of a New Note that
evidences the same Indebtedness as the consenting Holder's New Note, even if
notation of the consent is not made on any such New Note. However, any such
Holder or subsequent Holder may revoke the consent as to his or her New Note or
portion of a New Note if the Company receives the notice of revocation before
the date on which the Company mails to the Holders an Officers' Certificate
certifying that the Holders of the requisite principal amount of New Notes have
consented (and not theretofore revoked such consent) to the amendment or waiver.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the holders of New Notes entitled to consent to
any amendment or waiver. If a record date is fixed, then notwithstanding the
provisions of the immediately preceding paragraph, those Persons who were
holders of New Notes at such record date (or their duly designated proxies), and
only those Persons, shall be entitled to consent to such amendment or waiver or
to revoke any consent previously given, whether or not such Persons continue to
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be holders of New Notes after such record date. No consent shall be valid or
effective for more than 90 days after such record date.
(c) After an amendment or waiver becomes effective it shall bind every
Holder, unless it is of the type described in Section 10.2(b), in which case the
amendment or waiver shall only bind each Holder that consented to it and every
subsequent holder of a New Note that evidences the same debt as the consenting
Holder's New Note.
10.4 NOTATION ON OR EXCHANGE OF NEW NOTES. The Company may place an
appropriate notation about an amendment, supplement or waiver on any New Note
thereafter issued in exchange for any New Note issued as of the date of such
amendment, supplement or waiver. The Company in exchange for all New Notes may
issue new New Notes that reflect the amendment, supplement or waiver. Failure to
make the appropriate notation or issue a new New Note shall not affect the
validity and effect of such amendment, supplement or waiver. 10.5 BOARD
APPROVAL. The Company may not sign an amendment, supplement or waiver with
respect to this Agreement until the Board of Directors of the Company approves
it.
ARTICLE XI
THE NEW NOTES
11.1 FORM AND DATING. The New Notes shall be substantially in the form of
EXHIBIT A hereto, which exhibit is part of this Agreement. The New Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage. The Company shall approve the form of the New Notes and any notation,
legend or endorsement on them. Subject to adjustment as provided in Section
6.6(b) hereof, the New Notes shall be issued, and may be transferred only, in
denominations of $100,000 and integral multiples thereof. The terms and
provisions contained in the New Notes shall constitute, and are hereby expressly
made, a part of this Agreement and to the extent applicable, the Company, by its
execution and delivery of this Agreement, expressly agrees to such terms and
provisions and to be bound thereby. 11.2 EXECUTION AND AUTHENTICATION. Two
Officers of the Company (each of whom shall have been duly authorized by all
requisite corporate actions) shall sign each New Note for the Company by manual
or facsimile signature. If an Officer whose signature is on a New Note no longer
holds that office at the time the New Note is issued, the New Note shall
nevertheless be valid. The Company's seal shall be reproduced on each New Note.
With respect to the sale and issuance of the New Notes, the Company shall
authorize for issuance, upon the execution and delivery of this Agreement, New
Notes in an aggregate principal amount up to $5,000,000. In no case shall the
aggregate principal amount of outstanding New Notes exceed $5,000,000 at any
time, except as provided in Section 11.5.
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11.3 TRANSFER AND EXCHANGE.
(a) When New Notes are presented to the Company with a request to
register a transfer or to exchange them for an equal principal amount of New
Notes of other authorized denominations, the Company shall register the transfer
or make the exchange if its requirements for such transaction are met; PROVIDED,
HOWEVER, that any New Note presented or surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Company or duly executed by the Holder of
such New Note or by its attorney duly authorized in writing.
(b) The Company shall not be required to issue, register the transfer
of or exchange any New Note (i) selected for redemption, in whole or in part,
except the unredeemed portion of any New Note being redeemed in part may be
transferred or exchanged, or (ii) during an Offer if such New Note is tendered
pursuant to such Offer and not withdrawn.
(c) No service charge shall be made for any registration of transfer
or exchange (except as otherwise expressly permitted herein), but the Company
may require payment of a sum sufficient to cover any transfer tax or similar
governmental charge payable in connection therewith (other than any such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 10.4 or 11.7 which the Company shall pay).
(d) Prior to due presentment for registration of transfer of any New
Note, the Company may deem and treat the Person in whose name any New Note is
registered as the absolute owner of such New Note (whether or not such New Note
shall be overdue and notwithstanding any notation of ownership or other writing
on such New Note made by anyone other than the Company) for the purpose of
receiving payment of principal of, and premium, if any, and interest on, such
New Note and for all other purposes, and notice to the contrary shall not affect
the Company.
11.4 REPLACEMENT NEW NOTES. If any mutilated New Note is surrendered to the
Company, or if the Company receives evidence to its satisfaction of the
destruction, loss or theft of any New Note, the Company shall issue a
replacement New Note and each such replacement New Note shall be an additional
obligation of the Company. If the Company requires, the Holder must supply an
indemnity bond that is sufficient in the judgment of the Company to protect the
Company from any loss that any of them may suffer if a New Note is replaced. The
Company may charge for its reasonable expenses in replacing a New Note.
11.5 OUTSTANDING NEW NOTES. The New Notes outstanding at any time are all
the New Notes the Company has issued except for those it has canceled, those
delivered to it for cancellation, and those described in this Section 11.5 as
not outstanding. If a New Note is replaced pursuant to Section 11.4 (other than
a mutilated Note surrendered for replacement), it ceases to be outstanding
unless the Company receives proof satisfactory to it that a bona fide purchaser
holds the replaced New Note. A mutilated New Note ceases to be outstanding upon
surrender of such New Note and replacement thereof pursuant to Section 11.4
hereof. If the entire principal of, and premium, if any, and accrued interest
on, any New Note is considered paid under Section 6.1, it ceases to be
outstanding and interest on it ceases to accrue. Subject to Section 11.6, a New
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Note does not cease to be outstanding because the Company or any Affiliate of
the Company holds such New Note.
11.6 TREASURY NEW NOTES. In determining whether the Holders of the required
principal amount of New Notes have concurred in any directions, waiver or
consent, New Notes owned by the Company or any Subsidiary or Affiliate of the
Company shall be considered as though they are not outstanding. Notwithstanding
the foregoing, New Notes that the Company or any Affiliate of the Company offers
to purchase or acquires pursuant to an exchange offer, tender offer or otherwise
shall not be deemed to be owned by the Company or any Affiliate of the Company
until legal title to such New Notes passes to the Company or such Affiliate, as
the case may be.
11.7 TEMPORARY NEW NOTES. Until definitive New Notes are ready for
delivery, the Company may prepare and issue temporary New Notes. Temporary New
Notes shall be substantially in the form of definitive New Notes but may have
variations that the Company considers appropriate for temporary New Notes.
Without unreasonable delay, the Company shall prepare and issue definitive New
Notes in exchange for temporary New Notes. Until such exchange, temporary New
Notes shall be entitled to the same rights, benefits and privileges as
definitive New Notes.
11.8 CANCELLATION. The Company shall cancel any New Notes surrendered to it
for registration of transfer, exchange, replacement, payment (including all New
Notes called for redemption and all New Notes accepted for payment pursuant to
an Offer) or cancellation. The Company may not issue new New Notes to replace
any New Notes that have been canceled. If the Company or any Affiliate of the
Company acquires any New Notes (other than by redemption pursuant to Section 6.6
or an Offer pursuant to Section 6.7), such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such New Notes
unless and until such New Notes are canceled pursuant to this Section 11.8.
11.9 DEFAULTED INTEREST. If the Company defaults in a payment of interest
on the New Notes, it shall pay the defaulted interest in any lawful manner plus,
to the extent lawful, interest payable on the defaulted interest, to Holders on
a subsequent special record date, in each case at the rate provided in the New
Notes and Section 7.1. The Company shall fix or cause to be fixed each such
special record date and payment date. At least 15 days before the special record
date, the Company shall mail a notice that states the special record date, the
related payment date and the amount of interest (including interest, if any, on
the defaulted interest) to be paid.
11.10 RECORD DATE. The record date for purposes of determining the identity
of Holders of New Notes entitled to vote or consent to any action by vote or
consent authorized or permitted under this Agreement shall be 10 days prior to
the first solicitation of such vote or consent.
11.11 CUSIP NUMBER. A "CUSIP" number will be printed on the New Notes, and
the Company shall use the CUSIP number in notices of redemption, purchase or
exchange as a convenience to Holders, provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the New Notes and that reliance may be placed
only on the other identification numbers printed on the New Notes. The Company
will promptly notify the Holders of any change in the CUSIP number.
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11.12 RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section
11.12, each New Note issued pursuant to this Agreement shall be stamped or
otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT
TO THE SECURITIES OR "BLUE SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
ASSIGNED, EXCEPT PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT
TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR
RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT, IF
REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER
DISPOSITION OF THIS SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE
HOLDER OF SUCH SECURITY ARE SUBJECT TO THE TERMS AND CONDITIONS
CONTAINED IN, A SECURITIES PURCHASE AGREEMENT DATED AS OF NOVEMBER 24,
1999, A COMPLETE AND CORRECT COPY OF THE FORM OF WHICH WILL BE
FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
The Company shall maintain a copy of this Agreement and any amendments
thereto on file in its principal office, and will make such copy available
during normal business hours for inspection to any party thereto or will provide
such copy to the Purchaser upon its request.
Whenever the legend requirement imposed by this Section 11.12 shall
terminate, as hereinabove provided, the respective holders of Securities for
which such legend requirements have terminated shall be entitled to receive from
the Company, at the Company's expense, New Notes without such legend.
11.13 NOTICE OF TRANSFER; OPINIONS OF COUNSEL. The holder of each New Note
bearing the restrictive legend set forth in Section 11.12 above (a "RESTRICTED
SECURITY") agrees in connection with any transfer of such Restricted Security to
give to the Company, upon request (a) written description of the manner or
circumstances of such transfer and/or an opinion of counsel, which is
knowledgeable in securities law matters (including in-house counsel or regular
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counsel to such Purchaser or its investment advisor), in form and substance
reasonably satisfactory to the Company, to the effect that the transfer of such
Restricted Security may be effected without registration of such Restricted
Security under the Securities Act. If for any reason the Company (after having
been furnished with the opinion required to be furnished pursuant to this
Section 11.13) shall fail to notify such holder within 5 days after such holder
shall have delivered such description and/or opinion to the Company that, in its
or its counsel's opinion, the transfer may not be legally effective (the
"ILLEGAL TRANSFER NOTICE"), such holders shall thereupon be entitled to
consummate the transfer of the Restricted Security as proposed; PROVIDED,
HOWEVER, that such procedure shall not be required, and any such attempted
transfer shall not be effective, in respect of a proposed transfer which is
expressly prohibited by the terms of this Agreement because it represents an
attempt to transfer New Notes in an aggregate principal amount of less than
$100,000 (subject to adjustment) in contravention of Section 11.1 hereof. If the
holder of the Restricted Security delivers to the Company an opinion of counsel
(including in-house counsel or regular counsel to such Purchaser or its
investment adviser) in form and substance reasonably satisfactory to the Company
that subsequent transfers of such Restricted Security will not require
registration under the Securities Act, or if the Company does not provide the
holders with an Illegal Transfer Notice as set forth above, the Company will
promptly after such contemplated transfer deliver new certificates for such
Restricted Security which do not bear the Securities Act legend set forth in
Section 11.12 above. The restrictions imposed by this Article XI upon the
transferability of any particular Restricted Security shall cease and terminate
when such Restricted Security has been sold pursuant to an effective
registration statement under the Securities Act or transferred pursuant to Rule
144 promulgated under the Securities Act. The holder of any Restricted Security
as to which such restrictions shall have terminated shall be entitled to receive
from the Company a new security of the same type but not bearing the restrictive
Securities Act legend set forth in Section 11.12 and not containing any other
reference to the restrictions imposed by this Article XI. Notwithstanding any of
the foregoing, no opinion of counsel will be required to be rendered pursuant to
this Section 11.13 with respect to the transfer of any Securities on which the
restrictive legend has been removed in accordance with this Section 11.13. As
used in this Section 11.13, the term "transfer" encompasses any sale, transfer
or other disposition of any Securities referred to herein.
11.14 SECURITY.
(a) In order to secure the due and punctual payment of the principal
of and interest on the New Notes when and as the same shall be due and payable,
whether on an Interest Payment Date, at maturity, by acceleration, call for
redemption or otherwise, and interest on the overdue principal and, to the
extent permitted by applicable law, interest, if any, on the New Notes and the
performance of all other obligations of the Company to the Holders under this
Agreement and the New Notes according to the terms hereunder or thereunder, the
Company covenants and agrees to enter into, and to cause its Subsidiaries to
enter into, as soon as practicable and in any event no later than March 31, 2000
(the "PLEDGE DATE") any Security Documents as Purchaser shall reasonably require
or request in order to grant a security interest to the Holders in the
Collateral constituting Capital Stock of the Gaming Subsidiaries, for the equal
and ratable benefit and security of the Holders without preference, priority or
distinction of any thereof over any other by reason or difference in time of
issuance, sale or otherwise. At the time the Security Documents are executed,
the Company will have full right, power and lawful authority to grant, convey,
hypothecate, assign, mortgage and pledge the property constituting the
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Collateral, in the manner and form done, or intended to be done, in this
Agreement and the Security Documents, free and clear of all Liens whatsoever,
except the Liens created by this Agreement and the Security Documents and except
to the extent otherwise provided herein and therein, and the Company covenants
an agrees to (i) forever warrant and defend the title to the same against the
claims of all Persons whatsoever, (ii) execute, acknowledge and deliver to the
Purchaser such further assignments, transfers, assurances or other instruments
as the Purchaser may reasonably require or request, and (iii) do or cause to be
done all such acts and things as may be necessary or proper, or as may be
reasonably required by the Purchaser, to assure and confirm to the Purchaser the
security interest in the Collateral contemplated hereby and by the Security
Documents, or any part thereof, as from time to time constituted, so as to
render the same available for the security and benefit of this Agreement and of
the New Notes secured hereby, according to the intent and purposes herein
expressed. This Agreement and the Security Documents will create in favor of the
Holders a direct and valid first priority Lien (the "SECURITYHOLDER LIEN") on
the property constituting the Collateral, as set forth herein and therein;
provided, however, that the Holders' Lien shall be subject to a priority Lien of
any lender with respect to any Liens created in connection with the Incurrence
of Senior Indebtedness permitted under Section 7.7(c)(iv) and Liens on assets
acquired pursuant to Section 7.7(c)(v) which Liens are created in connection
with such purchase.
(b) The Company will, at its own expense, enter into, register, record
and file or rerecord or refile and renew the Security Documents, this Agreement
and all amendments or supplements thereto in such manner and in such place or
places, if any, as may be required by law in order fully to effectuate, preserve
and protect the Securityholder Lien and the Security Documents and to effectuate
and preserve the Securityholder Lien and all rights of the Holders in the
Collateral.
(c) The Company shall furnish to the Purchaser as promptly as possible
an opinion of Squire, Sanders & Dempsey L.L.P. (or other counsel satisfactory to
Purchaser), which opinion shall be in form and substance satisfactory to
Purchaser, either (i) stating that, in the opinion of such counsel, this
Agreement and the assignment of the Collateral intended to be made by the
Security Documents and all other instruments of further assurance or amendment
have been properly recorded, registered and filed to the extent necessary to
make effective the Securityholder Lien intended to be created by the Security
Documents, or (ii) stating that, in the opinion of such counsel, no such action
is necessary to make any Securityholder Lien and assignment effective.
(d) The Company shall be entitled to obtain a full release of all of
the Collateral from the Liens of the Security Documents upon payment in full of
its obligations under the New Notes.
(e) The Holders of a majority in aggregate principal amount of the
then outstanding New Notes shall have power to institute and to maintain such
suits and proceedings as they may deem advisable to prevent any impairment of
the Collateral by any acts which may be unlawful or in violation of the Security
Documents, or this Agreement, and such suits and proceedings as the Holders of a
majority in aggregate principal amount of the then outstanding New Notes may
deem expedient to preserve or protect their interests in the Collateral
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
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impair the security hereunder or be prejudicial to the interests of the
Holders).
(f) In the event that the opinion of counsel contemplated by Section
11.14(c) hereof is not delivered to the Purchaser on or prior to the Security
Date, interest on the New Notes will accrue at 2.0% per annum (the "ADDITIONAL
INTEREST") in excess of the interest rate then in effect commencing on April 1,
2000 (unless Additional Interest is otherwise accruing). The Company shall pay
any accrued and unpaid Additional Interest to the Holders of record (as
determined on the fifteenth day of any month during which Additional Interest is
accruing) no later than the last Business Day of any month during which
Additional Interest is accruing. The Additional Interest shall cease to accrue
on any date on which the Company shall deliver to the Purchaser the relevant
opinion of counsel contemplated by Section 11.14(c) hereof.
ARTICLE XII
INDEMNIFICATION
12.1 INDEMNIFICATION; EXPENSES, ETC.
(a) In addition to any and all obligations of the Company to indemnify
the Purchaser hereunder or under the other Transaction Documents, the Company
agrees, without limitation as to time, to indemnify and hold harmless the
Purchaser, its Affiliates, and the employees, officers, directors, and agents of
the Purchaser and its Affiliates (individually, an "INDEMNIFIED PARTY" and,
collectively the "INDEMNIFIED PARTIES") from and against any and all losses,
claims, damages, liabilities, costs (including the costs of preparation and
attorneys' fees) and expenses (including expenses of investigation)
(collectively, "LOSSES") incurred or suffered by an Indemnified Party (i) in
connection with or arising out of any breach of any warranty, or the inaccuracy
of any representation, as the case may be, made by the Company, or the failure
of the Company to fulfill any agreement or covenant contained in this Agreement
or (ii) in connection with any proceeding against the Company or any Indemnified
Party brought by any third party arising out of or in connection with this
Agreement or the other Transaction Documents or the transactions contemplated
hereby or thereby, as the case may be, or any action taken in connection
herewith or therewith (or any other document or instrument executed herewith or
pursuant hereto or thereto), whether or not the transactions contemplated by
this Agreement are consummated or whether or not any Indemnified Party is a
formal party to any proceeding; PROVIDED, HOWEVER, that the Company shall not be
liable for any losses resulting from action on the part of any Indemnified Party
which is finally determined in such proceeding to be wrongful or which is an act
of gross negligence, recklessness, or willful misconduct by such Indemnified
Party. The Company agrees promptly to reimburse any Indemnified Party for all
such Losses as they are incurred or suffered by such Indemnified Party.
Except as otherwise provided herein, the Company agrees (for the
benefit of the Purchaser) to pay, and to hold the Purchaser harmless from and
against, all costs and expenses (including, without limitation, attorneys' fees,
expenses and disbursements), if any, incurred in connection with the enforcement
against the Company of this Agreement or any other agreement to which the
Company is a party or any other agreement or instrument furnished pursuant
hereto or thereto, as the case may be, or in connection herewith or therewith in
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any action in which the Purchaser shall prevail or in any action in which the
Purchaser shall in good faith assert any provision of any of the foregoing as a
defense.
(b) If any Indemnified Party is entitled to indemnification hereunder,
such Indemnified Party shall give prompt notice to the Company of any claim or
of the commencement of any proceeding against the Company or any Indemnified
Party brought by any third party with respect to which such Indemnified Party
seeks indemnification pursuant hereto; PROVIDED, HOWEVER, that the failure so to
notify the Company shall not relieve the Company from any obligation or
liability except to the extent the Company is prejudiced by such failure. The
Company shall have the right, exercisable by giving written notice to an
Indemnified Party promptly after the receipt of written notice from such
Indemnified Party of such claim or proceeding, to assume, at the expense of the
Company, the defense of any such claim or proceeding with counsel reasonably
satisfactory to such Indemnified Party. The Indemnified Party or Parties will
not be subject to any liability for any settlement made without its or their
consent (but such consent will not be unreasonably withheld). The Company shall
not consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by claimant or plaintiff to
such Indemnified Party or Parties of a release, in form and substance
satisfactory to the Indemnified Party or Parties, from all liability in respect
of such claim, litigation or proceeding.
(c) In addition to any other obligations of the Company to indemnify
the Purchaser herein or pursuant to any of the Transaction Documents or any
other agreements or documents executed and delivered in connection herewith or
therewith, the Company will pay, and will save the Purchaser and each other
holder of any of the Securities harmless from liability for the payment of, all
expenses arising in connection with such transactions, including, without
limitation: (a) all document production and duplication charges and the
reasonable fees, charges and expenses of Purchaser's Special Counsel (whether
arising before or after the Closing Date), the transactions contemplated hereby
and any subsequent proposed modification of, or proposed consent under, this
Agreement, whether or not such proposed modification shall be effected or such
proposed consent granted; (b) the costs of obtaining a private placement CUSIP
number from Standard & Poor's Corporation for the Securities; (c) the costs and
expenses, including attorneys' fees, incurred by the Purchaser in enforcing any
rights under this Agreement or in responding to any subpoena or other legal
process issued in connection with this Agreement or the transactions
contemplated hereby or thereby or by reason of the Purchaser's having acquired
any of the Securities, including, without limitation, costs and expenses
incurred by the Purchaser in any bankruptcy case; (d) the cost of delivering to
the Purchaser's principal office, insured to its satisfaction, the New Notes
delivered to the Purchaser hereunder and any Securities delivered to the
Purchaser upon any substitution of Securities pursuant to this Agreement or any
of the Transaction Documents and of the Purchaser's delivering any Securities,
insured to its satisfaction, upon any such substitution; and (e) the reasonable
out-of-pocket expenses incurred by the Purchaser in connection with such
transactions and any such amendments or waivers.
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ARTICLE XIII
MISCELLANEOUS
13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; SEVERABILITY. All
representations and warranties contained in this Agreement or the Transaction
Documents or made in writing by or on behalf of the Company in connection with
the transactions contemplated by this Agreement or the Transaction Documents
shall survive, for the duration of any statutes of limitation applicable
thereto, the execution and delivery of this Agreement, any investigation at any
time made by the Purchaser or on the Purchaser's behalf, the purchase of the New
Notes by the Purchaser under this Agreement and any disposition of or payment on
the New Notes. All statements contained in any certificate or other instrument
delivered to the Purchaser by or on behalf of the Company pursuant to this
Agreement or the Transaction Documents at the Closing shall be deemed
representations and warranties of the Company under this Agreement. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provisions
in any other jurisdiction.
13.2 NOTICES, ETC. Any notice or communication under this Agreement shall
be duly given if in writing and delivered in person, mailed by registered or
certified mail, postage prepaid, return receipt requested or delivered by
telecopier or overnight air courier guaranteeing next day delivery to the
other's address:
If to the Company: Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
Attn: President
Fax: (650) 842-9001
Tel: (650) 842-9000
With a copy to: Squire, Sanders & Dempsey L.L.P.
40 N. Central Ave., Suite 2700
Phoenix, Arizona 85004
Attn: Christopher D. Johnson, Esq.
Craig D. Hansen, Esq.
Fax: (602) 253-8129
Tel: (602) 528-4000
If to the Purchaser: DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02181
Attn: General Counsel
Fax: (617) 283-8555
Tel: (617) 283-8500
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With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Laura C. Hodges Taylor, P.C.
Fax: (617) 570-8150
Tel: (617) 570-1000
The Company or the Purchaser by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; the date receipt is acknowledged, if mailed by registered or
certified mail; when answered back, if telecopied; and the next Business Day
after timely delivery to the courier, if sent by overnight air courier
guaranteeing next day delivery.
Any notice or communication to any other Holder shall be mailed by
first-class mail to his or her address shown on the register maintained by the
Company. Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it.
13.3 SUCCESSORS AND ASSIGNS. Whenever in this Agreement any of the parties
hereto are referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of the respective parties which are contained in this Agreement shall
bind and inure to the benefit of the successors and assigns of all other
parties. The terms and provisions of this Agreement and the other Transaction
Documents shall inure to the benefit of and shall be binding upon any assignee
or transferee of the Purchaser, and in the event of such transfer or assignment,
the rights and privileges herein conferred upon the Purchaser shall
automatically extend to and be vested in, and become an obligation of, such
transferee or assignee, all subject to the terms and conditions hereof. In
connection therewith, such transferee or assignee may disclose all documents and
information which such transferee or assignee now or hereafter may have relating
to the Securities, this Agreement, the other Transaction Documents, the Company,
any other Persons referred to herein or any of the business of any of the
foregoing entities, subject to full compliance with Section 13.9 hereof.
13.4 DESCRIPTIVE HEADINGS. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
13.5 SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser or to the holders of a specified
portion of the principal amount of any class of the Securities, the
determination of such satisfaction shall be made by the Purchaser or such
holders, as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
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13.6 GOVERNING LAW. THIS AGREEMENT AND THE CONVERTIBLE NOTES SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAW.
13.7 SERVICE OF PROCESS. The Company (a) hereby irrevocably submits itself
to the jurisdiction of the state courts of the State of New York and to the
jurisdiction of the United States District Court for the Southern District of
New York for the purpose of any suit, action or other proceeding arising out of
or based upon this Agreement, the Securities, the other Transaction Documents or
the subject matter hereof or thereof brought by the Purchaser or its successors
or assigns and (b) hereby waives, and agrees not to assert, by way of motion, as
a defense, or otherwise, in any such suit, action or proceeding, any claim that
it is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (c) hereby waives any
offsets or counterclaims in any such action, suit or proceeding (other than
compulsory counterclaims). The Company hereby consents to service of process by
registered mail at the address to which notices are to be given. The Company
agrees that its submission to jurisdiction and its consent to service of process
by mail is made for the express benefit of the Purchaser. Final judgment against
the Company in any such action, suit or proceeding shall be conclusive and may
be enforced in other jurisdictions (a) by suit, action or proceeding on the
judgment, a certified or true copy of which shall be conclusive evidence of the
fact and of the amount of any indebtedness or liability of the Company therein
described or (b) in any other manner provided by or pursuant to the laws of such
other jurisdiction; provided, however, that the Purchaser may at its option
bring suit or institute other judicial proceedings against the Company or any of
the Company's assets in any state or federal court of the United States or in
any country or place where the Company or such assets may be found.
13.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
13.9 DISCLOSURE TO OTHER PERSONS. The Purchaser agrees to keep confidential
any financial information delivered by the Company pursuant to this Agreement
(other than information that is publicly available) and such other non-public
proprietary information delivered by the Company that is clearly designated in
writing to be or otherwise known by the Purchaser to be confidential; PROVIDED,
HOWEVER, that nothing herein shall prevent the Purchaser from disclosing such
information: (a) to any prospective purchaser who agrees in writing to be bound
by this Section 13.9, (b) to any Affiliate, director, officer, employee, agent
and professional consultant of any prospective purchasers, in its capacity as
such or any actual purchaser, participant, assignee, or transferee of such
Purchaser's or prospective purchaser's rights under any Unit or any part thereof
that agrees in writing to be bound by this Section 13.9, (c) upon order of any
court or administrative agency having jurisdiction over such party, (d) upon the
request or demand of any regulatory agency or authority having jurisdiction over
such party, (e) which has been publicly disclosed through no breach of
Purchaser, (f) which has been obtained from any Person that is not a party
hereto or an Affiliate of any such party, (g) in connection with the exercise of
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any remedy hereunder, (h) to the certified public accountants for the Purchaser
or as required in summary financial or descriptive business information
disclosed by the Purchaser that is an investment fund as part of its regular
reports to its investors or partners, or (i) as otherwise expressly contemplated
by this Agreement. In order to permit the Company to remove or limit any order,
request or demand or to obtain confidential treatment for any disclosure
pursuant to (c) or (d) above, the Purchaser will use reasonable efforts to
inform the Company of any such request for disclosure prior to disclosure.
Nothing in this Section 13.9 shall be construed to create or give rise to any
fiduciary duty on the part of the Purchaser to the Company.
13.10 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Agreement may not
be used to interpret another agreement, indenture, loan or debt agreement of the
Company or any Subsidiary. Any such agreement, indenture, loan or debt agreement
may not be used to interpret this Agreement.
13.11 WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY
IN ANY LITIGATION, SUIT OR PROCEEDING, IN ANY COURT WITH RESPECT TO, IN
CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE SECURITIES, ANY OTHER
TRANSACTION DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS
AGREEMENT, THE SECURITIES OR ANY OTHER TRANSACTION DOCUMENTS, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, PROVIDED,
HOWEVER, THAT WITH RESPECT TO ANY COMPULSORY COUNTERCLAIM (I.E., A CLAIM BY ONE
PARTY AGAINST ANOTHER PARTY WHICH IF NOT BROUGHT IN SUCH ACTION WOULD RESULT IN
THE PARTY BRINGING SUCH CLAIM BEING FOREVER BARRED FROM BRINGING SUCH CLAIM),
THE PARTY BRING SUCH CLAIM SHALL HAVE THE RIGHT TO RAISE SUCH COMPULSORY
COUNTERCLAIM IN ANY SUCH LITIGATION.
13.12 MERGER. This Agreement, the New Notes and the Restructuring Agreement
constitute the entire agreement of the Company and the Holders and express the
entire understanding of the Company and the Holders with respect to the New
Notes.
13.13 EXPENSES. The Company agrees to pay, on demand, all reasonable
out-of-pocket expenses incurred by the Holders, including, without limitation,
legal and accounting fees, in connection with the collection of amounts upon the
occurrence of an Event of Default hereunder, and the revision, protection or
enforcement of any of the Holder's rights against the Company under this
Agreement and the New Notes. 13.14 COOPERATION WITH GAMING AUTHORITIES. The
Purchaser and each Holder of the Securities agree to cooperate with the Gaming
Authorities in connection with the administration of their regulatory
jurisdiction over the Company and its Gaming Subsidiaries, including, without
limitation, the provision of such documents or other information as may be
requested by any such Gaming Authority relating to the Purchaser or any Holder
of the Securities, or to the Company or its Gaming Subsidiaries, or to the
Transaction Documents.
71
<PAGE>
13.15 GAMING LAWS; REQUISITE GAMING APPROVALS. Notwithstanding anything to
the contrary therein, the Transaction Documents and the exercise of all rights,
powers and remedies thereunder, are subject to all applicable provisions of the
Gaming Laws.
13.16 ASSISTANCE WITH GAMING APPROVALS.
(a) The Company will and will cause its Gaming Subsidiaries to assist
the Purchaser and pay all expenses of the Purchaser (including fees of counsel)
in obtaining all approvals of any Gaming Authority or other Governmental Body
that are required by law, including, without limitation, the Gaming Laws, for or
in connection with any action or transaction contemplated by the Transaction
Documents, including any approvals required for the conversion of the Series D
Preferred Stock.
(b) Following the Closing Date, the Purchaser shall not be obligated
to make any filing under the Gaming Laws of any other jurisdiction, and shall
not be required to apply for licensure or registration, seek a finding of
suitability or a waiver of licensing, registration or suitability requirements
or seek any similar approval of any Gaming Authority or other Governmental Body
under the Gaming Laws (collectively, a "GAMING APPROVAL"). In the event any
applicable Gaming Authority or other Governmental Body requires the Purchaser to
apply for a Gaming Approval, the Company will or will cause the relevant Gaming
Subsidiary to, at Purchaser's request, withdraw from such jurisdiction and not
sell its products or otherwise conduct its business in such jurisdiction in a
manner that would otherwise require Purchaser to be required to apply for a
Gaming Approval of any Gaming authority or other Governmental Body under the
Gaming Laws of such jurisdiction. The Company further agrees that it will not
and will cause its Gaming Subsidiaries not to seek any remedy against the
Purchaser, either at law or in equity, for the Purchaser's failure or refusal to
apply for a Gaming Approval, including, without limitation, seeking the
divestiture by the Purchaser of the Series D Preferred Stock, the Amended Notes,
the New Notes or any other securities of the Company then held by the Purchaser.
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72
<PAGE>
SECURITIES PURCHASE AGREEMENT
13% SENIOR SECURED NOTES
COMPANY SIGNATURE PAGE
If this Agreement is satisfactory, please so indicate by signing the
applicable attached signature page of this Agreement and delivering such
counterpart to the Company whereupon this Agreement will become binding among
the parties hereto in accordance with its terms.
SILICON GAMING, INC.,
a California corporation
By:
----------------------------------------
Name: Andrew Pascal
Title: President and Chief Executive Officer
<PAGE>
SECURITIES PURCHASE AGREEMENT FOR SENIOR SECURED NOTES OF
SILICON GAMING, INC.
PURCHASER SIGNATURE PAGE
Accepted and agreed as of the Aggregate Principal amount of
date first written above: New Notes to be purchased:
$2,000,000.00
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
By: DDJ Capital III, LLC,
its General Partner
By: DDJ Capital Management, LLC,
its Manager
By:
--------------------------------------
Name:
Title: Purchase Price: $2,000,000.00
Address: c/o DDJ Capital Management, LLC
Attn: Wendy Schnipper Clayton
141 Linden Street, Suite 4
Wellesley, MA 02181
Telephone: (617) 283-8500
Telecopy: (617) 283-8555
<PAGE>
Designated Bank:
- ------------------------------------- --------------------------------------
Name ABA #
- ------------------------------------- --------------------------------------
Street Address
- ------------------------------------- --------------------------------------
Account Number Attention
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES PURCHASE
AGREEMENT DATED AS OF NOVEMBER __, 1999, A COMPLETE AND CORRECT COPY OF THE FORM
OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
SILICON GAMING, INC.
13% SENIOR SECURED NOTE DUE NOVEMBER ___, 2004
No. 1 $
Silicon Gaming, Inc., a California corporation (hereinafter called the
"COMPANY", which term includes any successor entity under the Agreement
hereinafter referred to), for value received, hereby promises to pay to B III
CAPITAL PARTNERS, L.P., a Delaware limited partnership, or registered assigns,
the principal sum of Two Million Dollars on November ___, 2004.
Interest Payment Dates: the first day of each calendar month commencing on
January 1, 2000
Record Dates: ten (10) days preceding each Interest Payment Date
Reference is hereby made to the further provisions of this New Note set
forth on the following five (5) pages, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this New Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
seal to be affixed hereto or imprinted hereto.
SILICON GAMING, INC.
By:
----------------------------------------
Name: Andrew Pascal
Title: President and Chief Executive Officer
<PAGE>
13% Senior Secured Note due November ___, 2004
1. INTEREST. Silicon Gaming, Inc. (the "Company") promises to pay interest
on the principal amount of this New Note at the rate and in the manner specified
below. Interest on this New Note will accrue at (i) the rate of 10% per annum
from November ___, 1999 until maturity and will be payable in cash monthly in
advance, and (ii) at the rate of 3% per annum, compounded monthly, from November
___, 1999 until maturity and will be payable-in-kind, annually in arrears, each
based upon a 360 day year beginning on November ___, 1999, or if any such day is
not a Business Day on the next succeeding Business Day (each an "INTEREST
PAYMENT DATE"), to the holder of record on the tenth (10th) day immediately
preceding that Interest Payment Date. The Company shall pay interest on overdue
principal and premium, if any, from time to time on demand at the rate of 1.5%
per annum in excess of the interest rate then in effect and shall pay interest
on overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on this New Note
(except defaulted interest) to the Person who is the registered Holder of this
New Note at the close of business on the record date for the next Interest
Payment Date even if such New Note is canceled after such record date and on or
before such Interest Payment Date. Holders must surrender New Notes to the
Company to collect principal payments on such New Notes. The Company will pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal, premium, if any, and interest by wire
transfer of Federal funds, or interest by check payable in such money, and any
such check may be mailed to a Holder's registered address.
3. SECURITIES PURCHASE AGREEMENT. The Company issued the New Notes pursuant
to a Securities Purchase Agreement, dated as of November ____, 1999 (the
"AGREEMENT"), by and between the Company, as issuer of the New Notes, and the
Purchaser named therein. The terms of the New Notes are those stated in the
Agreement and herein. The New Notes are subject to, and qualified by, all such
terms, certain of which are summarized herein, and Holders are referred to the
Agreement (all capitalized terms not defined herein shall have the meanings
assigned them in the Agreement). The New Notes are general obligations of the
Company limited to $5,000,000 in aggregate principal amount. Reference is hereby
made to the Agreement for a description of the properties and assets in which a
security interest has been granted, and the nature of the security, the terms
and conditions upon which the security interests were granted.
4. REDEMPTION PROVISIONS. The New Notes will be subject to redemption, in
whole or in part from time to time (in multiples of $1,000 of principal amount)
at the option of the Company at a price of $1.00 for every $1.00 of principal
amount of New Notes, plus any accrued but unpaid interest, plus a premium which
when taken together with the interest earned on the New Notes, results in an
annualized internal rate of return to the Holder of 25%.
In addition, if not previously redeemed, the New Notes will be subject to
redemption (a "CHANGE OF CONTROL REDEMPTION") at the option of the Holders, in
whole or in part, at any time within 30 days after the completion of an Offer
made as a result of a Change of Control, at a redemption price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest to the Purchase
Date, subject to certain conditions set forth in the Agreement.
In addition, the New Notes will be subject to redemption ("SECURITIES SALE
REDEMPTION") at the option of the Holders, in whole or in part, following a
Securities Sale or a Mezzanine Debt Financing, from the Net Cash Proceeds of
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<PAGE>
such Securities Sale or Mezzanine Debt Financing, subject to the provisions of
Section 7.13 of the Agreement; provided that an Offer to make a Securities Sale
Redemption shall be made by the Company only if, and to the extent that, the
aggregate amount of Net Cash Proceeds from all such Securities Sales or
Mezzanine Debt Financings occurring on or after the date hereof exceed
$5,000,000. In the event of a Securities Sale Redemption, the New Notes will be
redeemable at the aggregate principal amount plus any accrued and unpaid
interest to the Purchase Date.
5. MANDATORY OFFERS. (a) Within 10 days after any Change of Control Trigger
Date, any Repayment Trigger Date or any Excess Proceeds Date, the Company shall
mail a notice to each Holder stating a number of items as set forth in Section
6.7 of the Agreement.
(b) Holders may tender all or, subject to Section 8 below, any portion
of their New Notes in an Offer by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
(c) Promptly after consummation of an Offer, (i) the Company shall
mail to each Holder of New Notes or portions thereof accepted for payment an
amount equal to the purchase price for, plus any accrued and unpaid interest on,
such New Notes, (ii) with respect to any tendered New Note not accepted for
payment in whole or in part, the Company shall return such New Note to the
Holder thereof, and (iii) with respect to any New Note accepted for payment in
part, the Company shall authenticate and mail to each such Holder a new New Note
equal in principal amount to the unpurchased portion of the tendered New Note.
(d) The Company will (i) publicly announce the results of the Offer to
Holders on or as soon as practicable after the Purchase Date, and (ii) comply
with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations to the extent applicable to any Offer.
6. NOTICE OF REDEMPTION OR PURCHASE. At least 30 days but not more than 60
days before any Redemption Date the Company shall mail by first class mail a
notice of redemption to each Holder of New Notes or portions thereof that are to
be redeemed.
7. NEW NOTES TO BE REDEEMED OR PURCHASED. The New Notes may be redeemed or
purchased in part, but only in whole multiples of $1,000 unless all New Notes
held by a Holder are to be redeemed or purchased. On or after any date on which
New Notes are redeemed or purchased, interest ceases to accrue on the New Notes
or portions thereof called for redemption or accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The New Notes are in registered form
without coupons in denominations of $100,000 and integral multiples thereof
(subject to adjustment as provided in the Agreement). The transfer of New Notes
may be registered and New Notes may be exchanged as provided in the Agreement.
Holders seeking to transfer or exchange their New Notes may be required, among
other things, to furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the Agreement. The
Company need not exchange or register the transfer of any New Note or portion of
a New Note selected for redemption or tendered pursuant to an Offer.
9. PERSONS DEEMED OWNERS. The registered holder of a New Note may be
treated as its owner for all purposes.
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<PAGE>
10. AMENDMENTS AND WAIVERS.
(a) Subject to certain exceptions, the Agreement and the New Notes may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding New Notes, and
any existing Default or Event of Default or compliance with any provision of the
Agreement or the New Notes may be waived with the consent of the Holders of at
least a majority in principal amount of the then outstanding New Notes.
(b) Notwithstanding Section 10(a) above, the Company may amend or
supplement the Agreement or the New Notes without the consent of any Holder to:
cure any ambiguity, defect or inconsistency; provide for uncertificated New
Notes in addition to or in place of certificated New Notes; provide for the
assumption of the Company's obligations to the Holders in the event of any
Disposition involving the Company that is permitted under Article VIII of the
Agreement and in which the Company is not the Surviving Person; or make any
change that would provide any additional rights or benefits to Holders or not
adversely affect the legal rights under the Agreement of any Holder.
(c) Certain provisions of the Agreement cannot be amended,
supplemented or waived without the consent of each Holder of New Notes affected.
11. DEFAULTS AND REMEDIES. Events of Default include: (i) the Company's
failure to make any payment in respect of (A) the principal of or premium, if
any, on the New Notes or the Amended Notes as the same shall become due, whether
at maturity, upon acceleration, redemption, or otherwise, or (B) interest on or
in respect of any New Notes or the Amended Notes as the same shall become due
and such failure shall continue for a period of 15 Business Days; (ii) failure
by the Company for 30 days after receipt of notice from the Holders of at least
25% of the outstanding New Notes to comply with any other provisions of the
Agreement, the Amendment Notes Securities Purchase Agreement, the Restructuring
Agreement, the Amended Notes or the New Notes; (iii) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness now exists, or is created after
the date hereof, if (A) such default results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such Indebtedness at final maturity of such Indebtedness, and (B) the
principal amount of any such Indebtedness that has been accelerated or not paid
at maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$250,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $250,000, which judgments are
not paid, discharged, bonded or stayed for a period of 60 days after the date of
entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 90 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; (vi)
any of the Transactions Documents shall cease for any reason, to be in full
force and effect, in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing; (vii) if the Secretary of State for the
State of California fails to accept, within twenty (20) days after the initial
submission thereof, the Series D Certificate of Determination or the Series E
Certificate of Determination (each as defined in the Agreement) in the forms
A-4
<PAGE>
attached to the Restructuring Agreement (as defined in the Agreement) as EXHIBIT
A and EXHIBIT B, respectively, or with such changes as would not individually or
in the aggregate, in the reasonable opinion of the Purchaser, adversely affect
the rights, privileges or preferences of the holders of the Series D Preferred
Stock or the Series E Preferred Stock.
Any notice of default delivered to the Company by the Holders of New Notes must
be in writing and must specify the Event of Default, demand that it be remedied
and state that the notice is a "Notice of Default."
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or shareholder of the Company shall have any liability for any
obligation of the Company under the Agreement or the New Notes or for any claim
based on, in respect of, or by reason of, any such obligation or the creation of
any such obligation. Each Holder by accepting a New Note waives and releases
such Persons from all such liability, and such waiver and release is part of the
consideration for the Issuance of the New Notes.
13. SUCCESSOR SUBSTITUTED. Upon the merger, consolidation or other business
combination involving the Company or upon the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the Company's
properties and assets, the Surviving Person (if other than the Company)
resulting from such Disposition shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Agreement with the
same effect as if such Surviving Person had been named as the Company in the
Agreement.
14. GOVERNING LAW. This New Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
the conflict of laws provisions thereof.
15. CUSIP NUMBERS. The Company will use reasonable efforts to cause CUSIP
numbers to be printed on the New Notes and to use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the New Notes or as contained in
any notice of redemption and reliance may be placed only on the other
identification numbers printed on the securities.
16. COPIES OF AGREEMENT. The Company will furnish to any Holder upon
written request and without charge a copy of the Agreement, which has in it the
text of this New Note. Requests may be made to: Silicon Gaming, Inc., 2800 W.
Bayshore Road, Palo Alto, California 94303, Attn: President.
17. CERTAIN INFORMATION OBLIGATIONS. To the extent permitted by applicable
law or regulation, whether or not the Company is subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the
Commission all quarterly and annual reports and such other information,
documents or other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) required to be filed
pursuant to such provisions of the Exchange Act. At any time when the Company is
not permitted by applicable law or regulations to file the aforementioned
reports, the Company shall mail to the Holders, within five days after it would
have been required to file the same with the Commission, all information that
the Company would have had to provide to the Commission if the Company had been
subject to Section 13 or 15(d) of the Exchange Act. Also, at any time when the
Company is not permitted by applicable law or regulations to file the
aforementioned reports, upon the request of a Holder of a New Note, the Company
will promptly furnish or cause to be furnished such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto) to such Holder or to a prospective purchaser of such New Note, as the
case may be, in order to permit compliance by such Holder with Rule 144A under
the Securities Act.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
A-5
<PAGE>
ASSIGNMENT FORM
To assign this New Note, fill in the form below:
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto
(Please insert social security or other identifying number of assignee)
at
(Please print or typewrite name and address including postal
zip code of assignee)
the within New Note and all rights thereunder, hereby irrevocably constituting
and appointing ________________________________________ to transfer said New
Note on the books of the Company. The agent may substitute another to act for
him. Date:________________________
Your Signature:________________________________
(Sign exactly as your name appears on the
other side of this New Note)
Signature Guarantee: _________________________
A-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
[ ] If you elect to have this New Note purchased by the Company pursuant to
Section 7.12 of the Agreement, check the box:
[ ] If you elect to have this New Note purchased by the Company pursuant to
Section 7.13 of the Agreement, check the box:
[ ] If you elect to have only part of this New Note purchased by the Company
pursuant to Section 7.12 or 7.13 of the Agreement, state the amount
(multiples of $1,000 only):
$
-------------------------
Date: Your Signature:
-----------------------------------
(Sign exactly as your name appears
on the other side of this New Note)
Signature Guarantee:
-----------------------------
A-7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO SUCH ACT, PROVIDED THAT,
IF REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
IN ADDITION, ANY SALE, ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS
SECURITY IS RESTRICTED BY, AND THE RIGHTS OF THE HOLDER OF SUCH SECURITY ARE
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN, A SECURITIES PURCHASE
AGREEMENT DATED AS OF NOVEMBER 24, 1999, A COMPLETE AND CORRECT COPY OF THE FORM
OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
SILICON GAMING, INC.
13% SENIOR SECURED NOTE DUE NOVEMBER 24, 2004
No. 1 $2,000,000
Silicon Gaming, Inc., a California corporation (hereinafter called the
"COMPANY", which term includes any successor entity under the Agreement
hereinafter referred to), for value received, hereby promises to pay to B III
CAPITAL PARTNERS, L.P., a Delaware limited partnership, or registered assigns,
the principal sum of Two Million Dollars on November 24, 2004.
Interest Payment Dates: the first day of each calendar month commencing on
January 1, 2000
Record Dates: ten (10) days preceding each Interest Payment Date
Reference is hereby made to the further provisions of this New Note set
forth on the following five (5) pages, which further provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this New Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
seal to be affixed hereto or imprinted hereto.
SILICON GAMING, INC.
By:
----------------------------------------
Name: Andrew Pascal
Title: President and Chief Executive Officer
<PAGE>
13% Senior Secured Note due November 24, 2004
1. INTEREST. Silicon Gaming, Inc. (the "Company") promises to pay interest
on the principal amount of this New Note at the rate and in the manner specified
below. Interest on this New Note will accrue at (i) the rate of 10% per annum
from November 24, 1999 until maturity and will be payable in cash monthly in
advance, and (ii) at the rate of 3% per annum, compounded monthly, from November
24, 1999 until maturity and will be payable-in-kind, annually in arrears, each
based upon a 360 day year beginning on November 24, 1999, or if any such day is
not a Business Day on the next succeeding Business Day (each an "INTEREST
PAYMENT DATE"), to the holder of record on the tenth (10th) day immediately
preceding that Interest Payment Date. The Company shall pay interest on overdue
principal and premium, if any, from time to time on demand at the rate of 1.5%
per annum in excess of the interest rate then in effect and shall pay interest
on overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on this New Note
(except defaulted interest) to the Person who is the registered Holder of this
New Note at the close of business on the record date for the next Interest
Payment Date even if such New Note is canceled after such record date and on or
before such Interest Payment Date. Holders must surrender New Notes to the
Company to collect principal payments on such New Notes. The Company will pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal, premium, if any, and interest by wire
transfer of Federal funds, or interest by check payable in such money, and any
such check may be mailed to a Holder's registered address.
3. SECURITIES PURCHASE AGREEMENT. The Company issued the New Notes pursuant
to a Securities Purchase Agreement, dated as of November 24, 1999 (the
"AGREEMENT"), by and between the Company, as issuer of the New Notes, and the
Purchaser named therein. The terms of the New Notes are those stated in the
Agreement and herein. The New Notes are subject to, and qualified by, all such
terms, certain of which are summarized herein, and Holders are referred to the
Agreement (all capitalized terms not defined herein shall have the meanings
assigned them in the Agreement). The New Notes are general obligations of the
Company limited to $5,000,000 in aggregate principal amount. Reference is hereby
made to the Agreement for a description of the properties and assets in which a
security interest has been granted, and the nature of the security, the terms
and conditions upon which the security interests were granted.
4. REDEMPTION PROVISIONS. The New Notes will be subject to redemption, in
whole or in part from time to time (in multiples of $1,000 of principal amount)
at the option of the Company at a price of $1.00 for every $1.00 of principal
amount of New Notes, plus any accrued but unpaid interest, plus a premium which
when taken together with the interest earned on the New Notes, results in an
annualized internal rate of return to the Holder of 25%.
In addition, if not previously redeemed, the New Notes will be subject to
redemption (a "CHANGE OF CONTROL REDEMPTION") at the option of the Holders, in
whole or in part, at any time within 30 days after the completion of an Offer
made as a result of a Change of Control, at a redemption price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest to the Purchase
Date, subject to certain conditions set forth in the Agreement.
In addition, the New Notes will be subject to redemption ("SECURITIES SALE
REDEMPTION") at the option of the Holders, in whole or in part, following a
Securities Sale or a Mezzanine Debt Financing, from the Net Cash Proceeds of
such Securities Sale or Mezzanine Debt Financing, subject to the provisions of
<PAGE>
Section 7.13 of the Agreement; provided that an Offer to make a Securities Sale
Redemption shall be made by the Company only if, and to the extent that, the
aggregate amount of Net Cash Proceeds from all such Securities Sales or
Mezzanine Debt Financings occurring on or after the date hereof exceed
$5,000,000. In the event of a Securities Sale Redemption, the New Notes will be
redeemable at the aggregate principal amount plus any accrued and unpaid
interest to the Purchase Date.
5. MANDATORY OFFERS. (a) Within 10 days after any Change of Control Trigger
Date, any Repayment Trigger Date or any Excess Proceeds Date, the Company shall
mail a notice to each Holder stating a number of items as set forth in Section
6.7 of the Agreement.
(b) Holders may tender all or, subject to Section 8 below, any portion
of their New Notes in an Offer by completing the form below entitled "OPTION OF
HOLDER TO ELECT PURCHASE."
(c) Promptly after consummation of an Offer, (i) the Company shall
mail to each Holder of New Notes or portions thereof accepted for payment an
amount equal to the purchase price for, plus any accrued and unpaid interest on,
such New Notes, (ii) with respect to any tendered New Note not accepted for
payment in whole or in part, the Company shall return such New Note to the
Holder thereof, and (iii) with respect to any New Note accepted for payment in
part, the Company shall authenticate and mail to each such Holder a new New Note
equal in principal amount to the unpurchased portion of the tendered New Note.
(d) The Company will (i) publicly announce the results of the Offer to
Holders on or as soon as practicable after the Purchase Date, and (ii) comply
with Rule 14e-1 under the Securities Exchange Act of 1934, as amended, and any
other securities laws and regulations to the extent applicable to any Offer.
6. NOTICE OF REDEMPTION OR PURCHASE. At least 30 days but not more than 60
days before any Redemption Date the Company shall mail by first class mail a
notice of redemption to each Holder of New Notes or portions thereof that are to
be redeemed.
7. NEW NOTES TO BE REDEEMED OR PURCHASED. The New Notes may be redeemed or
purchased in part, but only in whole multiples of $1,000 unless all New Notes
held by a Holder are to be redeemed or purchased. On or after any date on which
New Notes are redeemed or purchased, interest ceases to accrue on the New Notes
or portions thereof called for redemption or accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The New Notes are in registered form
without coupons in denominations of $100,000 and integral multiples thereof
(subject to adjustment as provided in the Agreement). The transfer of New Notes
may be registered and New Notes may be exchanged as provided in the Agreement.
Holders seeking to transfer or exchange their New Notes may be required, among
other things, to furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the Agreement. The
Company need not exchange or register the transfer of any New Note or portion of
a New Note selected for redemption or tendered pursuant to an Offer.
9. PERSONS DEEMED OWNERS. The registered holder of a New Note may be
treated as its owner for all purposes.
<PAGE>
10. AMENDMENTS AND WAIVERS.
(a) Subject to certain exceptions, the Agreement and the New Notes may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding New Notes, and
any existing Default or Event of Default or compliance with any provision of the
Agreement or the New Notes may be waived with the consent of the Holders of at
least a majority in principal amount of the then outstanding New Notes.
(b) Notwithstanding Section 10(a) above, the Company may amend or
supplement the Agreement or the New Notes without the consent of any Holder to:
cure any ambiguity, defect or inconsistency; provide for uncertificated New
Notes in addition to or in place of certificated New Notes; provide for the
assumption of the Company's obligations to the Holders in the event of any
Disposition involving the Company that is permitted under Article VIII of the
Agreement and in which the Company is not the Surviving Person; or make any
change that would provide any additional rights or benefits to Holders or not
adversely affect the legal rights under the Agreement of any Holder.
(c) Certain provisions of the Agreement cannot be amended,
supplemented or waived without the consent of each Holder of New Notes affected.
11. DEFAULTS AND REMEDIES. Events of Default include: (i) the Company's
failure to make any payment in respect of (A) the principal of or premium, if
any, on the New Notes or the Amended Notes as the same shall become due, whether
at maturity, upon acceleration, redemption, or otherwise, or (B) interest on or
in respect of any New Notes or the Amended Notes as the same shall become due
and such failure shall continue for a period of 15 Business Days; (ii) failure
by the Company for 30 days after receipt of notice from the Holders of at least
25% of the outstanding New Notes to comply with any other provisions of the
Agreement, the Amendment Notes Securities Purchase Agreement, the Restructuring
Agreement, the Amended Notes or the New Notes; (iii) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any
of its Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Subsidiaries) whether such Indebtedness now exists, or is created after
the date hereof, if (A) such default results in the acceleration of such
Indebtedness prior to its express maturity or shall constitute a default in the
payment of such Indebtedness at final maturity of such Indebtedness, and (B) the
principal amount of any such Indebtedness that has been accelerated or not paid
at maturity, when added to the aggregate principal amount of all other such
Indebtedness that has been accelerated or not paid at maturity, exceeds
$250,000; (iv) failure by the Company or any of its Subsidiaries to pay final
judgments, the uninsured portion of which exceeds $250,000, which judgments are
not paid, discharged, bonded or stayed for a period of 60 days after the date of
entry thereof; (v) if under any Bankruptcy Law, (A) the Company or any
Subsidiary commences a voluntary case, consents to the entry of an order for
relief against it in an involuntary case, consents to the appointment of a
Custodian of it or for all or substantially all of its property, or makes a
general assignment for the benefit of its creditors, or (B) a court of competent
jurisdiction enters an order or decree, and such order or decree remains
unstayed and in effect for 90 days, that is for relief against the Company or
any Subsidiary in an involuntary case, appoints a Custodian of the Company or
any Subsidiary or for all or substantially all of the Property of the Company or
any Subsidiary, or orders the liquidation of the Company or any Subsidiary; (vi)
any of the Transactions Documents shall cease for any reason, to be in full
force and effect, in any material respect, except as a result of an amendment,
waiver or termination thereof as contemplated or permitted hereby, or the
Company shall so assert in writing; ; and (vii) if the Secretary of State for
the State of California (the "Secretary of State") fails to accept, within
twenty (20) days after the initial submission thereof, the Series D Certificate
of Determination or the Series E Certificate of Determination (each as defined
in the Agreement) in the forms attached to the Restructuring Agreement (as
<PAGE>
defined in the Agreement) as EXHIBIT A and EXHIBIT B, respectively, or with such
changes as would not individually or in the aggregate, in the reasonable opinion
of the Purchaser, adversely affect the rights, privileges or preferences of the
holders of the Series D Preferred Stock or the Series E Preferred Stock.
Any notice of default delivered to the Company by the Holders of New Notes must
be in writing and must specify the Event of Default, demand that it be remedied
and state that the notice is a "Notice of Default."
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or shareholder of the Company shall have any liability for any
obligation of the Company under the Agreement or the New Notes or for any claim
based on, in respect of, or by reason of, any such obligation or the creation of
any such obligation. Each Holder by accepting a New Note waives and releases
such Persons from all such liability, and such waiver and release is part of the
consideration for the Issuance of the New Notes.
13. SUCCESSOR SUBSTITUTED. Upon the merger, consolidation or other business
combination involving the Company or upon the sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the Company's
properties and assets, the Surviving Person (if other than the Company)
resulting from such Disposition shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Agreement with the
same effect as if such Surviving Person had been named as the Company in the
Agreement.
14. GOVERNING LAW. This New Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
the conflict of laws provisions thereof.
15. CUSIP NUMBERS. The Company will use reasonable efforts to cause CUSIP
numbers to be printed on the New Notes and to use CUSIP numbers in notices of
redemption as a convenience to Holders. No representation is made as to the
accuracy of such numbers either as printed on the New Notes or as contained in
any notice of redemption and reliance may be placed only on the other
identification numbers printed on the securities.
16. COPIES OF AGREEMENT. The Company will furnish to any Holder upon
written request and without charge a copy of the Agreement, which has in it the
text of this New Note. Requests may be made to: Silicon Gaming, Inc., 2800 W.
Bayshore Road, Palo Alto, California 94303, Attn: President.
17. CERTAIN INFORMATION OBLIGATIONS. To the extent permitted by applicable
law or regulation, whether or not the Company is subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the
Commission all quarterly and annual reports and such other information,
documents or other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) required to be filed
pursuant to such provisions of the Exchange Act. At any time when the Company is
not permitted by applicable law or regulations to file the aforementioned
reports, the Company shall mail to the Holders, within five days after it would
have been required to file the same with the Commission, all information that
the Company would have had to provide to the Commission if the Company had been
subject to Section 13 or 15(d) of the Exchange Act. Also, at any time when the
Company is not permitted by applicable law or regulations to file the
aforementioned reports, upon the request of a Holder of a New Note, the Company
will promptly furnish or cause to be furnished such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto) to such Holder or to a prospective purchaser of such New Note, as the
case may be, in order to permit compliance by such Holder with Rule 144A under
the Securities Act.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
ASSIGNMENT FORM
To assign this New Note, fill in the form below:
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s)
unto
(Please insert social security or other identifying number of assignee)
at
(Please print or typewrite name and address including postal
zip code of assignee)
the within New Note and all rights thereunder, hereby irrevocably constituting
and appointing ________________________________________ to transfer said New
Note on the books of the Company. The agent may substitute another to act for
him. Date:________________________
Your Signature:________________________________
(Sign exactly as your name appears on the
other side of this New Note)
Signature Guarantee: _________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
[ ] If you elect to have this New Note purchased by the Company pursuant to
Section 7.12 of the Agreement, check the box:
[ ] If you elect to have this New Note purchased by the Company pursuant to
Section 7.13 of the Agreement, check the box:
[ ] If you elect to have only part of this New Note purchased by the Company
pursuant to Section 7.12 or 7.13 of the Agreement, state the amount
(multiples of $1,000 only):
$
-------------------------
Date: Your Signature:
-----------------------------------
(Sign exactly as your name appears
on the other side of this New Note)
Signature Guarantee:
---------------------------
SILICON GAMING INC. 1999
LONG-TERM COMPENSATION PLAN
1. PURPOSE
The purpose of the Plan is to advance the long-term interests of Silicon
Gaming Inc. by (i) motivating executive personnel by means of long-term
incentive compensation, (ii) aligning the interests of Participants with those
of the shareholders of the Corporation through ownership of the Common Stock of
the Corporation and (iii) allowing the Corporation to attract and retain
directors and executive personnel whose skills and expertise greatly enhance the
success of the Corporation. Under the Plan, the Committee may grant stock
options or restricted stock awards to Key Employees of the Corporation and its
Subsidiaries, and may grant stock options to non-employee directors of the
Corporation, on the terms and subject to the conditions set forth in the Plan.
2. DEFINITIONS
2.1 "Administrative Policies" means the administrative policies and
procedures adopted and amended from time to time by the Committee to administer
the Plan.
2.2 "Administrator" means the Board of Directors or the Committee, as
applicable, charged with administration of the Plan from time to time at the
discretion of the Board of Directors.
2.3 "Award" means any form of stock option or, restricted stock award
granted under the Plan, whether singly, in combination, or in tandem, to a
Participant by the Committee pursuant to such terms, conditions, restrictions
and limitations, if any, as the Committee may establish by the Award Agreement
or otherwise.
2.4 "Award Agreement" means a written agreement with respect to an Award
between the Corporation and a Participant establishing the terms, conditions,
restrictions and limitations applicable to an Award. To the extent an Award
Agreement is inconsistent with the terms of the Plan, the Plan shall govern the
rights of the Participant thereunder. The Award Agreement for stock options
shall be in the form attached hereto as EXHIBIT A and the Award Agreement for
restricted stock awards shall be in the form attached hereto as EXHIBIT B.
2.5 "Board" means the Board of Directors of the Corporation.
2.6 "Change In Control" means any transaction or series of transactions in
which any of the following occurs: (a) any Person or group (within the meaning
of Rule 13d-3 under the Exchange Act and Sections 13(d) and 14(d) of the
Exchange Act) becomes the direct or indirect "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of 25% or more of the issued and outstanding
shares of Capital Stock entitled to vote in the election of directors of the
Company or the Surviving Person (if other than the Company); (b) a merger or
consolidation of the Company with or into another corporation in which less than
a majority of the outstanding voting power of the surviving or consolidated
corporation immediately following such event is held by persons or entities who
were stockholders of the Company immediately prior to such event; (c) the sale
of all or substantially all of the properties and assets of the Company and its
<PAGE>
subsidiaries; or (d) the redemption or repurchase of shares representing a
majority of the voting power of the outstanding shares of capital stock of the
Company; provided however, that a conversion of Series D Preferred Stock into
Common Stock, an issuance of Common Stock under the Plan, issuance of the Units,
an issuance of Common Stock upon exercise of Old Equity Warrants, issuance of
the Series E Warrant, an issuance of Series E Preferred Stock upon exercise of
the Series E Warrant, and an issuance of Common Stock upon conversion of the
Series E Preferred Stock, shall not, individually or in the aggregate in and of
itself, constitute a Change of Control.
2.7 "Change in Control Price" means the highest price per share actually
paid for the Common Stock in connection with the Change in Control of the
Corporation after giving effect to the preferences and rights of any outstanding
class of preferred stock of the Corporation.
2.8 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.9 "Committee" means the Compensation Committee of the Board, or such
other committee designated by the Board, authorized to administer the Plan under
Section 3 hereof.
2.10 "Common Stock" means Common Stock, par value $0.001, of the
Corporation.
2.11 "Corporation" means Silicon Gaming, Inc., a California corporation.
2.12 "Director Stock Options" means the Awards granted to non-employee
Directors of the Corporation under Section 10 of the Plan.
2.13 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.14 "Key Employee" means an employee of the Corporation or a Subsidiary
who holds a position of responsibility in a managerial, administrative or
professional capacity, and whose performance, as determined by the Administrator
in the exercise of its sole and absolute discretion, can have a significant
effect on the growth, profitability and success of the Corporation.
2.15 "Old Equity Warrants" means the warrants to purchase the Common Stock
of the Company issuable to the stockholders of the Company as of the Record Date
set pursuant to the Restructuring Agreement and issued as a part of the Units,
and the terms and provisions of which are set forth in the Warrant Agreement by
and between the Company and the Warrant Agent (as defined in the Warrant
Agreement).
2.16 "Participant" means any individual to whom an Award has been granted
by the Administrator under this Plan.
2.17 "Plan" means the Silicon Gaming, Inc. 1999 Long-Term Compensation
Plan.
2.18 "Stock Exchange" means such exchange, over-the-counter market or other
market price reporting system on which the Common Stock is traded or quoted,
2
<PAGE>
provided that the Administrator determines that such exchange, market or system
is both reliable and reasonably accessible.
2.19 "Subsidiary" means a corporation or other business entity in which the
Corporation directly or indirectly has an ownership interest of fifty-one
percent or more.
2.20 "Units" means the Units consisting of one share of Common Stock and
one Old Equity Warrant that the Company intends to issue pursuant to an issuer
tender offer (as that term is defined in Rule 13e-4 of the Exchange Act)
commencing on or around November of 1999.
3. ADMINISTRATION
The Plan shall be administered under the supervision of the Board of
Directors or a Committee composed of not less than two directors each of whom
shall be a "Non-Employee Director" as that term is defined under Rule 16b-3 of
the Exchange Act or any subsequent rule or act. Members of the Committee shall
serve at the pleasure of the Board of Directors, and may resign by written
notice filed with the Chief Executive Officer or the Secretary of the
Corporation. The body administering the Plan from time to time shall be referred
to herein as the "Administrator."
A vacancy in the membership of the Committee may be filled only by the
appointment of a successor member by the Board of Directors. Until such vacancy
is filled, the remaining members shall constitute a quorum and the action at any
meeting of a majority of the entire Committee, or an action unanimously approved
in writing, shall constitute action of the Committee. Subject to the express
provisions of this Plan, the Administrator shall have conclusive authority to
construe and interpret the Plan, any Award Agreement entered into hereunder and
to establish, amend and rescind Administrative Policies for the administration
of this Plan and shall have such additional authority as the Board of Directors
may from time to time determine to be necessary or desirable.
4. ELIGIBILITY
Any Key Employee is eligible to become a Participant in the Plan. Directors
of the Corporation other than directors who are employees of the Corporation are
eligible only to receive stock options pursuant to Section 10 hereof.
3
<PAGE>
5. SHARES AVAILABLE
(a) Shares of Common Stock available for issuance under the Plan may be
authorized and unissued shares or treasury shares. Subject to the adjustments
provided for in Sections 14 and 15 hereof, the maximum number of shares of
Common Stock available for grant of Awards under the Plan from time to time
shall be equal to the lesser of (i) 116,190,084 and (ii) the number of
authorized but unissued shares of Common Stock then available less any shares of
Common Stock otherwise reserved for issuance, in each case as adjusted pursuant
to Section 14 herein.
Notwithstanding the foregoing, no single Participant may be granted stock
options covering more than 100,000,000 shares in any one calendar year.
Notwithstanding the foregoing, not more than 116,190,084 shares of Common
Stock (subject to adjustment pursuant to Section 14 herein) shall be available
for the award of incentive stock options under the Plan.
(b) For purposes of calculating the number of shares of Common Stock deemed
to be granted hereunder, each Award, whether denominated in stock options or
restricted stock shall be deemed to be a grant of a number of shares of Common
Stock equal to the number of shares represented by the stock options or shares
of restricted stock set forth in the Award.
6. EFFECTIVE DATE
The Plan shall become effective as of November __, 1999. Incentive stock
options awarded hereunder shall be subject to approval of the Plan by the
Corporation's stockholders at the 2000 annual meeting or by written consent
thereof.
7. PARTICIPATION
The Administrator shall select, from time to time, Participants from those
Key Employees to whom, in the opinion of the Administrator, Award grants would
further the Plan's purposes. The Committee shall determine the type or types of
Awards to be made to the Participant. In addition, all non-employee Directors
shall participate in the Plan solely in the manner specified in Section 10
hereof. The terms, conditions and restrictions of each Award shall be set forth
in an Award Agreement.
8. STOCK OPTIONS
(a) GRANTS. Awards may be granted in the form of stock options. Stock
options may be incentive stock options within the meaning of Section 422 of the
Code or non-statutory stock options (i.e., stock options which are not incentive
stock options), or a combination of both, or any particular type of tax
advantage option authorized by the Code from time to time.
(b) TERMS AND CONDITIONS OF OPTIONS. An option shall be exercisable as set
forth in the Award Agreement attached hereto as EXHIBIT A; provided, however,
that no incentive stock option shall be exercisable more than ten years after
the date of grant thereof. The option exercise price shall be established by the
4
<PAGE>
Administrator, but such price shall not be less than the per share fair market
value of the Common Stock, as determined by the Administrator, on the date of
the stock option's grant subject to adjustment as provided in Sections 14 or 15
hereof.
(c) RESTRICTIONS RELATING TO INCENTIVE STOCK OPTIONS. Stock options issued
in the form of incentive stock options shall, in addition to being subject to
all applicable terms, conditions, restrictions and/or limitations established by
the Administrator, comply with Section 422 of the Code. Incentive stock options
shall be granted only to full time employees of the Corporation and its
subsidiaries within the meaning of Section 424 of the Code. The aggregate fair
market value (determined as of the date the option is granted) of shares with
respect to which incentive stock options are exercisable for the first time by
an individual during any calendar year (under this Plan or any other plan of the
Corporation or any Subsidiary which provides for the granting of incentive stock
options) may not exceed $l00,000 or such other number as may be applicable under
the Code from time to time. Any incentive stock option that is granted to any
employee who is, at the time the option is granted, deemed for purposes of
Section 422 of the Code, or any successor provision, to own shares of the
Corporation possessing more than ten percent of the total combined voting power
of all classes of shares of the Corporation or of a parent or Subsidiary of the
Corporation, shall have an option exercise price that is at least one hundred
ten percent of the fair market value of the shares at the date of grant and
shall not be exercisable after the expiration of five years from the date it is
granted.
(d) PAYMENT. Upon exercise, a participant may pay the option exercise price
of a stock option in cash or shares of Common Stock, or a combination of the
foregoing, or such other consideration as the Administrator may deem
appropriate. The Administrator shall establish appropriate methods for accepting
Common Stock and may impose such conditions as it deems appropriate on the use
of such Common Stock to exercise a stock option.
9. RESTRICTED STOCK AWARDS
(a) GRANTS. Awards may be granted in the form of Restricted Stock Awards.
Restricted Stock Awards shall be awarded in such numbers and at such times as
the Administrator shall determine.
(b) AWARD RESTRICTIONS. Restricted Stock Awards shall be granted pursuant
to an Award Agreement in the form attached hereto as EXHIBIT B and shall be
subject to such additional terms, conditions, restrictions, or limitations as
the Administrator deems appropriate including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment or individual performance or the financial performance of the
Corporation. The Administrator may modify, or accelerate the termination of, the
restrictions applicable to a Restricted Stock Award under such circumstances as
are set forth in the Award Agreement attached hereto as EXHIBIT B.
(c) RIGHTS AS SHAREHOLDERS. During the period in which any restricted
shares of Common Stock are subject to the restrictions imposed under the
preceding paragraph, the Committee may, in its discretion, grant to the
Participant to whom such restricted shares have been awarded all or any of the
5
<PAGE>
rights of a shareholder with respect to such shares, including, by way of
illustration but not by way of limitation, the right to vote such shares and to
receive dividends.
(d) EVIDENCE OF AWARD. Any Restricted Stock Award granted under the Plan
may be evidenced in such manner as the Committee deems appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate
or certificates.
10. DIRECTORS' STOCK OPTIONS
(a) GRANTS. The Administrator may grant to non-employee Directors stock
options satisfying the requirements of this Section 10 ("Director Stock
Options"). Notwithstanding the foregoing, no Director Stock Options shall be
granted to a Director whose normal retirement under a plan or policy of the
Corporation would occur within 12 months of the applicable grant date.
(b) OPTION EXERCISE PRICE. The option exercise price of such Director Stock
Options shall be the per share fair market value of the outstanding shares of
the Common Stock on the date such options are granted. The Administrator shall
be authorized to compute the price per share on the date of grant. Payment of
the option exercise price may be made in cash or in shares of Common Stock or a
combination of cash and Common Stock.
(c) ADMINISTRATION. Subject to the express provisions of this Section 10,
the Administrator shall have conclusive authority to construe and interpret any
Director Stock Option granted under this Section 10 and to adopt Administrative
Policies with respect thereto provided, however, that no action shall be taken
which will prevent the Director Stock Options granted under this Section 10 or
any Award granted under the Plan from meeting the requirements for exemption
from Section 16(b) of the Exchange Act, or subsequent comparable statute, as set
forth in Rule 16b-3 of the Exchange Act or any subsequent comparable rule.
(d) OPTION AGREEMENT. The options granted hereunder shall be evidenced by
an option agreement in the form attached hereto as EXHIBIT A, dated as of the
date of the grant.
(e) OPTION PERIOD. Options granted under this Section 10 shall not be
exercisable later than 5 years from the date of grant.
(f) TRANSFERABILITY. No option shall be transferable by the non-employee
Director except by will or the laws of descent and distribution, and during the
Director's lifetime options may be exercised only by the Director or his
guardian or legal representative.
(g) LIMITATIONS ON EXERCISE. Director Stock Options shall become
exercisable as follows: 25% of the optioned shares after the first anniversary
of the date of grant; 25% after the second anniversary of the date of grant; 25%
after the third anniversary of the date of grant; and 25% after the fourth
anniversary of the date of grant. To the extent an option is not otherwise
exercisable at the date of the Director's retirement under a retirement plan or
policy of the Corporation, it shall become fully exercisable upon such
retirement provided, however, that Director Stock Options shall not become
exercisable under this sentence prior to the expiration of six months from the
date of grant. Upon such retirement such options shall be exercisable for a
6
<PAGE>
period of three years, subject to the original term thereof. Options not
otherwise exercisable at the time of the death of a Director during continued
service with the Corporation shall become fully exercisable upon his death. Upon
the death of a Director while in service as a director, such options shall
remain exercisable for a period of one year after the date of death. To the
extent an option is exercisable on the date a Director ceases to be a director
(other than by reason of death, the option shall continue to be exercisable
(subject to the original term of the option) for a period of ninety (90) days
thereafter.
11. DIVIDENDS AND DIVIDEND EQUIVALENTS
If an Award is granted in the form of a Restricted Stock Award, the
Administrator may choose, at the time of the grant of the Award, to include as
part of such Award an entitlement to receive dividends or dividend equivalents,
subject to such terms, conditions, restrictions or limitations, if any, as the
Administrator may establish. Dividends and dividend equivalents shall be paid in
such form and manner and at such time as the Administrator shall determine. All
dividends or dividend equivalents which are not paid currently may, at the
Administrator's discretion, accrue interest or be reinvested into additional
shares of Common Stock.
12. TERMINATION OF EMPLOYMENT
The Administrator shall adopt Administrative Policies determining the
entitlement of Participants who cease to be employed by either the Corporation
or Subsidiary whether because of death, disability, resignation, termination or
retirement pursuant to an established retirement plan or policy of the
Corporation or of its applicable Subsidiary, which entitlements shall be set
forth in the applicable Award Agreement.
13. ASSIGNMENT AND TRANSFER
The rights and interests of a Participant under the Plan may not be
assigned, encumbered or transferred except, in the event of the death of a
Participant, by will or the laws of descent and distribution.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding shares of Common Stock by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger or consolidation of the Corporation,
the maximum aggregate number and class of shares as to which Awards may be
granted under the Plan and the shares issuable pursuant to then outstanding
Awards shall be appropriately adjusted by the Administrator whose determination
shall be final.
15. EXTRAORDINARY DISTRIBUTIONS AND PRO-RATA REPURCHASES
In the event the Corporation shall at any time when an Award is outstanding
make an Extraordinary Distribution (as hereinafter defined) in respect of Common
Stock or effect a ProRata Repurchase of Common Stock (as hereinafter defined),
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<PAGE>
the Administrator shall consider the economic impact of the Extraordinary
Distribution or Pro-Rata Repurchase on Participants and make such adjustments as
it deems equitable under the circumstances, subject to the rights of the holders
of any outstanding New Notes, Amended Notes or Series D Preferred Stock. The
determination of the Administrator shall, subject to revision by the Board of
Directors, be final and binding upon all Participants.
(a) As used herein, the term "Extraordinary Distribution" means any
dividend or other distribution, solely with respect to Common Stock, of:
(i) cash, where the aggregate amount of such cash dividend or
distribution together with the amount of all cash dividends and
distributions made during the preceding twelve months, when combined with
the aggregate amount of all Pro-Rata Repurchases (for this purpose,
including only that portion of the aggregate purchase price of such
Pro-Rata Repurchases which is in excess of the fair market value of the
Common Stock repurchased during such twelve month period), exceeds ten
percent (10%) of the aggregate fair market value of all shares of Common
Stock outstanding on the record date for determining the shareholders
entitled to receive such Extraordinary Distribution; or
(ii) any shares of capital stock of the Corporation (other than shares
of Common Stock), other securities of the Corporation, evidences of
indebtedness of the Corporation or any other person or any other property
(including shares of any Subsidiary of the Corporation), or any combination
thereof.
(b) As used herein "Pro-Rata Repurchase" means any purchase of shares of
Common Stock by the Corporation or any Subsidiary thereof, pursuant to any
tender offer or exchange offer subject to Section 13(e) of the Exchange Act or
any successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however, that no purchase
of shares of the Corporation or any Subsidiary thereof made in open market
transactions shall be deemed a Pro-Rata Repurchase.
16. WITHHOLDING TAXES
The Corporation or the applicable Subsidiary shall be entitled to deduct
from any payment under the Plan, regardless of the form of such payment, the
amount of all applicable income and employment tax required by law to be
withheld with respect to such payment or may require the Participant to pay to
it such tax prior to and as a condition of the making of such payment. In
accordance with any applicable Administrative Policies it establishes, the
Committee may allow a Participant to pay the amount of taxes required by law to
be withheld from an Award by withholding from any payment of Common Stock due as
a result of such Award, or by permitting the Participant to deliver to the
Corporation shares of Common Stock having a fair market value, as determined by
the Administrator, equal to the amount of such required withholding taxes.
8
<PAGE>
17. NONCOMPETITION PROVISION
Unless the Award Agreement specifies otherwise, a Participant shall forfeit
all unexercised unearned Awards if: (i) in the opinion of the Administrator, the
Participant, without the written consent of the Corporation, engages directly or
indirectly in any manner or capacity as principal, agent, partner, officer,
director, employee, or otherwise, in any business or activity competitive with
the business conducted by the Corporation or any Subsidiary; or (ii) the
Participant performs any act or engages in any activity which in the opinion of
the Administrator is inimical to the best interests of the Corporation.
18. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary, the
Corporation shall have no obligation to issue or deliver certificates of Common
Stock evidencing Restricted Stock Awards or any other Award payable in Common
Stock prior to (a) the obtaining of any approval from any governmental agency
which the Corporation shall, in its sole discretion, determine to be necessary
or advisable, (b) the admission of such shares to listing on the Stock Exchange
and (c) the completion of any registration or other qualification of said shares
under any state or federal law or ruling of any governmental body which the
Corporation shall, in its sole discretion, determine to be necessary or
advisable.
19. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Corporation or any Subsidiary. The Corporation or,
in the case of employment with a Subsidiary, the Subsidiary, reserves the right
to terminate the employment of any Key Employee at any time. The adoption of
this Plan shall not be deemed to give any Key Employee or any other individual
any right to be selected as a Participant, to be granted any Awards hereunder or
if granted an Award in any year, to receive Awards in any subsequent year.
20. AMENDMENT
The Administrator may suspend or terminate the Plan at any time provided,
however, that the provisions of Section 10 shall not be amended more than once
every six months other than to comport with changes in the Code, the Employee
Retirement Income Security Act or the rules and regulations under either of
them. In addition, the Administrator may, from time to time, amend the Plan in
any manner, but may not without shareholder approval adopt any amendment which
would (a) materially increase the benefits accruing to Participants under the
Plan, (b) materially increase the number of shares of Common Stock which may be
issued under the Plan (except as specified in Section 14), or (c) materially
modify the requirements as to eligibility for participation in the Plan.
21. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of California, except as preempted by applicable Federal law.
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22. CHANGE IN CONTROL
(a) STOCK OPTIONS. In the event of a Change in Control options not
otherwise exercisable at the time of a Change in Control shall become fully
exercisable upon such Change in Control; provided, however, that options shall
not become exercisable under this provision prior to the expiration of six
months from the date of grant.
(b) RESTRICTED STOCK AWARDS. In the event of a Change In Control, all
restrictions previously established with respect to Restricted Stock Awards will
conclusively be deemed to have been satisfied. Participants shall be entitled to
have issued to them the shares of Common Stock described in the applicable Award
Agreements (to the extent not previously issued), free and clear of any
restriction or restrictive legend, except that if upon the advice of counsel to
the Corporation, shares of Common Stock cannot lawfully be issued without
restriction, then the Corporation shall issue that Common Stock with a
restrictive legend setting forth the applicable restrictions.
(c) DIRECTORS STOCK OPTIONS. Directors Stock Options not otherwise
exercisable at the time of a Change In Control shall become fully exercisable
upon such Change In Control; provided, however, that options shall not become
exercisable under this provision prior to the expiration of six months from the
date of grant.
(d) MISCELLANEOUS. Upon a Change In Control, no action shall be taken which
would adversely affect the rights of any Participant or the operation of the
Plan with respect to any Award to which the Participant may have become entitled
hereunder on or prior to the date of the Change In Control or to which the
Participant may become entitled as a result of such Change In Control.
23. NO RIGHT, TITLE, OR INTEREST IN CORPORATION ASSETS
No Participant shall have any rights as a shareholder as a result of
participation in the Plan until the date of issuance of a stock certificate in
his name except, in the case of Restricted Stock Awards, to the extent such
rights are granted to the Participant under Section 9(c) hereof. To the extent
any person acquires a right to receive payments from the Corporation under this
Plan, such rights shall be no greater than the rights of an unsecured creditor
of the Corporation.
24. PAYMENT BY SUBSIDIARIES
Settlement of Awards to employees of Subsidiaries shall be made by and at
the expense of such Subsidiary. Except as prohibited by law, if any portion of
an Award is to be settled in shares of Common Stock, the Corporation shall sell
and transfer to the Subsidiary, and the Subsidiary shall purchase, the number of
shares necessary to settle such portion of the Award.
25. STOCKHOLDERS AGREEMENT
Awards issued under this Plan are subject to that certain Stockholders
Agreement by and among the Corporation, B III Capital Partners, LP and certain
of the stockholders which provides for certain restrictions on the
transferability of the capital stock of the Corporation owned or held by the
parties thereto. In addition, shares of Common Stock underlying any Award cannot
10
<PAGE>
be transferred by the Participant until such time as there is an effective
registration of the Common Stock pursuant to the Securities Act of 1933, as
amended, or in the opinion of counsel for the Company an exemption from
registration is available. The Company is under no obligation to permit the
transfer of any Common Stock issued to a Participant under an Award if, in the
opinion of the Company's counsel, the sale or the proposed transfer of such
shares will result in a violation of any applicable securities law, rule or
regulation.
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EXHIBIT A
STOCK OPTION AGREEMENT
By this STOCK OPTION AGREEMENT ("AGREEMENT") made and entered into this
____ day of ____________,_____ ("GRANT DATE"), Silicon Gaming, Inc., a
California corporation (the "COMPANY"), and _________________________, a key
employee of the Company (the "OPTIONEE") hereby state, confirm, represent,
warrant and agree as follows:
I
RECITALS
1.1 The Company, through its Board of Directors, has determined that in
order to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees of the
Company and to promote the success of the Company's business, it must offer a
compensation package that provides key employees of the Company a chance to
participate financially in the success of the Company by developing an equity
interest in the Company.
1.2 As part of the compensation package, the Company, on November 24, 1999,
adopted the Silicon Gaming, Inc. 1999 Long-Term Compensation Plan (the "PLAN")
pursuant to resolution of the Board of Directors.
1.3 By this agreement, the Company and the Optionee desire to establish the
terms upon which the Company is willing to grant to the Optionee, and upon which
the Optionee is willing to accept from the Company an option to purchase shares
of Common Stock, $.001 par value per share, of the Company ("COMMON STOCK").
II
AGREEMENTS
2.1 PROVISIONS OF THE PLAN. The provisions of the Plan are expressly
incorporated herein and made an integral part hereof as though set forth herein.
2.2 GRANT OF STOCK OPTION. Subject to the terms and conditions hereinafter
set forth, and subject to stockholder approval of the Plan, unless otherwise
determined by the Administrator, the Company grants to the Optionee the right
and option (the "OPTION") to purchase from the Company all or any part of an
aggregate number of ____________ shares of Common Stock, authorized but unissued
or, at the option of the Company, treasury stock if available (the "OPTION
SHARES"). This Option shall be an incentive stock option as defined in Section
422 of the Internal Revenue Code (the "CODE").
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<PAGE>
2.3 VESTING OF OPTION. Twenty percent of the Option vests upon issuance.
The remaining eighty percent of the Option vests at the rate of 1/48th of the
remaining Option per month on the last day of each successive calendar month
following the date of this Agreement so long as the Optionee remains employed by
the Company. If the Optionee's employment with the Company is terminated as a
result of death or disability any portion of the Option that would have vested
within the 90 days following the termination of the Optionee's employment with
the Company as a result of death or disability will vest upon the date of such
death or disability. In the event of a Change in Control (as defined in the
Plan), any unvested portion of the Option will vest automatically on the date of
such Change in Control.
2.4 EXERCISE OF OPTION. (a) Subject to the terms and conditions of this
Agreement, the Option may be exercised only by completing and signing a written
notice in substantially the following form:
I hereby exercise the Option granted to me by Silicon Gaming Inc., and
elect to purchase ____ shares of Common Stock of Silicon Gaming, Inc.,
for the purchase price to be determined under Paragraph 2.5 of the
Stock Option Agreement dated the ____ day of __________, _____.
2.5 PURCHASE PRICE. The price to be paid for the Option Shares (the
"PURCHASE PRICE") shall be $__________ per share which was not less than the
fair market value of the Option Shares as determined by the Board of Directors
or a committee appointed by the Board of Directors (as appropriate, hereinafter
referred to as the "ADMINISTRATOR") on the Grant Date.
2.6 PAYMENT OF PURCHASE PRICE. Payment of the Purchase Price may be made as
follows:
(a) In United States dollars in cash or by check, bank draft or money
order payable to the Company; or
(b) At the discretion of the Administrator, through the delivery of
shares of Common Stock with an aggregate fair market value at the date of such
delivery, equal to the Purchase Price; or
(c) By a combination of both (a) and (b) above; or
(d) In the manner provided in paragraph 2.7 below.
The Administrator shall determine acceptable methods for tendering Common Stock
as payment upon exercise of an Option and may impose such limitations and
conditions on the use of Common Stock to exercise an Option as it deems
appropriate.
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<PAGE>
2.7 LOANS OR GUARANTEES. The Administrator may, in its absolute discretion
and without any obligation to do so, assist Optionee in the exercise of this
Option by:
(a) authorizing the extension of a loan of Optionee from the Company;
or
(b) authorizing a guaranty by the Company of a third-party loan to
Optionee.
The terms of any loan, installment, method of payment or guaranty (including the
interest rate and terms of repayment) shall be established by the Administrator,
in its sole discretion.
2.8 EXERCISABILITY OF OPTION. Subject to the provisions of Paragraph 2.9
the Option may be exercised by the Optionee only while in the employ of the
Company which shall include any parent ("PARENT") or subsidiary ("SUBSIDIARY")
corporation of the Company as defined in Sections 424(e) and (f), respectively,
of the Code.
2.9 TERMINATION OF OPTION. Except as otherwise provided herein, the Option,
to the extent not heretofore exercised, shall terminate upon the first to occur
of the following dates:
(a) The date on which the Optionee shall cease to be employed by the
Company for any reason, including voluntary or involuntary termination or
retirement, except for Optionee's death or disability within the meaning of
Section 22(e)(3) of the Code;
(b) Three (3) months after termination due to disability within the
meaning of Section 22(e)(3) of the Code;
(c) One (1) year after the Optionee's death; or
(d) _____________, 19___ (being the expiration of ten (10) years from
the Grant Date).
2.10 COMPANY OPTION TO REPURCHASE OPTION SHARES.
If the Optionee's employment is terminated by the Company or any Subsidiary
of the Company, by the Optionee, or as a result of the Optionee's disability or
death, the Company will have the option, but not the obligation, to repurchase
all or any part of the Option Shares purchased pursuant to this Agreement and
then held by the Optionee on the date of such event. The following provisions
apply to a repurchase under this Section 2.10:
(a) The per share repurchase price for Option Shares under this
Section 2.10 will be equal to:
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<PAGE>
(i) the fair market value of each Option Share determined by the
Administrator as of the date of termination, death or disability if
the Optionee's employment is terminated due to the death or disability
of the Optionee, by the Company without cause, or by the Optionee;
(ii) the amount of consideration paid to the Company by the
Optionee for each Option Share if the Optionee's employment is
terminated for cause by the Company.
(b) The Company's option to repurchase the Shares will be valid for a
period of six (6) months commencing with the date of any termination. The
Optionee may not transfer the Shares during such period.
(c) If the Company elects to exercise its option to repurchase the
Option Shares the Company must give written notice of its intent to repurchase
the Option Shares to the Optionee or, in case of the Optionee's death, his or
her representative. The written notice may be mailed by the Company at any time
up to and including the last day of the six (6) months following the date of the
Optionee's termination, death, or disability.
(d) The written notice to the Optionee must specify the address at,
and the time and date on, which payment of the repurchase price is to be made
(the "CLOSING"). The date specified must not be less than ten (10) days nor more
than sixty (60) days from the date of the mailing of the notice. The Optionee or
his or her successor in interest with respect to the Option Shares shall have no
further rights as the owner thereof from and after the date specified in the
notice. At the Closing, the Company will deliver the repurchase price to the
Optionee or his or her successor in interest, and the Optionee or his or her
successor in interest, will deliver the Option Shares being purchased duly
endorsed for transfer. Notwithstanding the immediately preceding sentence, if
any part of the consideration paid by the Optionee to the Company for the
purchase of the Option Shares was in the form of a promissory note or other debt
instrument, the repurchase price will first be used to repay any outstanding
balance owed by the Optionee to the Company for such purchase.
(e) If the Optionee or his or her successor in interest fails to
deliver the Option Shares to be repurchased by the Company under this Agreement,
the Company may elect to (i) establish a segregated account in the amount of the
repurchase price to be turned over to the Optionee or his or her successor in
interest upon delivery of the Option Shares, and (ii) immediately take any
appropriate action to transfer record title of the Option Shares from the
Optionee to the Company and to treat the Optionee and the Option Shares in all
respects as if delivery of the Option Shares had been made as required by this
Agreement. The Optionee hereby irrevocably grants the Company a power of
attorney that is coupled with an interest for the purpose of effectuating the
preceding sentence.
2.11 ADJUSTMENTS. In the event of any stock split, reverse stock split,
stock dividend, combination or reclassification of shares of Common Stock or any
other increase or decrease in the number of issued shares of Common Stock, the
number and kind of Option Shares (including any Option outstanding after
15
<PAGE>
termination of employment or death) and the Purchase Price per share shall be
proportionately and appropriately adjusted without any change in the aggregate
Purchase Price to be paid therefor upon exercise of the Option. The
determination by the Administrator as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
2.12 NOTICES. Any notice to be given under the terms of the Agreement
("NOTICE") shall be addressed to the Company in care of its Secretary at 2800 W.
Bayshore Road, Palo Alto, California 94303, or at its then current corporate
headquarters. Notice to be given to the Optionee shall be addressed to him or
her at his or her then current residential address as appearing on the Company's
payroll records.
Notice shall be deemed duly given when enclosed in a properly sealed
envelope and deposited by certified mail, return receipt requested, in a post
office or branch post office regularly maintained by the United States
Government.
2.13 TRANSFERABILITY OF OPTION. The Option shall not be transferable by the
Optionee other than by the Optionee's will or the laws of descent and
distribution and may be exercised during the life of the Optionee only by the
Optionee.
2.14 OPTIONEE NOT A SHAREHOLDER. The Optionee shall not be deemed for any
purposes to be a shareholder of the Company with respect to any of the Option
Shares except to the extent that the Option herein granted shall have been
exercised with respect thereto and a stock certificate issued therefor.
2.15 DISPUTES OR DISAGREEMENTS. As a condition of the granting of the
Option herein granted, the Optionee agrees, for himself and his personal
representatives, that any disputes or disagreements which may arise under or as
a result of or pursuant to this Agreement shall be determined by the
Administrator in its sole discretion, and that any interpretation by the
Administrator of the terms of this Agreement shall be final, binding and
conclusive.
2.16 GOVERNING LAW. This Agreement shall be performed in the State of
California, and all of the terms and provisions hereof shall be governed by, and
construed in accordance with the internal laws of the State of California.
2.17 RESTRICTIONS ON TRANSFER OF OPTION SHARES. As of the date hereof, the
Optionee has entered into that certain Stockholders Agreement by and among the
Company, B III Capital Partners, LP and certain of the stockholders of the
Company which provides for certain restrictions on the transferability of the
Option Shares. In addition Option Shares cannot be transferred by the Optionee
until such time as there is an effective registration of the Option Shares
pursuant to the Securities Act of 1933, as amended, or in the opinion of counsel
for the Company an exemption from registration is available. The Optionee
understands that the Company will permit the transfer of the Option Shares only
if, in the opinion of the Company's counsel, neither the sale nor the proposed
transfer of such Option Shares will result in a violation of any applicable
securities law, rule or regulation.
16
<PAGE>
2.18 LEGEND. All certificates representing the Option Shares to be issued
to the Optionee pursuant to this Agreement must contain a legend substantially
as follows:
"The shares represented by this certificate are subject to
restrictions set forth in a Restricted Stock Agreement dated
_____________, 1999 with this Company, and a Stockholders Agreement
dated as of November 24, 1999 copies of which are available for
inspection at the offices of the Company or will be made available
upon request."
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have
received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) the
transfer complies with all applicable state securities laws."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
by its duly authorized officer, and the Optionee has hereunto affixed his or her
signature.
ATTEST: SILICON GAMING, INC.,
a California corporation
- ------------------------------ By
Secretary --------------------------------------
Its
----------------------------------
COMPANY
--------------------------------------
OPTIONEE
18
<PAGE>
EXHIBIT B
RESTRICTED STOCK AGREEMENT
SILICON GAMING, INC.
This RESTRICTED STOCK AGREEMENT (the "AGREEMENT") is entered into as of the
______ day of ____________, _____ by and between Silicon Gaming, Inc. (the
"COMPANY"), a California corporation and ______________, the
_____________________ of the Company (the "EMPLOYEE").
W I T N E S S E T H
WHEREAS, pursuant to the provisions of the Silicon Gaming, Inc. 1999
Long-Term Compensation Plan (the "PLAN"), the Company desires to award to the
Employee restricted shares of the Company's Common Stock, par value $.001 per
share ("COMMON STOCK"), at the fair market value of the shares and in accordance
with the provisions of the Plan, all on the terms and conditions hereinafter set
forth; and
WHEREAS, Employee wishes to accept the Company's offer; and
WHEREAS, the parties hereto understand and agree that any terms used and
not defined in this Agreement have the meanings ascribed to them in the Plan;
and
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth and for other good and valuable consideration, the parties hereto agree as
follows:
1. TERMS OF AWARD. The Company awards to the Employee _________ shares of
the Company's Common Stock (the "SHARES") in accordance with the terms of this
Agreement, at a share price per share of $_____. Payment must be received by the
Company on the date of this Agreement. Payment may be made in cash or by
execution and delivery of a promissory note for all or any part of the purchase
price in substantially the form set forth on EXHIBIT A which note shall be
secured by a pledge of the Shares under a stock pledge agreement in
substantially the form set forth on EXHIBIT B.
2. PROVISIONS OF AGREEMENT CONTROLLING. The Employee specifically
understands and agrees that the Shares are being sold to the Employee pursuant
to the Plan. The Employee acknowledges he has read, understands and agrees to be
bound by the Plan. The provisions of the Plan are incorporated herein by
reference. In the event of a conflict between the terms and conditions of the
Plan and this Agreement, the provisions of the Plan will control. For purposes
of this Agreement, employment by the Company includes employment by any
Subsidiary of the Company.
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<PAGE>
3. COMPANY OPTION TO REPURCHASE SHARES.
If the Employee's employment is terminated by the Company or any Subsidiary
of the Company, by the Employee, or as a result of the Employee's disability or
death, the Company will have the option, but not the obligation, to repurchase
all or any part of the Shares purchased pursuant to this Agreement and then held
by the Employee on the date of such termination event. The following provisions
apply to a repurchase under this Section 3:
(a) The per share repurchase price for Shares under this Section 3
will be equal to:
(i) for vested Shares, the fair market value of each vested Share
determined by the Committee as of the date of termination, death or
disability; and
(ii) for unvested Shares, the amount of consideration paid to the
Company by the Employee for each unvested Share.
(b) The Company's option to repurchase the Shares will be valid for a
period of six (6) months commencing with the date of any termination. The
Employee may not transfer the Shares during such period.
(c) If the Company elects to exercise its option to repurchase the
Shares the Company must give written notice of its intent to repurchase the
Shares to the Employee or, in case of the Employee's death, his or her
representative. The written notice may be mailed by the Company at any time up
to and including the last day of the six (6) months following the date of the
Employee's termination, death or disability.
(d) The written notice to the Employee must specify the address at,
and the time and date on, which payment of the repurchase price is to be made
(the "CLOSING"). The date specified must not be less than ten (10) days nor more
than sixty (60) days from the date of the mailing of the notice. The Employee or
his or her successor in interest with respect to the Shares shall have no
further rights as the owner thereof from and after the date specified in the
notice. At the Closing, the Company will deliver the repurchase price to the
Employee or his or her successor in interest, and the Employee or his or her
successor in interest, will deliver the Shares being purchased duly endorsed for
transfer. Notwithstanding the immediately preceding sentence, if any part of the
consideration paid by the Employee to the Company for the purchase of the Shares
was in the form of a promissory note or other debt instrument, the repurchase
price will first be used to repay any outstanding balance owed by the Employee
to the Company for such purchase.
(e) If the Employee or his or her successor in interest fails to
deliver the Shares to be repurchased by the Company under this Agreement, the
Company may elect to (i) establish a segregated account in the amount of the
repurchase price to be turned over to the Employee or his or her successor in
interest upon delivery of the Shares, and (ii) immediately take any appropriate
action to transfer record title of the Shares from the Employee to the Company
and to treat the Employee and the Shares in all respects as if delivery of the
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<PAGE>
Shares had been made as required by this Agreement. The Employee hereby
irrevocably grants the Company a power of attorney which is coupled with an
interest for the purpose of effectuating the preceding sentence.
4. RESTRICTIONS ON TRANSFER OF SHARES. As of the date hereof, the Employee
has entered into that certain Stockholders Agreement by and among BIII Capital
Partners, LP and certain of the stockholders of the Company (the "STOCKHOLDERS
AGREEMENT") which provides for certain restrictions on the transferability of
the Shares. In addition, except pursuant to Section 3 above, unvested Shares
cannot be transferred by the Employee for any reason until they become vested,
and vested Shares cannot be transferred by the Employee until such time as there
is an effective registration of the Shares pursuant to the Securities Act of
1933, as amended, or in the opinion of counsel for the Company an exemption from
registration is available. The Employee understands that the Company will permit
the transfer of the Shares only if, in the opinion of the Company's counsel,
neither the sale nor the proposed transfer of such Shares will result in a
violation of any applicable securities law, rule or regulation.
5. VESTING OF RESTRICTED STOCK. Twenty percent of the Shares vest upon
issuance. The remaining eighty percent of the Shares vest at the rate of 1/48th
of the remaining shares per month on the last day of each successive calendar
month following the date of this Agreement so long as the Employee remains
employed by the Company. If the Employee's employment with the Company is
terminated as a result of death or disability any Shares that would have vested
within the 90 days following the termination of the Employee's employment with
the Company as a result of death or disability will vest upon the date of such
death or disability. In the event of a Change in Control (as defined in the
Plan), all unvested Shares will vest automatically on the date of such Change in
Control.
6. VOTING AND OTHER RIGHTS OF SHARES. Except for the restrictions set forth
in Sections 3, 4 and 5 above, the Employee will have any and all rights of a
stockholder of Common Stock of the Company, including voting rights, upon
issuance of the Shares.
7. ADDITIONAL SHARES. (a) If the Company pays a stock dividend or declares
a stock split on or with respect to any of its Common Stock, or otherwise
distributes securities of the Company to the holders of its Common Stock, the
number of shares of stock or other securities of the Company issued with respect
to the Shares then subject to the restrictions contained in this Agreement will
be added to the Shares subject to this Agreement and the Stockholders Agreement.
If the Company distributes to its stockholders shares of stock of another
corporation, the shares of stock of such other corporation, distributed with
respect to the Shares then subject to the restrictions contained in this
Agreement, will be added to the Shares subject to the Company's rights to
repurchase pursuant to this Agreement.
(b) If the outstanding shares of Common Stock of the Company are
subdivided into a greater number of shares or combined into a smaller number of
shares, or in the event of a reclassification of the outstanding shares of
Common Stock of the Company, or if the Company is a party to a merger,
consolidation or capital reorganization, the Shares then subject to the
restrictions contained in this Agreement immediately prior to such action will
21
<PAGE>
be substituted by such amount and kind of securities as are issued in such
subdivision, combination, reclassification, merger, consolidation or capital
reorganization.
(c) Any shares issued, distributed or otherwise transferred to the
Employee pursuant to this Section 7 will be subject to the vesting provisions of
Section 5, but only to the same extent that the underlying shares attributable
to the issuance, distribution or transfer under this Section 7 are subject to
the provisions of Section 5.
8. LEGENDS. All certificates representing the Shares to be issued to the
Employee pursuant to this Agreement must contain a legend substantially as
follows:
"The shares represented by this certificate are subject to
restrictions set forth in a Restricted Stock Agreement dated
____________, _____ with this Company, and a Stockholders Agreement
dated as of November 24, 1999 copies of which are available for
inspection at the offices of the Company or will be made available
upon request."
"The shares represented by this certificate have been taken for
investment and they may not be sold or otherwise transferred by any
person, including a pledgee, unless (1) either (a) a Registration
Statement with respect to such shares shall be effective under the
Securities Act of 1933, as amended, or (b) the Company shall have
received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) the
transfer complies with all applicable state securities laws."
9. NO OBLIGATION TO EMPLOY. This Agreement is not an employment agreement.
The Company is not obligated by the Plan or this Agreement to continue the
employment of the Employee.
10. PURCHASE FOR INVESTMENT. The Employee represents and warrants to the
Company that he or she is acquiring the Shares for his own account, for
investment, and not with a view to, or for sale in connection with, the
distribution of any such Shares.
11. NOTICES. Any notices required or permitted by the terms of this
Agreement or the Plan must be given by recognized courier service, facsimile,
registered or certified mail, return receipt requested, addressed as follows:
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To the Company:
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
To the Employee:
or to such other address or addresses of which notice in the same manner has
previously been given. Any such notice is deemed to have been given upon the
earlier of receipt, one business day following delivery to a recognized courier
service or three business days following mailing by registered or certified
mail.
12. GOVERNING LAW. This Agreement is to be construed and enforced in
accordance with the laws of the State of California.
13. BENEFIT OF AGREEMENT. Subject to the provisions of the Plan and the
other provisions hereof, this Agreement will be for the benefit of and will be
binding upon the heirs, executors, administrators, successors and assigns of the
parties hereto.
14. ENTIRE AGREEMENT. This Agreement, together with the Plan and the
Stockholders Agreement, embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior oral or written agreements and understandings relating to the subject
matter hereof. No statement, representation, warranty, covenant or agreement not
expressly set forth in this Agreement may affect or be used to interpret, change
or restrict, the express terms and provisions of this Agreement, provided,
however, in any event, this Agreement will be subject to and governed by the
Plan.
15. MODIFICATIONS AND AMENDMENTS. The terms and provisions of this
Agreement may be modified or amended as provided in the Plan.
16. WAIVERS AND CONSENTS. The terms and provisions of this Agreement may be
waived, or consent for the departure therefrom granted, only by written document
executed by both parties. No such waiver or consent will be deemed to be, or
will constitute, a waiver or consent with respect to any other terms or
provisions of this Agreement, whether or not similar. Each such waiver or
consent will be effective only in the specific instance and for the purpose for
which it was given, and will not constitute a continuing waiver or consent.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
a duly authorized officer, and the Employee has hereunto set his or her hand,
all as of the day and year first above written.
SILICON GAMING, INC.
-----------------------------------------
By: Andrew Pascal
President and Chief Executive Officer
EMPLOYEE
-----------------------------------------
24
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Stockholders Agreement"), dated as of
November 24, 1999, is entered into by and among Silicon Gaming, Inc., a
California corporation (the "COMPANY"), B III Capital Partners, L.P., a Delaware
limited partnership (the "PURCHASER"), the stockholders of the Company as
identified on the signature pages hereto (the "MANAGEMENT STOCKHOLDERS"), and
any other stockholder or optionholder who, from time to time, becomes party to
this Agreement by execution of a Joinder Agreement in substantially the same
form attached hereto as EXHIBIT A (the "OTHER STOCKHOLDERS"). The Management
Stockholders and the Other Stockholders are referred to herein collectively as
the "Stockholders" and individually as a "Stockholder."
This Stockholders Agreement is made pursuant to a certain Restructuring
Agreement, dated as of the date hereof, by and between the Company and the
Purchaser (the "RESTRUCTURING AGREEMENT"). In order to induce the Purchaser to
enter into the Restructuring Agreement and to consummate the terms thereof, the
Company and the Management Stockholders have agreed to provide certain rights
and assume certain obligations as set forth in this Stockholders Agreement. The
execution of this Stockholders Agreement is a condition to the closing of the
transactions contemplated by the Restructuring Agreement.
In consideration of the foregoing and the mutual agreements and covenants
hereinafter set forth, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS.
As used in this Stockholders Agreement, the following terms shall have the
following meanings:
"ACTUAL EFFECTIVE DATE" shall have the meaning set forth in Section 3.1(a).
"AFFILIATE" means, with respect to any specified Person, any other Person
(i) directly or indirectly controlling (including, but not limited to, all
directors and executive officers of such Person), controlled by or under direct
or indirect common control with such specified Person, or (ii) directly or
indirectly owning more than 10% of the voting securities of such Person. A
Person shall be deemed to control a corporation if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
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"BUSINESS DAY" means a day that is not a Saturday, Sunday or a day on which
banking institutions in New York City, New York, or Boston, Massachusetts, or at
such place of payment, are not required to be opened.
"CLOSING DATE" means November 24, 1999.
"COMMISSION" means the United States Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.001 per share, of the
Company.
"COMPANY" shall have the meaning set forth in the preamble and shall
include the Company's successors by merger, acquisition, reorganization or
otherwise.
"CONTROLLING PERSONS" shall have the meaning set forth in Section 4.1.
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of the Series D Preferred Stock or the Series E Preferred Stock and
all shares of Common Stock directly or indirectly issued or issuable in respect
of the Series D Preferred Stock or the Series E Preferred Stock including,
without limitation, shares of Common Stock issuable by way of adjustments to the
Conversion Price or the Conversion Ratio (as defined in the Series D Certificate
of Determination and the Series E Certificate of Determination), stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation, or other reorganization. For purposes of this
Stockholders Agreement, all references to holders of Series D Preferred Stock
convertible into a majority or other specified percentage of shares shall be
read as incorporating the assumption that all shares of Series D Preferred Stock
have been exercised or converted into Conversion Shares.
"DAMAGES" shall have the meaning set forth in Section 4.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"INSPECTORS" shall have the meaning set forth in Section 3.2(m).
"MARKET TRANSACTION" shall have the meaning set forth in Section 2.4.
"NASD" shall have the meaning set forth in Section 3.2(q).
"NASDAQ" shall have the meaning set forth in Section 3.2(o).
"OBJECTION NOTICE" shall have the meaning set forth in Section 3.2(a).
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"OBJECTING PARTY" shall have the meaning set forth in Section 3.2(a).
"PERMITTED TRANSFEREE" shall have the meaning set forth in Section 2.1.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization, government or other agency, or any political
subdivision thereof, or any other entity of whatever nature.
"PROSPECTUS" means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
"PURCHASER" or "PURCHASERS" means (i) B III Capital Partners, L.P., a
Delaware limited partnership, and (ii) each Person (other than the Company) to
whom a Purchaser transfers Series D Preferred Stock, Series E Preferred Stock or
Conversion Shares if such Person acquires such Conversion Shares as Registrable
Securities.
"PURCHASER'S COUNSEL" means Goodwin, Procter & Hoar LLP, special counsel to
the Purchaser, or any successor counsel selected by a Purchaser holding a
majority in interest of the Registrable Securities.
"RECORDS" shall have the meaning set forth in Section 3.2(m).
"REGISTRABLE SECURITIES" means the Conversion Shares; PROVIDED, HOWEVER,
that any Conversion Shares shall cease to be Registrable Securities when (i) a
Registration Statement covering such Registrable Securities has been declared
effective and such Registrable Securities have been disposed of pursuant to such
effective Registration Statement, or (ii) such Registrable Securities are
transferred to any Person other than Permitted Transferees pursuant to Rule
144(k) (or any successor rule or similar provision then in effect, but not Rule
144A) under the Securities Act, including a sale pursuant to the provisions of
Rule 144(k).
"REGISTRATION EXPENSES" shall have the meaning set forth in Section 3.3.
"RESTRUCTURING AGREEMENT" shall have the meaning set forth in the preamble
and pursuant to which the shares of Series D Preferred Stock and the warrants to
purchase Series E Preferred Stock are being issued, as amended, modified or
supplemented from time to time, together with any exhibits, schedules or other
attachments thereto.
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"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"SERIES D CERTIFICATE OF DETERMINATION" means the Certificate of
Determination for the Series D Preferred Stock of the Company filed with the
Secretary of State of California as of November 24, 1999 and effective as of the
date hereof.
"SERIES E CERTIFICATE OF DETERMINATION" means the Certificate of
Determination for the Series E Preferred Stock of the Company filed with the
Secretary of State of California as of November 24, 1999 and effective as of the
date hereof.
"SERIES D PREFERRED STOCK" means the Series D Convertible Preferred Stock,
par value $0.001 per share, of the Company having those rights and preferences
as set forth in the Series D Certificate of Determination.
"SERIES E PREFERRED STOCK" means the Series E Convertible Preferred Stock,
par value $0.001 per share, of the Company having those rights and preferences
as set forth in the Series E Certificate of Determination.
"SHARES" means the shares of Common Stock of the Company owned or held by
any of the Stockholders or any Permitted Transferee thereof, all shares of
Common Stock then held by the Stockholders and any Permitted Transferees
thereof, and any other equity securities now or hereafter issued by the Company,
together with any options, thereon and any other shares of stock issued or
issuable with respect thereto (whether by way of a stock dividend, stock split
or in exchange for or upon conversion of such shares or otherwise in connection
with a combination of shares, recapitalization, merger, consolidation or other
corporate reorganization).
"SHELF REGISTRATION STATEMENT" means a registration statement of the
Company on the appropriate form for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act that covers any of the Registrable
Securities pursuant to the provisions of this Stockholders Agreement, and all
amendments and supplements to any such registration statement, including
post-effective amendments, in each case including the Prospectus, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
"SUSPENSION NOTICE" shall have the meaning set forth in Section 3.2.
"SUSPENSION PERIOD" shall have the meaning set forth in Section 3.2.
"TARGET EFFECTIVE DATE" means the date which is 225 days after the date
hereof.
"TARGET EFFECTIVE PERIOD" shall have the meaning set forth in Section 3.1.
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"TARGET FILING DATE" shall mean the date which is 180 days after the date
hereof, or such other date subsequent thereto as the Purchaser shall request.
"TRANSFER" shall mean to sell, pledge, assign, hypothecate, grant a
security interest in or otherwise transfer.
SECTION 1.2 TERMS NOT DEFINED. Capitalized terms used herein but not herein
defined shall have the meanings ascribed to such terms in the Restructuring
Agreement.
ARTICLE II
RESTRICTIONS ON TRANSFER; DRAG-ALONG AND CO-SALE PROVISIONS
SECTION 2.1 RESTRICTIONS ON TRANSFER. So long as Purchaser holds equity
securities representing on a fully-diluted basis (assuming exercise and
conversion of all outstanding shares of Series D Preferred Stock, Series E
Preferred Stock, Series E Warrants and other options, warrants and other
convertible securities) at least 5% of the outstanding Common Stock of the
Company, each Stockholder agrees that it or he will not, without the prior
written consent of the holders of a majority of the then outstanding Series D
Preferred Stock, Transfer all or any portion of the Shares now owned or
hereafter acquired by it or him, except in connection with, and in compliance
with the conditions of, any of the following:
(a) Transfers effected pursuant to Sections 2.2, 2.3 in each case made
in accordance with the procedures set forth therein;
(b) Transfers by any Stockholder to (i) such Stockholder's spouse or
children or to a trust of which such Stockholder is the settlor and a trustee
for the benefit of his spouse or children, PROVIDED that any such trust or
entity does not require or permit distribution of such Shares during the term of
this Stockholders Agreement, and PROVIDED FURTHER that the transferee shall have
entered into a Joinder Agreement in the form attached as EXHIBIT A providing
that all Shares so Transferred shall continue to be subject to all provisions of
this Stockholders Agreement as if such Shares were still held by such
Stockholder; or (ii) to another Stockholder, except that no further Transfer
shall thereafter be permitted hereunder except in compliance with Sections 2.2
and 2.3;
(c) Transfers upon the death of any Stockholder to his heirs,
executors or administrators or to a trust under his will or Transfers between
such Stockholder and his guardian or conservator, PROVIDED that any transferee
shall have entered into a Joinder Agreement in substantially the form attached
as EXHIBIT A hereto, providing that all Shares so Transferred shall continue to
be subject to all provisions of this Stockholders Agreement as if such Shares
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<PAGE>
were still held by Stockholder, except that no further Transfer shall thereafter
be permitted hereunder except in compliance with Sections 2.2 and 2.3; and
(d) Transfers to the Company (to the extent permitted under the
restrictive covenants contained in the Restructuring Agreement) pursuant to the
Silicon Gaming, Inc. 1999 Long-Term Compensation Plan.
(e) Transfers pursuant to a Market Transaction. A "MARKET TRANSACTION"
shall mean any Transfer of the securities of the Company in which (i) such
shares are sold on a national securities exchange or over the counter market or
the Nasdaq Bulletin Board at the market price hereon; (ii) such shares are sold
through a "brokers' transaction" or in a transaction directly with a "market
maker," as such terms are defined in Rule 144(f) of the Rules promulgated under
the Securities Act of 1933, as amended; (iii) the Stockholder does not solicit
or arrange for the solicitation of orders to buy the shares in anticipation of
or in connection with such transactions; and (iv) the Stockholder does not make
any payment in connection with the sale of such shares to any person other than
commercially reasonable fees to the broker who executes the order to sell the
shares; PROVIDED, HOWEVER, that Market Transactions shall EXCLUDE transactions
in which one or more Stockholders sell or agree to sell Shares in a facilitated
block sale.
Any permitted transferee described in the preceding clauses (b) or (c)
shall be referred to herein as a "PERMITTED TRANSFEREE." Anything to the
contrary in this Stockholders Agreement notwithstanding, Permitted Transferees
shall take any Shares so Transferred subject to all provisions of this
Stockholders Agreement as if such Shares were still held by the Stockholder,
whether or not they so agree in writing.
SECTION 2.2 DRAG-ALONG.
(a) If after 30 months following the Closing Date holders of a
majority of the then outstanding Series D Preferred Stock, determine to sell or
otherwise dispose of all or substantially all of the assets of the Company or
all or substantially all of the capital stock of the Company owned by the
Purchaser to any Person other than an Affiliate of the Company or of the
Purchaser, or to cause the Company to merge with or into or consolidate with any
Person other than an Affiliate of the Company (in each case, the "BUYER") in a
bona fide negotiated transaction (a "SALE"), the Purchaser, the Management
Stockholders and the Other Stockholders, including any of their respective
Permitted Transferees, shall be obligated to and shall upon the written request
of the Purchaser: (i) sell, Transfer and deliver, or cause to be sold,
Transferred and delivered, to the Buyer, his, her or its Shares (including, for
this purpose, all of such stockholder's Shares that presently or as a result of
any such transaction may be acquired upon the exercise of options following the
payment of the exercise price therefor) on the same terms applicable to the
Purchasers (with appropriate adjustments to reflect the conversion of
convertible securities, the redemption of redeemable securities and the exercise
of exercisable securities as well as the relative preferences and priorities of
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the Series D Preferred Stock, Series E Preferred Stock and New Notes, but with
no control-premium adjustment); and (ii) execute and deliver such instruments of
conveyance and transfer and take such other action, including voting such Shares
in favor of any Sale proposed by the holders of a majority of the then
outstanding Series D Preferred Stock and executing any purchase agreements,
merger agreements, indemnity agreements, escrow agreements or related documents,
as such holders or the Buyer may reasonably require in order to carry out the
terms and provisions of this Section 2.2.
(b) Not less than thirty (30) days prior to the date proposed for the
closing of any Sale in accordance with Section 2.2(a) above, the Purchasers
shall give written notice to all Purchasers and Stockholders, setting forth in
reasonable detail the name or names of the Buyer, the terms and conditions of
the Sale, including the purchase price, and the proposed closing date of such
offer.
SECTION 2.3 CO-SALE OPTION OF PURCHASER. In the event that any Stockholder,
including any of its Permitted Transferees, receives a bona fide offer to
purchase all or any portion of the Shares held by such Stockholder or Permitted
Transferee (the "OFFER") from a person other than an Affiliate or Purchaser (the
"Offeror"), in a transaction other than a Market Transaction, such Stockholder
or its Permitted Transferee (the "TRANSFERRING STOCKHOLDER") may Transfer such
Shares only pursuant to and in accordance with the following provisions of this
Section 2.3:
(a) Such Transferring Stockholder shall cause the Offer and all of the
terms thereof to be reduced to writing and shall promptly notify each Purchaser
of his, her or its wish to accept the Offer and otherwise comply with the
provisions of this Section 2.3 and, if applicable, Section 2.3 (such notice, the
"OFFER NOTICE"). The Offer Notice shall be accompanied by a true copy of the
Offer (which shall identify the Offeror and all relevant information in
connection therewith).
(b) Upon receipt of an Offer Notice, each Purchaser shall have the
right to participate in the Offer with respect to any Conversion Shares by
giving written notice (the "ACCEPTANCE NOTICE") to the Transferring Stockholder
within thirty (30) days after receipt of the Offer Notice (the "CO-SALE
Option"). Each Acceptance Notice shall indicate the maximum number of shares the
Purchaser wishes to sell including the number of shares it would sell if one or
more other Purchasers do not elect to participate in the sale on the terms and
conditions stated in the Offer Notice. Any Purchaser holding Series D Preferred
or Series E Preferred shall be permitted to sell to the relevant Offeror in
connection with any exercise of the Co-Sale Option, at the Purchaser's option,
(i) shares of Common Stock acquired upon conversion of such Series D Preferred
Stock or Series E Preferred Stock; (ii) an option to acquire such Common Stock
when it receives the same upon such conversion at the election of such Purchaser
with the same effect as if Common Stock were being conveyed; or (iii) shares of
Series D Preferred Stock or Series E Preferred Stock.
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(c) Each Purchaser shall have the right to sell a portion of its
shares pursuant to the Offer which is equal to or less than the product obtained
by multiplying (i) the total number of Shares subject to the Offer and available
for sale to the Offeror by (ii) a fraction, the numerator of which is the total
number of shares owned by such Purchaser on the date of the Offer Notice on an
as converted basis (including all shares of Common Stock issuable upon
conversion of the Series D Preferred Stock and Series E Preferred Stock) and the
denominator of which is the total number of shares of Common Stock then held by
all Purchasers and shares then held by the Transferring Stockholder (including
any of his Permitted Transferees) on the date of the Offer Notice, also on an
as-converted basis and including (without duplication) all shares of Common
Stock issuable upon the conversion of the Series D Preferred Stock and Series E
Preferred Stock. Within five (5) days of the expiration of the 30-day period set
forth in (b) above, the Transferring Stockholder shall provide to each Purchaser
a notice setting forth the number of shares each Purchaser elects to sell under
its Co-Sale Option. To the extent one or more Purchasers elect not to sell, or
fail to exercise their rights to sell, the full amount of such shares which they
are entitled to sell pursuant to this Section 2.3, the right of Purchasers who
have elected to sell shares shall be increased proportionately based on their
relative holdings and such other Purchasers shall have an additional five (5)
business days from the date upon which they are notified of such election or
failure to receive the Second Offer Notice in which to increase the number of
shares to be sold by them hereunder by giving notice to such effect to the
Transferring Stockholder as provided herein.
(d) Within twenty (20) days after the date by which the Purchasers
were first required to notify the Transferring Stockholder of their intent to
participate, the Transferring Stockholder shall notify each participating
Purchaser of the number of shares held by such Purchaser that will be included
in the sale and the date on which the Offer will be consummated, which shall be
no later than the later of (i) sixty (60) days after the date by which the
Purchasers were first required to notify the Transferring Stockholder of their
intent to participate and (ii) the satisfaction of any governmental approval or
filing requirements, if any.
(e) A Purchaser may effect its participation in any Offer hereunder by
delivery to the Offeror, or to the Transferring Stockholder for delivery to the
Offeror, of one or more instruments or certificates, properly endorsed for
transfer, representing the shares it elects to sell therein, provided that no
Purchaser shall be required to make any representations or warranties or to
provide any indemnities in connection therewith other than with respect to title
to the stock being conveyed. At the time of consummation of the transaction
contemplated by the Offer, the Offeror shall remit directly to each
participating Purchaser that portion of the sale proceeds to which such
Purchaser is entitled by reason of its participation therein (less any
adjustments due to the conversion of any convertible securities or the exercise
of any exercisable securities). No Shares may be purchased by the Offeror from
the Transferring Stockholder or any of his or her Permitted Transferees unless
the Offeror simultaneously purchases from the participating Purchasers all of
the shares that they have elected to sell pursuant to this Section 2.3.
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(f) Any Shares held by a Transferring Stockholder which are the
subject of the Offer that the Transferring Stockholder desires to sell following
compliance with this Section 2.3 may be sold to the Offeror only during the
period specified in Section 2.3(d) and only on terms no more favorable to the
Transferring Stockholder than those contained in the Offer Notice. Promptly
after such sale, the Transferring Stockholder shall notify the Company, which in
turn shall promptly notify the Purchasers of the consummation thereof and shall
furnish such evidence of the completion and time of completion of such sale and
of the terms thereof as may reasonably be requested by the holders of a majority
interest of the Purchasers. So long as the Offeror is neither a party nor an
Affiliate of or relative of a party, to this Agreement, such Offeror shall take
the Shares so Transferred free and clear of any further restrictions of this
Article II other than as set forth in Section 2.3(g) below. In the event that
the Offer is not consummated within the period required by Section 2.3(d) or the
Offeror fails timely to remit to each participating Purchaser its portion of the
sale proceeds, the Offer shall be deemed to lapse, and any Transfers of Shares
pursuant to such Offer shall be deemed to be in violation of the provisions of
this Agreement unless the Transferring Stockholder once again complies with the
provisions of this Section 2.3 hereof with respect to such Offer.
(g) Anything to the contrary herein notwithstanding, any Shares
acquired by the Offeror pursuant to and in accordance with this Section 2.3
shall be subject to all the provisions of Section 2.2 of this Stockholders
Agreement as if such Shares were still held by the Transferring Stockholder
whether or not they so agree in writing. The Transferring Stockholder shall
cause the Offeror to execute a Joinder Agreement in the form of Exhibit B.
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 SHELF REGISTRATION.
(a) FILING; EFFECTIVENESS. Not later than the Target Filing Date, the
Company shall prepare and file with the Commission a Shelf Registration
Statement covering the resale of all of the Registrable Securities. The Company
shall use its best efforts to cause the Shelf Registration Statement to be
declared effective on or before the Target Effective Date and to keep such Shelf
Registration Statement continuously effective for a period (the "TARGET
EFFECTIVE PERIOD") following the date on which such Shelf Registration Statement
is declared effective (the "ACTUAL EFFECTIVE DATE"), which Target Effective
Period shall be equal to, with respect to each Purchaser, the longer of the
period of time between the Actual Effective Date and (i) the date which is 24
months following the Actual Effective Date, or (ii) the date on which all
Registrable Securities held by and issuable to the Purchaser may be sold under
Rule 144(k), provided that the Company first provides such Purchaser with an
opinion of counsel to such effect.
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(b) SUPPLEMENTS; AMENDMENTS. The Company agrees, if necessary, to
supplement or amend the Shelf Registration Statement, as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or as
requested (which request shall result in the filing of a supplement or
amendment) by any Purchaser of Registrable Securities to which such Shelf
Registration Statement relates, and the Company agrees to furnish to the
Purchaser, Purchaser's Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) LIQUIDATED DAMAGES. If the Shelf Registration Statement is not
filed on or before the Target Filing Date, the Company shall pay liquidated
damages to eac0h Purchaser in an amount equal to $0.25 per 10,000 Conversion
Shares held by such Purchaser per week beginning on the Target Filing Date. If
the Shelf Registration Statement is filed but has not become effective on or
before the Target Effective Date, the Company shall pay liquidated damages to
each Purchaser in an amount equal to $0.25 per 10,000 Conversion Shares held by
such Purchaser per week beginning on the Target Effective Date. The weekly
liquidated damages payable by the Company to each Purchaser as a result of a
late filing or a late declaration of effectiveness shall increase by an amount
equal to $0.25 per 10,000 Conversion Shares 90 days after the Target Filing Date
or the Target Effective Date, as the case may be. If a stop order is imposed or
if for any other reason the effectiveness of the Shelf Registration Statement is
suspended during the Target Effective Period, then the Company shall pay
liquidated damages to each Purchaser in an amount equal to $0.25 per 10,000
Conversion Shares per week beginning on the date of such stop order or other
suspension of effectiveness. The weekly liquidated damages payable by the
Company to each Purchaser as a result of the imposition of a stop order or such
other suspension of the effectiveness of the Shelf Registration Statement during
the Target Effective Period shall increase by an amount equal to $0.25 per
10,000 Conversion Shares 90 days after the stop order was imposed or the
effectiveness of the Shelf Registration Statement was otherwise suspended, and
shall thereafter increase by an amount equal to $0.025 per 10,000 Conversion
Shares at the end of each subsequent 90-day period so long as such stop order or
other suspension of the effectiveness of the Shelf Registration Statement
remains in effect. For purposes of the two preceding sentences, a Purchaser will
not be entitled to receive liquidated damages under this Stockholders Agreement
during a Suspension Period (as hereinafter defined) except to the extent
permitted by Section 3 of this Stockholders Agreement. The Conversion Shares
with respect to which liquidated damages shall accrue and be payable in
accordance with this Section 3.1(c) shall be those Registrable Securities held
by the Purchaser which are included or proposed to be included in the Shelf
Registration Statement.
The liquidated damages payable by the Company to the Purchaser pursuant
to this Section 3.1(c) shall be deemed to commence accruing on the day on which
the event triggering such liquidated damages occurs. Such liquidated damages
shall cease to accrue (i) with respect to the liquidated damages payable as a
result of the Company's failure to file the Shelf Registration Statement on or
prior to the Target Filing Date, on the day after the Shelf Registration
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Statement is filed, (ii) with respect to the liquidated damages payable as a
result of the Company's failure to have the Shelf Registration Statement
declared effective on or prior to the Target Effective Date, on the day after
the Shelf Registration Statement is declared effective, or (iii) with respect to
the liquidated damages payable as a result of the imposition of a stop order or
the suspension for any other reason of the effectiveness of the Shelf
Registration Statement, on the day after the stop order is withdrawn or the
effectiveness of the Shelf Registration Statement is otherwise reinstated.
Notwithstanding the foregoing, if the sole reason why (i) the Company has
not filed the Shelf Registration Statement on or before the Target Filing Date
and/or (ii) the Shelf Registration Statement has not become effective on or
before the Target Effective Date is because a Purchaser did not provide the
Company with information which is required to be disclosed in the Shelf
Registration Statement and which the Company requested such Purchaser to so
provide in writing at least 15 days prior to the Target Filing Date and/or the
Target Effective Date, as the case may be, the Company's obligation to pay
liquidated damages with respect to such late filing or such late declaration of
effectiveness will not begin to accrue until five days after such Purchaser has
provided such information to the Company.
The Company shall pay the liquidated damages due with respect to any
Registrable Securities at the end of each week during which such liquidated
damages accrue. Liquidated damages shall be paid to the Purchaser of Registrable
Securities entitled to receive such liquidated damages by wire transfer in
immediately available funds to the accounts designated by such Purchaser.
The parties hereto agree that the liquidated damages provided for in this
Section 3.1(c) and in Section 3.2 constitute a reasonable estimate as of the
date hereof of the damages that will be suffered by Purchaser of Registrable
Securities by reason of the failure of the Shelf Registration Statement to be
filed, to be declared effective and/or to remain effective, as the case may be,
in accordance with this Stockholders Agreement.
(d) EFFECTIVE REGISTRATION. A registration will not be deemed to have
been effected as a Shelf Registration Statement unless the Shelf Registration
Statement with respect thereto has been declared effective by the Commission and
the Company has complied in all material respects with its obligations under
this Stockholders Agreement with respect thereto; PROVIDED, HOWEVER, that if
after a Shelf Registration Statement has been declared effective, the offering
of Registrable Securities pursuant to such Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, such Shelf
Registration Statement will be deemed not to have become effective during the
period of such interference (and liquidated damages shall accrue and be payable
under Section 3.1(c)) until the offering of Registrable Securities pursuant to
such Shelf Registration Statement may legally resume. If a registration
requested pursuant to this Article III is deemed not to have been effected, then
the Company shall continue to be obligated to effect a registration pursuant to
this Section 3.
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SECTION 3.2 REGISTRATION PROCEDURES.
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and conditions
of this Stockholders Agreement:
(a) The Company shall prepare and file with the Commission a Shelf
Registration Statement on the appropriate form under the Securities Act, which
Shelf Registration Statement shall comply as to form in all material respects
with the requirements of the applicable form and include all financial
statements required by the Commission to be filed therewith, and use its best
efforts to cause such Shelf Registration Statement to become effective and
remain effective in accordance with the provisions of this Stockholders
Agreement; PROVIDED, HOWEVER, that, at least ten Business Days prior to filing a
Shelf Registration Statement or Prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial filing
of the Shelf Registration Statement, the Company shall furnish to the Purchaser
of the Registrable Securities covered by such Shelf Registration Statement,
Purchaser's Counsel and the underwriters, if any, draft copies of all such
documents proposed to be filed, which documents will be subject to the review of
Purchaser's Counsel and the underwriters, if any, and the Company will not,
unless required by law or this Stockholders Agreement, file any Shelf
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto to which Purchaser holding a majority in interest of the Registrable
Securities covered by such Shelf Registration Statement or the underwriters with
respect to such Securities, if any, shall object; PROVIDED, HOWEVER, that any
such objection to the filing of any Shelf Registration Statement or amendment
thereto or any Prospectus or supplement thereto shall be made by written notice
(the "OBJECTION NOTICE") delivered to the Company no later than five Business
Days after the party or parties asserting such objection or their counsel (the
"OBJECTING PARTY") receives draft copies of the documents that the Company
proposes to file. The Objection Notice shall set forth the objections and the
specific areas in the draft documents where such objections arise. The Company
shall have five Business Days after receipt of the Objection Notice to correct
such deficiencies to the satisfaction of the Objecting Party, and will notify
each Purchaser of any stop order issued or threatened by the Commission in
connection therewith and shall use its best efforts to prevent the entry of such
stop order or, if entered, to have such stop order withdrawn at the earliest
possible moment. Liquidated damages under Section 3.1(c) shall be tolled and
shall not begin to accrue until the day next following the five Business Day
correction period provided in the immediately preceding sentence.
(b) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to such Shelf Registration
Statement as may be necessary to keep such Shelf Registration Statement
effective for as long as the Company is required to keep such Shelf Registration
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Statement effective pursuant to the terms hereof; shall cause the Prospectus to
be supplemented by any required Prospectus supplement, and, as so supplemented,
to be filed pursuant to Rule 424 under the Securities Act; and shall comply with
the provisions of the Securities Act applicable to it with respect to the
disposition of all Registrable Securities covered by such Shelf Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Purchaser set forth in such Shelf Registration Statement
or amendment thereto or such Prospectus or supplement thereto;
(c) The Company shall promptly furnish to any Purchaser of Registrable
Securities included in a Shelf Registration Statement and the underwriters, if
any, without charge, a reasonable quantity of conformed copies of such Shelf
Registration Statement and any post-effective amendment thereto and such
reasonable quantity of copies of the Prospectus (including each preliminary
Prospectus) and any amendments or supplements thereto, any documents
incorporated by reference therein and such other documents as any such Purchaser
or underwriter may request in order to facilitate the public sale or other
disposition of the Registrable Securities being sold by such Purchaser (it being
understood that the Company consents to the use of the Prospectus and any
amendment or supplement thereto by each Purchaser selling Registrable Securities
and each underwriter, if any, in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto).
(d) The Company shall, on or prior to the date on which a Shelf
Registration Statement is declared effective, (i) use its best efforts to
register or qualify the Registrable Securities covered by such Shelf
Registration Statement under the securities or "blue sky" laws of each of the 50
states of the United States or obtain appropriate exemptions therefrom; (ii) do
any and all other acts and things which may be necessary or advisable to enable
the Purchaser of Registrable Securities included in such Shelf Registration
Statement to consummate the disposition of such Registrable Securities in
accordance with their intended method of disposition thereof; (iii) use its best
efforts to keep each such state securities or "blue sky" registration or
qualification (or exemption therefrom) effective during the period in which the
Company is required to keep such Shelf Registration Statement effective; and
(iv) do any and all other acts or things which may be necessary or advisable to
enable the Purchaser of Registrable Securities included in such Shelf
Registration Statement to complete the disposition in such jurisdictions of such
Registrable Securities in accordance with their intended method of disposition
thereof; PROVIDED, HOWEVER, that the Company shall not be required (x) to
qualify to do business in any jurisdiction where it would not otherwise be
required to so qualify but for this Section 3(d) or (y) to file any general
consent to service of process.
(e) The Company shall use its best efforts to cause the Registrable
Securities covered by a Shelf Registration Statement to be registered with or
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approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the Purchaser
to consummate the disposition of such Registrable Securities in accordance with
their intended method of disposition thereof.
(f) The Company shall promptly notify each Purchaser of Registrable
Securities included in a Shelf Registration Statement, Purchaser's Counsel and
any underwriter and (if requested by any such Person) confirm such notice in
writing (i) when such Shelf Registration Statement or a Prospectus or any
post-effective amendment or any Prospectus supplement has been filed and, with
respect to such Shelf Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the Commission or any
state securities authority for amendments and supplements to such Shelf
Registration Statement and Prospectus or for additional information after such
Shelf Registration Statement has become effective, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such Shelf
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iv) of the issuance by any state securities commission or other
regulatory authority of any order suspending the registration or qualification
or exemption from registration or qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, (v) if, between the effective date of such Shelf
Registration Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering of such Registrable Securities cease
to be true and correct in all material respects, and (vi) of the happening of
any event which makes any statement of a material fact made in such Shelf
Registration Statement or related Prospectus untrue or which requires the making
of any changes in such Shelf Registration Statement or Prospectus so that such
Shelf Registration Statement or Prospectus will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, as promptly as
practicable thereafter, prepare and file an amendment to such Shelf Registration
Statement with the Commission and furnish to any such Purchaser and any
underwriter a supplement or amendment to such Prospectus so that, as thereafter
deliverable to the Purchaser of such Registrable Securities, such Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) The Company shall make generally available to the Purchaser of
Registrable Securities included in a Shelf Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 45 days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date of
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such Shelf Registration Statement, which earnings statement shall cover said
12-month period, and which requirement will be deemed to be satisfied if the
Company timely files complete and accurate information on Forms 10-Q, 10-K and
8-K under the Exchange Act and otherwise complies with Rule 158 under the
Securities Act.
(h) The Company shall use its best efforts to prevent the issuance of
any order suspending the effectiveness of a Shelf Registration Statement, and,
if any such order suspending the effectiveness of a Shelf Registration Statement
is issued, shall promptly use its best efforts to obtain the withdrawal of such
order at the earliest possible moment.
(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, Purchaser's Counsel or any Purchaser of Registrable
Securities included in a Shelf Registration Statement, promptly incorporate in a
Prospectus supplement or post-effective amendment such information as such
managing underwriter or underwriters, Purchaser or Purchaser's Counsel requests
to be included therein, including, without limitation, with respect to the
Registrable Securities being sold by such Purchaser to such underwriter or
underwriters, the purchase price being paid therefor by such underwriter or
underwriters and any other terms of an underwritten offering of the Registrable
Securities to be sold in such offering, and the Company shall promptly make all
required filings of such Prospectus supplement or post-effective amendment.
(j) After the filing with the Commission of any document which is
incorporated by reference into a Shelf Registration Statement (in the form in
which it was incorporated), the Company shall, upon request, promptly deliver a
copy of each such document to each of the Purchaser of Registrable Securities
included in such Shelf Registration Statement so requesting and to Purchaser's
Counsel.
(k) The Company shall cooperate with the Purchaser of Registrable
Securities included in a Shelf Registration Statement and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends unless
required under applicable law) representing Registrable Securities sold under
such Shelf Registration Statement to the Purchaser thereof, and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or such Purchaser may
request and keep available and make available to the Company's transfer agent
prior to the effectiveness of such Shelf Registration Statement a supply of such
certificates.
(l) The Company shall enter into such customary agreements (including,
if applicable, an underwriting agreement in customary form) and take such other
actions as the Purchaser of Registrable Securities included in a Shelf
Registration Statement or the underwriters, if any, may reasonably request in
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order to expedite or facilitate the disposition of Registrable Securities (any
such Purchaser may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of any underwriters also be made to and for the benefit of such Purchaser).
(m) The Company shall promptly make available to each Purchaser of
Registrable Securities included in a Shelf Registration Statement, any
underwriter and any attorney, accountant or other agent or representative
retained by any such Purchaser or underwriter (collectively, the "INSPECTORS"),
all financial and other records, pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all Records and other
information requested by any such Inspector in connection with such Shelf
Registration Statement.
(n) The Company shall furnish to each Purchaser of Registrable
Securities included in a Shelf Registration Statement and to any underwriter,
upon request, a signed counterpart, addressed to such Purchaser or underwriter,
of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort
letter or comfort letters from the Company's independent public accountants,
each in customary form and covering matters of the type customarily covered by
opinions or comfort letters, as the case may be.
(o) The Company shall use its best efforts to cause the Registrable
Securities included in a Shelf Registration Statement (if the Company and the
Registrable Securities so qualify) (i) to be listed on each national securities
exchange, if any, on which similar securities issued by the Company are then
listed, or (ii) if similar securities issued by the Company are not then listed,
to be authorized for listing or quotation, as applicable, on the New York Stock
Exchange or The Nasdaq Stock Market, Inc.'s ("Nasdaq") National Market.
(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Shelf Registration Statement not later than the
effective date of such Shelf Registration Statement.
(q) The Company shall cooperate with each Purchaser of Registrable
Securities included in a Shelf Registration Statement and each underwriter and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. ("NASD").
(r) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all documents
required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act.
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(s) The Company shall appoint a transfer agent and registrar for all
Registrable Securities covered by a Shelf Registration Statement not later than
the effective date of such Shelf Registration Statement.
(t) In connection with an underwritten offering, the Company shall
participate, to the extent reasonably requested by the managing underwriter for
the offering or the Purchaser of Registrable Securities included in such
offering, in customary efforts to sell the securities being offered, including
without limitation, participating in "road shows."
(u) If the Registrable Securities are of a class of securities that is
listed on a national securities exchange or Nasdaq, the Company will file copies
of any Prospectus with such exchange or Nasdaq, as applicable, in compliance
with Rule 153 under the Securities Act so that the Purchaser shall benefit from
the prospectus delivery procedures described therein.
Each Purchaser of Registrable Securities included in a Shelf Registration
Statement, upon receipt of any notice (a "SUSPENSION NOTICE") from the Company
of the happening of any event of the kind described in Section 3.2(f)(ii)
through (vi), shall forthwith discontinue disposition of the Registrable
Securities pursuant to such Shelf Registration Statement covering such
Registrable Securities until such Purchaser's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.2(f) or until such
Purchaser is advised in writing (the "ADVICE") by the Company that the use of
the Prospectus may be resumed, and such Purchaser has received copies of any
additional or supplemental filings which are incorporated by reference in the
Prospectus, and, if so directed by the Company, such Purchaser will, or will
request the managing underwriter or underwriters, if any, to, deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Purchaser's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; PROVIDED, HOWEVER,
that the Company shall not give a Suspension Notice until after the Shelf
Registration Statement has been declared effective and shall not give more than
three Suspension Notices during any period of twelve consecutive months and in
no event shall the period from the date on which any such Purchaser receives a
Suspension Notice to the date on which any such Purchaser receives either the
Advice or copies of the supplemented or amended Prospectus contemplated by
Section 3.2(f) (the "SUSPENSION PERIOD") exceed 30 days. In the event that the
Company shall give any Suspension Notice, (i) the Company shall use its best
efforts and take such actions as are reasonably necessary to render the Advice
and end the Suspension Period as promptly as practicable and (ii) the time
periods for which a Shelf Registration Statement is required to be kept
effective pursuant to Section 3.1 hereof shall be extended by the number of days
during the Suspension Period.
If the Suspension Period exceeds 30 days, the Company shall pay liquidated
damages to each Purchaser in the amount of $0.25 per 10,000 Conversion Shares
included in the Shelf Registration Statement for each week during which the
Suspension Period is in effect. The weekly liquidated damages payable by the
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Company to each Purchaser as a result of the continuance of a Suspension Period
shall increase by an amount equal to $0.25 per 10,000 Conversion Shares 60 days
after receipt of the Suspension Notice. The Company shall pay the liquidated
damages due with respect to any Registrable Securities at the end of each week
during which such damages accrue. Liquidated damages shall be paid to the
Purchaser of Registrable Securities entitled to receive such liquidated damages
by wire transfer in immediately available funds to the accounts designated by
such Purchaser.
If any Shelf Registration Statement refers to any Purchaser by name or
otherwise as the Purchaser of any securities of the Company, then such Purchaser
shall have the right to require (i) the insertion therein of language, in form
and substance reasonably satisfactory to such Purchaser, to the effect that the
holding by such Purchaser of such securities is not to be construed as a
recommendation by such Purchaser of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such
Purchaser will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such Purchaser by name or
otherwise is not required by the Securities Act or any similar Federal or state
securities or "blue sky" statute and the rules and regulations thereunder then
in force, the deletion of the reference to such Purchaser.
SECTION 3.3 REGISTRATION EXPENSES. Any and all expenses incident to the
Company's performance of or compliance with this Stockholders Agreement,
including without limitation, all Commission and securities exchange, Nasdaq or
NASD registration and filing fees, all fees and expenses incurred in connection
with compliance with state securities or "blue sky" laws (including reasonable
fees and disbursements of one counsel for the Purchaser or underwriters in
connection with "blue sky" qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), all expenses for
word processing, printing and distributing any Shelf Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Stockholders Agreement, the fees and expenses of the
Company incurred in connection with the listing of the Registrable Securities,
the fees and disbursements of counsel for the Company and of the independent
certified public accountants of the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letters requested pursuant to
Section 3.2(n)), Securities Act liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
or other Persons retained by the Company in connection with any registration,
and the reasonable fees and disbursements of Purchaser's Counsel incurred in
connection with each registration hereunder (up to a maximum of $10,000) and any
reasonable out-of-pocket expenses of the Purchaser and their agents, including
any reasonable travel costs (but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities) (all such expenses being herein called "REGISTRATION
EXPENSES"), will be borne by the Company whether or not the Shelf Registration
Statement to which such expenses relate becomes effective.
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ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless, to the full extent permitted by law, each Purchaser, its
partners, members, officers, directors, trustees, stockholders, employees,
agents and investment advisers, and each Person who controls such Purchaser
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, or is under common control with, or is controlled by, such
Purchaser, together with the partners, members, officers, directors, trustees,
stockholders, employees, agents and investment advisors of such controlling
Person (collectively, the "CONTROLLING PERSONS"), from and against all losses,
claims, damages, liabilities and expenses (including, without limitation, any
legal or other fees and expenses incurred by any Purchaser or any such
Controlling Person in connection with defending or investigating any action or
claim in respect thereof) (collectively, the "DAMAGES") to which such Purchaser,
its partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and any such Controlling Person, may become subject under
the Securities Act or otherwise, insofar as such Damages (or proceedings in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in any Shelf Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities were registered
under the Securities Act, including all documents incorporated therein by
reference, or are caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or are caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company shall not be liable
for Damages to any Purchaser under this Section 4.1 to the extent that any such
Damages (i) arise out of or are based upon any such untrue statement or omission
which is based upon information relating to such Purchaser furnished in writing
to the Company by such Purchaser expressly for use in any such Shelf
Registration Statement (or any amendment thereto) or Prospectus (or amendment or
supplement thereto); or (ii) were caused by the fact that such Purchaser sold
Securities to a Person as to whom it shall be established that there was not
sent or given, or deemed sent or given pursuant to Rule 153 under the Securities
Act, at the time of or prior to the written confirmation of such sale, a copy of
the Prospectus as then amended or supplemented if, and only if, (a) the Company
has previously furnished copies of such amended or supplemented Prospectus to
such Purchaser and (b) such Damages were caused by any untrue statement or
omission or alleged untrue statement or omission contained in the Prospectus so
delivered which was corrected in such amended or supplemented Prospectus. In
connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers and directors and each Person who controls
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such underwriters (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Purchaser of Registrable Securities except
with respect to information provided by the underwriter specifically for
inclusion therein.
SECTION 4.2 INDEMNIFICATION BY THE PURCHASER. In connection with any Shelf
Registration Statement in which a Purchaser is participating, each such
Purchaser agrees, severally and not jointly, to indemnify and hold harmless the
Company, its directors and officers and each Person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act from and against all Damages to the same extent as the
foregoing indemnity from the Company to such Purchaser, but only to the extent
such Damages arise out of or are based upon any untrue statement of a material
fact contained in any Shelf Registration Statement (or any amendment thereto) or
Prospectus (or any amendment or supplement thereto) or are caused by any
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, which untrue statement or omission is based upon information
relating to such Purchaser furnished in writing to the Company by such Purchaser
expressly for use in any such Shelf Registration Statement (or any amendment
thereto) or any such Prospectus (or any amendment or supplement thereto);
PROVIDED, HOWEVER, that such Purchaser shall not be obligated to provide such
indemnity to the extent that such Damages result from the failure of the Company
to promptly amend or take action to correct or supplement any such Shelf
Registration Statement or Prospectus on the basis of corrected or supplemental
information furnished in writing to the Company by such Purchaser expressly for
such purpose. In no event shall the liability of any Purchaser of Registrable
Securities hereunder be greater in amount than the dollar amount of the net
proceeds received by such Purchaser upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
SECTION 4.3 INDEMNIFICATION PROCEDURES. In case any proceeding (including
any governmental investigation) shall be instituted involving any Person in
respect of which indemnity may be sought pursuant to either Section 4.1 or 4.2
above, such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person
against whom such indemnity may be sought (the "indemnifying Party") in writing
and the indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party and any others the indemnifying party may designate in such
proceedings and shall pay the fees and disbursements of such counsel relating to
such proceeding. The failure of an indemnified party to notify the Indemnifying
Party with respect to a particular proceeding shall not relieve the Indemnifying
Party from any obligation or liability (i) which it may have pursuant to this
Stockholders Agreement if the Indemnifying Party is not substantially prejudiced
by such failure to so notify it or (ii) which it may have otherwise than
pursuant to this Stockholders Agreement. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
Indemnifying Party and the indemnified party shall have mutually agreed to the
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retention of such counsel, or (ii) the Indemnifying Party fails promptly to
assume the defense of such proceeding or fails to employ counsel reasonably
satisfactory to such indemnified party, or (iii) (A) the named parties to any
such proceeding (including any impleaded parties) include both such indemnified
party or an Affiliate of such indemnified party and any Indemnifying Party or an
Affiliate of such Indemnifying Party, (B) there may be one or more defenses
available to such indemnified party or such Affiliate of such indemnified party
that are different from or additional to those available to any Indemnifying
Party or such Affiliate of any Indemnifying Party and (C) such indemnified party
shall have been advised by such counsel that there may exist a conflict of
interest between or among such indemnified party or such Affiliate of such
indemnified party and any Indemnifying Party or such Affiliate of any
Indemnifying Party, in which case, if such indemnified party notifies the
Indemnifying Party in writing that it elects to employ separate counsel of its
choice at the expense of the Indemnifying Party, the Indemnifying Party shall
not have the right to assume the defense thereof and such counsel shall be at
the expense of the Indemnifying Party, it being understood, however, that unless
there exists a conflict among indemnified parties, the indemnifying parties
shall not, in connection with any one such proceeding or separate but
substantially similar or related proceedings in the same jurisdiction, arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (together with appropriate
local counsel) at any time for such indemnified parties. The Indemnifying Party
shall not be liable for any settlement of any proceeding effected without its
written consent (which consent shall not be unreasonably withheld) but, if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify each indemnified party from and against
any loss or liability by reason of such settlement or judgment. No Indemnifying
Party shall, without the prior written consent of any indemnified party (which
consent shall not be unreasonably withheld), effect any settlement of any
pending or threatened proceeding in respect of which such indemnified party is a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on all claims that are the subject matter of such
proceeding with no payment by such indemnified party of consideration.
SECTION 4.4 CONTRIBUTION. If the indemnification from the Indemnifying
Party provided for in this Article IV is found, pursuant to a final judicial
determination not subject to appeal, to be unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities, or expenses
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities, or
expenses in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party and the indemnified parties in connection with the
actions that resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative fault of
such Indemnifying Party and indemnified parties shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact, has been made by, or relates to information supplied
21
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by, such Indemnifying Party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 4.3, any legal or other
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 4.4 were determined by PRO RATA allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 4.4, no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission, and no selling Purchaser shall be required
to contribute any amount in excess of the amount by which the total net proceeds
received by such selling Purchaser with respect to Registrable Securities sold
by such selling Purchaser exceeds the amount of any damages which such selling
Purchaser has otherwise been required to pay by reason of such untrue statement
or alleged untrue statement or omission or alleged omission. Each Purchaser's
obligation to contribute pursuant to this Section 4.4 is several and not joint
and shall be determined by reference to the proportion that the net proceeds of
the offering received by such Purchaser bears to the total net proceeds of the
offering received by all the Purchasers. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Article IV are
not exclusive and shall not limit any rights or remedies that may otherwise be
available to any indemnified party at law or in equity.
If indemnification is available under this Article IV, the Indemnifying
Party shall indemnify each indemnified party to the full extent provided in
Sections 4.1 or 4.2 without regard to the relative fault of said Indemnifying
Party or indemnified party or any other equitable consideration provided for in
this Section 4.4.
ARTICLE V
COVENANTS
SECTION 5.1 RULE 144. The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
Purchaser, make publicly available other information so long as necessary to
permit sales of the Registrable Securities pursuant to Rule 144 under the
Securities Act), and it will take such further action as any Purchaser may
reasonably request, all to the extent required from time to time to enable such
Purchaser to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
22
<PAGE>
under the Securities Act, as such Rule may be amended from time to time, or (b)
any successor rule or similar provision hereafter adopted by the Commission.
Upon the request of any Purchaser, the Company will deliver to such Purchaser a
written statement as to whether it has complied with such requirements.
SECTION 5.2 RULE 144A. The Company covenants that it will file all
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or if
the Company is not required to file such reports, it will, upon the request of
any Purchaser, make available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144A under the Securities
Act), and it will take such further action as any Purchaser may reasonably
request, all to the extent required from time to time to enable such Purchaser
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144A, as such rule
may be amended from time to time, or (b) any successor rule or similar provision
hereafter adopted by the Commission. Upon the request of any Purchaser, the
Company will deliver to such Purchaser a written statement as to whether it has
complied with such requirements.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 NO INCONSISTENT AGREEMENTS. The Company has not entered into
nor will the Company on or after the date of this Stockholders Agreement enter
into any agreement which is inconsistent with the rights granted to the holder
of Registrable Securities in this Stockholders Agreement or otherwise conflicts
with the provisions hereof. The rights granted to the parties hereunder do not
in any way conflict with, and are not inconsistent with, the rights granted to
the holders of the Company's other issued and outstanding securities under any
such agreements. The Company may grant registration rights that would permit any
Person the right to piggy-back or may itself exercise its right to piggy-back,
on any Shelf Registration Statement, PROVIDED that if the managing underwriter
or underwriters, if any, of such offering delivers an opinion to the holder that
the total amount of securities which they and the Purchaser of such new
piggy-back rights intend to include in any Shelf Registration Statement is so
large as to materially and adversely affect the success of such offering
(including the price at which such securities can be sold), then only the
amount, number or kind of securities to be offered for the account of holder of
such new piggy-back rights (other than the Company) will be reduced to the
extent necessary to reduce the total amount of securities to be included in such
Shelf Registration Statement to the amount, number or kind recommended by the
managing underwriter prior to any reduction in the amount of Registrable
Securities to be included; and PROVIDED FURTHER that if such offering is not
underwritten, then such piggy-back rights shall only be exercised with the
consent of the holders of a majority of the Conversion Shares being offered
under such Shelf Registration Statement.
23
<PAGE>
SECTION 6.2 AMENDMENTS AND WAIVERS. The provisions of thi0s Stockholders
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of Purchasers holding a majority of Conversion Shares which are affected
by such amendment, modification, supplement, waiver or consent.
SECTION 6.3 NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery.
SECTION 6.4 SUCCESSORS AND ASSIGNS. This Stockholders Agreement shall inure
to the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Purchasers. If any transferee of any Purchaser
shall acquire Registrable Securities in any manner, whether by operation of law
or otherwise, such Registrable Securities shall be held subject to all of the
terms of this Stockholders Agreement, and by taking and holding such Registrable
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Stockholders Agreement
and such Person shall be entitled to receive the benefits hereof.
SECTION 6.5 COUNTERPARTS. This Stockholders Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
SECTION 6.6 HEADINGS. The headings in this Stockholders Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 6.7 GOVERNING LAW. This Stockholders Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to principles or rules of conflicts of law.
24
<PAGE>
SECTION 6.8 SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
impaired thereby, it being intended that all of the rights and privileges of the
Purchaser shall be enforceable to the fullest extent permitted by law.
SECTION 6.9 ENTIRE AGREEMENT. This Stockholders Agreement is intended by
the parties as a final expression of their agreement and is intended to be the
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Stockholders Agreement, the Restructuring Agreement
and the Securities Purchase Agreement supersede all prior agreements and
understandings between the parties with respect to such subject matter.
SECTION 6.10 ATTORNEYS' FEES. In any action or proceeding brought to
enforce any provision of this Stockholders Agreement 0or where any provision
hereof is validly asserted as a defense, the successful party shall, to th0e
extent permitted by applicable law, be entitled to recover reasonable attorneys'
fees in addition to any other available remedy.
SECTION 6.11 FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Stockholders Agreement and the transactions
contemplated hereby.
SECTION 6.12 REMEDIES. In the event of a breach or a threatened breach by
any party to this Stockholders Agreement of its obligations under this
Stockholders Agreement, any party injured or to be injured by such breach will
be entitled to specific performance of its rights under this Stockholders
Agreement or to injunctive relief, in addition to being entitled to all rights
provided in this Stockholders Agreement and granted by law. The parties agree
that the provisions of this Stockholders Agreement shall be specifically
enforceable, it being agreed by the parties that remedies at law for violations
hereof including monetary damages, are inadequate and that the right to object
in any action for specific performance or injunctive relief hereunder on the
basis that a remedy at law would be adequate is waived.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
SILICON GAMING, INC.
By:
-------------------------------------
Name: Andrew Pascal
Title: President and Chief
Executive Officer
Notice Information:
Mr. Andrew Pascal
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
Phone: (650) 842-9000
Fax: (650) 842-9001
26
<PAGE>
PURCHASER
B III CAPITAL PARTNERS, L.P.,
a Delaware limited partnership
By: DDJ CAPITAL III, LLC,
its General Partner
By: DDJ CAPITAL MANAGEMENT, LLC,
its Manager
By:
-------------------------------------
Name:
Title:
Notice Information:
Ms. Judy K. Mencher
DDJ Capital Management, LLC
141 Linden Street, Suite S-4
Wellesley, Massachusetts 02181
Phone: (617) 283-8500
Fax: (617) 283-8555
27
<PAGE>
MANAGEMENT STOCKHOLDERS
-----------------------------------------
Andrew Pascal
Notice Information:
c/o Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
fax: (702) 260-9010
-----------------------------------------
Robert Reis
Notice Information:
c/o Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
fax: (702) 260-9010
-----------------------------------------
Paul Matthews
Notice Information:
c/o Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
fax: (702) 260-9010
-----------------------------------------
Stanford Springel
28
<PAGE>
Notice Information:
-----------------------------------------
John Penver
Notice Information:
c/o Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
fax: (702) 260-9010
-----------------------------------------
Paul Miltenberger
Notice Information:
-----------------------------------------
Betsy Sutter
Notice Information:
-----------------------------------------
Michael Fields
Notice Information:
-----------------------------------------
Charles Berg
Notice Information:
29
<PAGE>
EXHIBIT A
FORM OF JOINDER AGREEMENT
The undersigned hereby agrees, effective as of [date], to become a party to
that certain Stockholders Agreement (the "Stockholders Agreement") dated as of
November 24, 1999 by and among Silicon Gaming, Inc. (The "Company") and the
parties named therein and for all purposes of the Stockholders Agreement, the
undersigned shall be included within the term "Other Stockholder" (as defined in
the Stockholders Agreement). The address and facsimile number to which notices
may be sent to the undersigned is as follows:
Address:
------------------------------
------------------------------
------------------------------
Facsimile No. ( ) .
-------------------------
----------------------------------------
Name
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EXHIBIT B
FORM OF LIMITED JOINDER AGREEMENT
The undersigned hereby agrees, effective as of [date], to become a party to
that certain Stockholders Agreement (the "Stockholders Agreement") dated as of
november 24, 1999 by and among Silicon Gaming, Inc. (The "Company") and the
parties named therein with respect to section 2.2 Therein and for the purpose of
section 2.2 Of the Stockholders Agreement, the undersigned shall be included
within the term "other stockholder" (as defined in the stockholders agreement).
The address and facsimile number to which notices may be sent to the undersigned
is as follows:
Address:
------------------------------
------------------------------
------------------------------
Facsimile No. ( ) .
-------------------------
----------------------------------------
Name
AMENDED AND RESTATED
SECURITY AGREEMENT
This Amended and Restated Security Agreement (the "Agreement") is entered
into as of November 24, 1999 by and between B III CAPITAL PARTNERS, L.P., a
Delaware limited partnership ("Secured Party") and SILICON GAMING, INC., a
California corporation ("Grantor").
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under (i) the
Securities Purchase Agreement, dated as of September 30, 1997, by and between
Grantor and Secured Party, as amended by Amendment No. 1 to Agreement, dated
July 8, 1998 and as further amended by Amendment No. 2 to Agreement, dated
November 24, 1999, (ii) the Securities and Purchase Agreement, dated as of
November 24, 1999 (the "1999 Purchase Agreement"), by and between Silicon
Gaming, Inc. and B III Capital Partners, L.P. (collectively, the "Purchase
Agreements"), and as each of the foregoing may from time to time be extended,
renewed, restated, supplemented or further amended, Grantor hereby represents,
warrants, covenants and agrees as follows:
AGREEMENT
1. THE SECURITY. To secure the Indebtedness (as hereinafter defined),
Grantor grants and pledges to Secured Party a security interest in all of
Grantor's right, title and interest (whether now existing or hereafter acquired
or created) in, to and under the following, including without limitation all
proceeds thereof (the "Collateral"):
(a) all equipment and fixtures (including, without limitation,
furniture, vehicles and other machinery and office equipment), together with all
additions and accessions thereto and replacements therefor;
(b) all inventory (including, without limitation, (i) all raw
materials, work in progress and finished goods and (ii) all such goods which are
returned to or repossessed by the Company), together with all additions and
accessions thereto, replacements therefor, products thereof and documents
therefor;
(c) all accounts, chattel paper, contract rights and rights to the
payment of money;
(d) all general intangibles (including, without limitation, (i)
customer and supplier lists and contracts, books and records (including, but not
limited to, any computer-readable memory and any computer hardware or software
necessary to process such memory), insurance policies, tax refunds, contracts
for the purchase of real or personal property (collectively, the "Books and
Records"), (ii) all copyrights, patents, trademarks, trade names, mask works,
trade secrets, and service marks, whether registered or unregistered, and
whether state, federal or common law (including, without limitation, those
copyrights, patents, trademarks and mask works, and pending applications for
registration thereof, listed on Schedules A, B, C, and D hereto), (iii) all
licenses to use, applications for, and other rights to, such patents,
copyrights, trademarks, trade names and service marks (other than licenses whose
terms prohibit the granting of a security interest therein), and (iv) all
goodwill of the Company);
(e) all deposit accounts, money, certificated and uncertificated
securities, instruments and documents; and
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(f) all proceeds of the foregoing (including, without limitation,
whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged, returned, substituted or otherwise disposed of, whether
such disposition is voluntary or involuntary, including rights to payment and
return premiums and insurance proceeds under insurance with respect to any
Collateral, and all rights to payment with respect to any cause of action
affecting or relating to the Collateral).
2. THE INDEBTEDNESS. The Collateral secures and will secure all obligations
and Indebtedness. For the purposes of this Agreement, "Indebtedness" shall mean
all obligations and liabilities of Grantor under the Purchase Agreements and the
Transaction Documents (as defined in the 1999 Purchase Agreement) entered into
in connection therewith and with respect to Indebtedness and obligations of
Silicon Gaming, Inc. whether now existing or hereafter incurred or created,
whether voluntary or involuntary, whether due or not due, whether absolute or
contingent (including but not limited to obligations as a guarantor of the
indebtedness of another), and whether incurred directly or acquired by Secured
Party by assignment or otherwise. Unless Grantor shall have otherwise agreed in
writing, "Indebtedness" shall not include "consumer credit" subject to the
disclosure requirements of the Federal Truth in Lending Act or any regulations
promulgated thereunder.
3. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants to
Secured Party as follows:
(a) Exhibits A, B, C, and D to this Agreement are complete lists of
all copyright registrations and applications, patent registrations and
applications, trademark and service mark registrations and applications, and
mask work registrations and applications respectively in which Grantor has any
right, title, or interest, throughout the world.
(b) Grantor has full power and authority to execute this Agreement and
perform its obligations hereunder, and to subject the Collateral to the security
interest transferred hereby, and Grantor has entered and will enter into written
agreements with each of its present and future employees, agents and consultants
which will enable it to comply with the covenants herein contained.
(c) Grantor is the lawful owner of the entire right, title and
interest in and to all the Collateral, free and clear of all liens, charges,
encumbrances, claims of infringement, setoffs, counterclaims, licenses, shop
rights, and covenants not to sue third persons, except in favor of Secured
Party, liens securing the Senior Discount Notes and otherwise as Secured Party
has consented to in writing.
4. GRANTOR'S COVENANTS. Grantor covenants and warrants that unless
compliance is waived by Secured Party in writing:
(a) Grantor will properly preserve the Collateral; defend the
Collateral against any adverse claims and demands; and keep accurate Books and
Records.
(b) Grantor has notified Secured Party in writing of, and will notify
Secured Party in writing prior to any change in the locations of (i) Grantor's
place of business or Grantor's chief executive office if Grantor has more than
one place of business and (ii) any Collateral, including the Books and Records.
(c) Grantor will notify Secured Party in writing prior to any change
in Grantor's name, identity or business structure.
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<PAGE>
(d) Grantor will maintain and keep in force insurance covering
Collateral designated by Secured Party against fire and extended coverages. Such
insurance shall require losses to be paid on a replacement cost basis, be issued
by insurance companies acceptable to Secured Party and include a loss payable
endorsement in favor of Secured Party in a form acceptable to Secured Party.
(e) Grantor has not granted and will not grant any security interest
in any of the Collateral except to Secured Party and the security interest of
the holders of the Senior Discount Notes and the New Notes, and will keep the
Collateral free of all liens, claims, security interests and encumbrances of any
kind or nature, except the security interest of Secured Party and to the holders
of the (i) Senior Discount Notes and (ii) New Notes.
(f) Grantor will not sell, lease, agree to sell or lease, or otherwise
dispose of, or remove from Grantor's place of business (i) any inventory except
in the ordinary course of business as heretofore conducted by Grantor or (ii)
any other Collateral except with the prior written consent of Secured Party.
(g) Grantor will promptly notify Secured Party in writing of any event
which affects the value of any Collateral, the ability of Grantor or Secured
Party to dispose of any Collateral, or the rights and remedies of Secured Party
in relation thereto, including, but not limited to, the levy of any legal
process against any Collateral and the adoption of any marketing order,
arrangement or procedure affecting the Collateral, whether governmental or
otherwise.
(h) If any Collateral is or becomes the subject of any negotiable
document of title including any warehouse receipt or bill of lading, Grantor
shall immediately deliver such document to Secured Party.
(i) Until Secured Party exercises its rights to make collection,
Grantor will diligently collect all Collateral.
5. ADDITIONAL OPTIONAL REQUIREMENTS. Grantor agrees that Secured Party may
at its option at any time, whether or not the indebtedness is in default:
(a) Require Grantor to segregate all collections and proceeds of the
Collateral so that they are capable of identification and deliver daily such
collections and proceeds to Secured Party in kind.
(b) Require Grantor to deliver to Secured Party (i) copies of or
extracts from the Books and Records, and (ii) information on any contracts or
other matters affecting the Collateral.
(c) Examine the Collateral, including the Books and Records, and make
copies of or extracts from the Books and Records, and for such purposes enter at
any reasonable time upon the property where any Collateral or any Books and
Records are located.
(d) Require Grantor to deliver to Secured Party any instruments or
chattel paper.
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<PAGE>
(e) Require Grantor to obtain Secured Party's prior written consent to
any sale, lease, agreement to sell or lease, or other disposition of any
inventory except such sales or dispositions made in the ordinary course of
business.
(f) Notify any account debtors, any buyers of the Collateral, or any
other persons of Secured Party's interest in the Collateral.
(g) Upon the occurrence and during the continuance of an Event of
Default, require Grantor to direct all account debtors to forward all payments
and proceeds of the Collateral to a post office box under Secured Party's
exclusive control.
(h) Upon the occurrence and during the continuance of an Event of
Default, demand and collect any payments and proceeds of the Collateral. In
connection therewith Grantor irrevocably authorizes Secured Party to endorse or
sign Grantor's name on all checks, drafts, collections, receipts and other
documents, and to take possession of and open the mail addressed to Grantor and
remove therefrom any payments and proceeds of the Collateral.
6. DEFAULTS. Any one or more of the following shall be a default hereunder:
(a) Grantor shall fail to pay any indebtedness to Secured Party when
due.
(b) Grantor shall breach any term, provision, warranty or
representation under this Agreement, or under any other security agreement,
contract between Grantor and Secured Party, or any other obligation of Grantor
to Secured Party.
(c) Any custodian, receiver or trustee shall be appointed to take
possession, custody or control of all or a substantial portion of the assets of
Grantor.
(d) Grantor shall become insolvent or unable to pay debts as they
mature or admits in writing its inability to pay its debts as they become due,
shall fail in business, shall make a general assignment for the benefit of
creditors or shall voluntarily file under any bankruptcy or similar law.
(e) Any involuntary petition in bankruptcy shall be filed against
Grantor.
(f) Any levies of attachment, executions, tax assessments or similar
processes shall be issued against the Collateral and shall not be released
within ten days thereof.
(g) Any financial statements, profit and loss statements, borrowing
certificates or schedules, or other statements furnished by Grantor to Secured
Party prove false or incorrect in any material respect.
7. SECURED PARTY'S REMEDIES AFTER DEFAULT. In the event of any default,
Secured Party may do any one or more of the following:
(a) Declare any Indebtedness secured hereby immediately due and
payable, without notice or demand.
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<PAGE>
(b) Enforce the security interest given hereunder pursuant to the
Uniform Commercial Code (as enacted in the applicable jurisdiction) and any
other applicable law, including, without limitation, any gaming law.
(c) Enforce the security interest of Secured Party in any deposit
account of Grantor.
(d) Require Grantor to assemble the Collateral, including the Books
and Records, and make them available to Secured Party at a place designated by
Secured Party.
(e) Enter upon the property where any Collateral, including any Books
and Records are located and take possession of such Collateral and such Books
and Records, and use such property (including any buildings and facilities) and
any of Grantor's equipment, if Secured Party deems such use necessary or
advisable in order to take possession of, hold, preserve, process, assemble,
prepare for sale or lease, market for sale or lease, sell or lease or otherwise
dispose of, any Collateral.
(f) Grant extensions and compromise or settle claims with respect to
the collateral for less than face value, all without prior notice to Grantor.
(g) Use or transfer any of Grantor's rights and interests in any
Intellectual Property now owned or hereafter acquired by Grantor, if Secured
Party deems such use or transfer necessary or advisable in order to take
possession of, hold, preserve, process, assemble, prepare for sale or lease,
market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral. Grantor agrees that any such use or transfer shall be without any
additional consideration to Grantor. As used in this paragraph, "Intellectual
Property" includes, but is not limited to, all patent, copyright, trade secrets,
computer software, mask works, service marks, trademarks, trade names, trade
styles, applications for any of the foregoing, customer lists, working drawings,
instructional manuals, and rights in processes for technical manufacturing,
packaging and labeling in which Grantor has any right or interest, whether by
ownership, license, contract or otherwise.
(h) Have a receiver appointed by any court of competent jurisdiction
to take possession of the Collateral, subject to any approvals required pursuant
to any gaming laws.
(i) Take such measures as Secured Party may deem necessary or
advisable to take possession of, hold, preserve, process, assemble, insure,
prepare for sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, and Grantor hereby irrevocably constitutes and
appoints Secured Party as Grantor's attorney-in-fact to perform all acts and
execute all documents in connection therewith.
8. MISCELLANEOUS.
(a) In the event of a sale of Collateral (whether under power of sale
herein granted, pursuant to judicial process or otherwise), Grantor will duly
execute and acknowledge all documents necessary or advisable to record title to
such Collateral in the name of the purchaser, including, without limitation,
valid and recordable assignments of such collateral.
(b) Any waiver, expressed or implied, of any provision hereunder and
any delay or failure by Secured Party to enforce any provision shall not
preclude Secured Party from enforcing any such provision thereafter.
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(c) This Agreement shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which Grantor hereby
submits.
(d) All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Any single or
partial exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
(e) All terms not defined herein are used as set forth in the Uniform
Commercial Code (as enacted in the applicable jurisdiction).
(f) In the event of any action by Secured Party to enforce this
Agreement or to protect the security interest of Secured Party in the
Collateral, Grantor agrees to pay the costs thereof, reasonable attorney's fees
and other expenses.
(g) This Agreement and any agreement or document attached hereto,
referred to herein or executed concurrently herewith, integrate all the terms
and conditions mentioned herein or incidental hereto, and supersede all oral
negotiations and prior writings in respect to the subject matter hereof.
(h) Grantor shall, at the request of Secured Party, execute such other
agreements, documents, instruments, or financing statements in connection with
this Agreement as Secured Party may reasonably deem necessary.
(i) All notes, security agreements, subordination agreements and other
documents executed by Grantor or furnished to Secured Party in connection with
this Agreement must be in form and substance satisfactory to Secured Party.
(j) In the event of any action by Secured Party to enforce this
Agreement or to protect the security interest of Secured Party in the
Collateral, or to take possession of, hold, preserve, process, assemble, insure,
prepare for sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, Grantor agrees to pay immediately the costs and
expenses thereof, together with reasonable attorneys' fees and allocated costs
for in-house legal services.
(k) Notwithstanding any contrary provision contained herein, this
Agreement is subject to that certain Intercreditor Agreement dated as of
December 31, 1997, between Silicon Valley Bank and B III Capital Partners, L.P.,
a Delaware limited partnership.
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IN WITNESS WHEREOF, the parties have caused this Security Agreement to be
duly executed by its officers thereunto duly authorized as of the first date
written above.
GRANTOR:
Address of Grantor: SILICON GAMING, INC., a
California corporation
c/o Silicon Gaming, Inc.
2800 West Bayshore Road
Palo Atlo, California 94303 By: _____________________________
Attn: President Title: __________________________
SECURED PARTY:
Address of Secured Party: B III CAPITAL PARTNERS. L.P.,
a Delaware limited partnership
c/o DDJ Capital Management, LLC
141 Linden Street, Suite S-4 By: DDJ Capital III, LLC, its
Wellesley, MA 02181 General Partner
Attn: General Counsel
By: DDJ Capital Management, LLC,
its Manager
By: _________________________
Title: ______________________
AMENDED AND RESTATED
SECURITY AGREEMENT
This Amended and Restated Security Agreement (the "Agreement") is entered
into as of November 24, 1999 by and between B III CAPITAL PARTNERS, L.P., a
Delaware limited partnership ("Secured Party") and SILICON GAMING-______, INC.,
a ________ corporation ("Grantor").
WHEREAS, pursuant to (i) the Securities Purchase Agreement, dated as of
September 30, 1997, by and between Silicon Gaming, Inc. and Secured Party, as
amended by Amendment No. 1 to Agreement, dated July 8, 1998 and as further
amended by Amendment No. 2 to Agreement, dated November 24, 1999, (ii) the
Securities and Purchase Agreement, dated as of November 24, 1999 (the "1999
Purchase Agreement"), by and between Silicon Gaming, Inc. and B III Capital
Partners, L.P. (collectively, the "Purchase Agreements"), and as each of the
foregoing may from time to time be extended, renewed, restated, supplemented or
further amended, the Secured Party extended certain funds to Silicon Gaming,
Inc.; and
WHEREAS, the Grantor is an affiliate of Silicon Gaming, Inc. and, as such,
has and will derive substantial direct and indirect benefits from the
transactions contemplated by the Purchase Agreements.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under this
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
1. THE SECURITY. To secure the Indebtedness (as hereinafter defined),
Grantor grants and pledges to Secured Party a security interest in all of
Grantor's right, title and interest (whether now existing or hereafter acquired
or created) in, to and under the following, including without limitation all
proceeds thereof (the "Collateral"):
(a) all equipment and fixtures (including, without limitation,
furniture, vehicles and other machinery and office equipment), together with all
additions and accessions thereto and replacements therefor;
(b) all inventory (including, without limitation, (i) all raw
materials, work in progress and finished goods and (ii) all such goods which are
returned to or repossessed by the Company), together with all additions and
accessions thereto, replacements therefor, products thereof and documents
therefor;
(c) all accounts, chattel paper, contract rights and rights to the
payment of money;
(d) all general intangibles (including, without limitation, (i)
customer and supplier lists and contracts, books and records (including, but not
limited to, any computer-readable memory and any computer hardware or software
necessary to process such memory), insurance policies, tax refunds, contracts
for the purchase of real or personal property (collectively, the "Books and
Records"), (ii) all copyrights, patents, trademarks, trade names, mask works,
trade secrets, and service marks, whether registered or unregistered, and
whether state, federal or common law (including, without limitation, those
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copyrights, patents, trademarks and mask works, and pending applications for
registration thereof, listed on Schedules A, B, C, and D hereto), (iii) all
licenses to use, applications for, and other rights to, such patents,
copyrights, trademarks, trade names and service marks (other than licenses whose
terms prohibit the granting of a security interest therein), and (iv) all
goodwill of the Company);
(e) all deposit accounts, money, certificated and uncertificated
securities, instruments and documents; and
(f) all proceeds of the foregoing (including, without limitation,
whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged, returned, substituted or otherwise disposed of, whether
such disposition is voluntary or involuntary, including rights to payment and
return premiums and insurance proceeds under insurance with respect to any
Collateral, and all rights to payment with respect to any cause of action
affecting or relating to the Collateral).
2. THE INDEBTEDNESS. The Collateral secures and will secure all obligations
and Indebtedness. For the purposes of this Agreement, "Indebtedness" shall mean
all obligations and liabilities of Grantor under this Agreement, the Purchase
Agreements and the Transaction Documents (as defined in the 1999 Purchase
Agreement) entered into in connection therewith and with respect to Indebtedness
and obligations of Silicon Gaming, Inc. whether now existing or hereafter
incurred or created, whether voluntary or involuntary, whether due or not due,
whether absolute or contingent (including but not limited to obligations as a
guarantor of the indebtedness of another), and whether incurred directly or
acquired by Secured Party by assignment or otherwise. Unless Grantor shall have
otherwise agreed in writing, "Indebtedness" shall not include "consumer credit"
subject to the disclosure requirements of the Federal Truth in Lending Act or
any regulations promulgated thereunder.
3. UNCONDITIONAL GUARANTEE.
(a) The Grantor does hereby irrevocably and unconditionally guarantee
the due and punctual payment and performance by Silicon Gaming, Inc. of its
obligations to the Secured Party under, and in connection with, the Purchase
Agreements, including, but not limited to (i) all liabilities and obligations
and Indebtedness, direct or indirect, matured or unmatured, primary or
secondary, certain or contingent, of Silicon Gaming, Inc. to the Secured Party,
now or hereafter owing or incurred (including, without limitation, all
obligations of Silicon Gaming, Inc. under the (A) Senior Notes and (B) New Notes
(each as defined in the 1999 Purchase Agreement); and (ii) the performance of
all other agreements, covenants and conditions of Silicon Gaming, Inc. set forth
in the Purchase Agreements and all documents, instruments and other agreements
executed in connection therewith. The responsibilities and obligations of the
Grantor to the Secured Party described above are hereinafter referred to
collectively as the "Guaranteed Obligations."
(b) This Guaranty is an absolute, unconditional and continuing
guaranty of the full and punctual performance by Silicon Gaming, Inc. of the
Guaranteed Obligations and not of collectibility of the Guaranteed Obligations,
and is in no way conditioned upon any requirement that the Secured Party first
attempt to collect any of the Guaranteed Obligations from Silicon Gaming, Inc.
or resort to any security or other means of obtaining payment of any of the
Guaranteed Obligations which the Secured Party now has or may acquire after the
date hereof, or upon any contingency whatsoever. Upon any default by Silicon
Gaming, Inc. in the full and punctual payment and performance of any of the
Guaranteed Obligations, the liabilities and obligations of the Grantor hereunder
shall, at the option of the Secured Party, become forthwith due and payable to
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<PAGE>
the Secured Party without demand or notice of any nature, all of which are
expressly waived by the Grantor.
4. REPRESENTATIONS AND WARRANTIES. Grantor represents and warrants to
Secured Party as follows:
(a) Exhibits A, B, C, and D to this Agreement are complete lists of
all copyright registrations and applications, patent registrations and
applications, trademark and service mark registrations and applications, and
mask work registrations and applications respectively in which Grantor has any
right, title, or interest, throughout the world.
(b) Grantor has full power and authority to execute this Agreement and
perform its obligations hereunder, and to subject the Collateral to the security
interest transferred hereby, and Grantor has entered and will enter into written
agreements with each of its present and future employees, agents and consultants
which will enable it to comply with the covenants herein contained.
(c) Grantor is the lawful owner of the entire right, title and
interest in and to all the Collateral, free and clear of all liens, charges,
encumbrances, claims of infringement, setoffs, counterclaims, licenses, shop
rights, and covenants not to sue third persons, except in favor of Secured
Party, liens securing the Senior Discount Notes and otherwise as Secured Party
has consented to in writing.
5. GRANTOR'S COVENANTS. Grantor covenants and warrants that unless
compliance is waived by Secured Party in writing:
(a) Grantor will properly preserve the Collateral; defend the
Collateral against any adverse claims and demands; and keep accurate Books and
Records.
(b) Grantor has notified Secured Party in writing of, and will notify
Secured Party in writing prior to any change in the locations of (i) Grantor's
place of business or Grantor's chief executive office if Grantor has more than
one place of business and (ii) any Collateral, including the Books and Records.
(c) Grantor will notify Secured Party in writing prior to any change
in Grantor's name, identity or business structure.
(d) Grantor will maintain and keep in force insurance covering
Collateral designated by Secured Party against fire and extended coverages. Such
insurance shall require losses to be paid on a replacement cost basis, be issued
by insurance companies acceptable to Secured Party and include a loss payable
endorsement in favor of Secured Party in a form acceptable to Secured Party.
(e) Grantor has not granted and will not grant any security interest
in any of the Collateral except to Secured Party and the security interest of
the holders of the Senior Discount Notes and the New Notes, and will keep the
Collateral free of all liens, claims, security interests and encumbrances of any
kind or nature, except the security interest of Secured Party and to the holders
of the (i) Senior Discount Notes and (ii) New Notes.
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<PAGE>
(f) Grantor will not sell, lease, agree to sell or lease, or otherwise
dispose of, or remove from Grantor's place of business (i) any inventory except
in the ordinary course of business as heretofore conducted by Grantor or (ii)
any other Collateral except with the prior written consent of Secured Party.
(g) Grantor will promptly notify Secured Party in writing of any event
which affects the value of any Collateral, the ability of Grantor or Secured
Party to dispose of any Collateral, or the rights and remedies of Secured Party
in relation thereto, including, but not limited to, the levy of any legal
process against any Collateral and the adoption of any marketing order,
arrangement or procedure affecting the Collateral, whether governmental or
otherwise.
(h) If any Collateral is or becomes the subject of any negotiable
document of title including any warehouse receipt or bill of lading, Grantor
shall immediately deliver such document to Secured Party.
(i) Until Secured Party exercises its rights to make collection,
Grantor will diligently collect all Collateral.
6. ADDITIONAL OPTIONAL REQUIREMENTS. Grantor agrees that Secured Party may
at its option at any time, whether or not the indebtedness is in default:
(a) Require Grantor to segregate all collections and proceeds of the
Collateral so that they are capable of identification and deliver daily such
collections and proceeds to Secured Party in kind.
(b) Require Grantor to deliver to Secured Party (i) copies of or
extracts from the Books and Records, and (ii) information on any contracts or
other matters affecting the Collateral.
(c) Examine the Collateral, including the Books and Records, and make
copies of or extracts from the Books and Records, and for such purposes enter at
any reasonable time upon the property where any Collateral or any Books and
Records are located.
(d) Require Grantor to deliver to Secured Party any instruments or
chattel paper.
(e) Require Grantor to obtain Secured Party's prior written consent to
any sale, lease, agreement to sell or lease, or other disposition of any
inventory except such sales or dispositions made in the ordinary course of
business.
(f) Notify any account debtors, any buyers of the Collateral, or any
other persons of Secured Party's interest in the Collateral.
(g) Upon the occurrence and during the continuance of an Event of
Default, require Grantor to direct all account debtors to forward all payments
and proceeds of the Collateral to a post office box under Secured Party's
exclusive control.
(h) Upon the occurrence and during the continuance of an Event of
Default, demand and collect any payments and proceeds of the Collateral. In
connection therewith Grantor irrevocably authorizes Secured Party to endorse or
sign Grantor's name on all checks, drafts, collections, receipts and other
4
<PAGE>
documents, and to take possession of and open the mail addressed to Grantor and
remove therefrom any payments and proceeds of the Collateral.
7. DEFAULTS. Any one or more of the following shall be a default hereunder:
(a) Grantor shall fail to pay any Indebtedness to Secured Party when
due.
(b) Grantor shall breach any term, provision, warranty or
representation under this Agreement, or under any other security agreement,
contract between Grantor and Secured Party, or any other obligation of Grantor
to Secured Party.
(c) Any custodian, receiver or trustee shall be appointed to take
possession, custody or control of all or a substantial portion of the assets of
Grantor.
(d) Grantor shall become insolvent or unable to pay debts as they
mature or admits in writing its inability to pay its debts as they become due,
shall fail in business, shall make a general assignment for the benefit of
creditors or shall voluntarily file under any bankruptcy or similar law.
(e) Any involuntary petition in bankruptcy shall be filed against
Grantor.
(f) Any levies of attachment, executions, tax assessments or similar
processes shall be issued against the Collateral and shall not be released
within ten days thereof.
(g) Any financial statements, profit and loss statements, borrowing
certificates or schedules, or other statements furnished by Grantor to Secured
Party prove false or incorrect in any material respect.
8. SECURED PARTY'S REMEDIES AFTER DEFAULT. In the event of any default,
Secured Party may do any one or more of the following:
(a) Declare any Indebtedness secured hereby immediately due and
payable, without notice or demand.
(b) Enforce the security interest given hereunder pursuant to the
Uniform Commercial Code (as enacted in the applicable jurisdiction) and any
other applicable law, including, without limitation, any gaming law.
(c) Enforce the security interest of Secured Party in any deposit
account of Grantor.
(d) Require Grantor to assemble the Collateral, including the Books
and Records, and make them available to Secured Party at a place designated by
Secured Party.
(e) Enter upon the property where any Collateral, including any Books
and Records are located and take possession of such Collateral and such Books
and Records, and use such property (including any buildings and facilities) and
any of Grantor's equipment, if Secured Party deems such use necessary or
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<PAGE>
advisable in order to take possession of, hold, preserve, process, assemble,
prepare for sale or lease, market for sale or lease, sell or lease or otherwise
dispose of, any Collateral.
(f) Grant extensions and compromise or settle claims with respect to
the collateral for less than face value, all without prior notice to Grantor.
(g) Use or transfer any of Grantor's rights and interests in any
Intellectual Property now owned or hereafter acquired by Grantor, if Secured
Party deems such use or transfer necessary or advisable in order to take
possession of, hold, preserve, process, assemble, prepare for sale or lease,
market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral. Grantor agrees that any such use or transfer shall be without any
additional consideration to Grantor. As used in this paragraph, "Intellectual
Property" includes, but is not limited to, all patent, copyright, trade secrets,
computer software, mask works, service marks, trademarks, trade names, trade
styles, applications for any of the foregoing, customer lists, working drawings,
instructional manuals, and rights in processes for technical manufacturing,
packaging and labeling in which Grantor has any right or interest, whether by
ownership, license, contract or otherwise.
(h) Have a receiver appointed by any court of competent jurisdiction
to take possession of the Collateral, subject to any approvals required pursuant
to any gaming laws.
(i) Take such measures as Secured Party may deem necessary or
advisable to take possession of, hold, preserve, process, assemble, insure,
prepare for sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, and Grantor hereby irrevocably constitutes and
appoints Secured Party as Grantor's attorney-in-fact to perform all acts and
execute all documents in connection therewith.
9. MISCELLANEOUS.
(a) In the event of a sale of Collateral (whether under power of sale
herein granted, pursuant to judicial process or otherwise), Grantor will duly
execute and acknowledge all documents necessary or advisable to record title to
such Collateral in the name of the purchaser, including, without limitation,
valid and recordable assignments of such collateral.
(b) Any waiver, expressed or implied, of any provision hereunder and
any delay or failure by Secured Party to enforce any provision shall not
preclude Secured Party from enforcing any such provision thereafter.
(c) This Agreement shall be governed by and construed according to the
laws of the State of California, to the jurisdiction of which Grantor hereby
submits.
(d) All rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies otherwise provided by law. Any single or
partial exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
(e) All terms not defined herein are used as set forth in the Uniform
Commercial Code (as enacted in the applicable jurisdiction).
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(f) In the event of any action by Secured Party to enforce this
Agreement or to protect the security interest of Secured Party in the
Collateral, Grantor agrees to pay the costs thereof, reasonable attorney's fees
and other expenses.
(g) This Agreement and any agreement or document attached hereto,
referred to herein or executed concurrently herewith, integrate all the terms
and conditions mentioned herein or incidental hereto, and supersede all oral
negotiations and prior writings in respect to the subject matter hereof.
(h) Grantor shall, at the request of Secured Party, execute such other
agreements, documents, instruments, or financing statements in connection with
this Agreement as Secured Party may reasonably deem necessary.
(i) All notes, security agreements, subordination agreements and other
documents executed by Grantor or furnished to Secured Party in connection with
this Agreement must be in form and substance satisfactory to Secured Party.
(j) In the event of any action by Secured Party to enforce this
Agreement or to protect the security interest of Secured Party in the
Collateral, or to take possession of, hold, preserve, process, assemble, insure,
prepare for sale or lease, market for sale or lease, sell or lease, or otherwise
dispose of, any Collateral, Grantor agrees to pay immediately the costs and
expenses thereof, together with reasonable attorneys' fees and allocated costs
for in-house legal services.
(k) Notwithstanding any contrary provision contained herein, this
Agreement is subject to that certain Intercreditor Agreement dated as of
December 31, 1997, between Silicon Valley Bank and B III Capital Partners, L.P.,
a Delaware limited partnership.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Security Agreement to be
duly executed by its officers thereunto duly authorized as of the first date
written above.
GRANTOR:
Address of Grantor: SILICON GAMING-_________________,
INC., a ___________________ corporation
c/o Silicon Gaming, Inc.
2800 West Bayshore Road
Palo Atlo, California 94303 By: _________________________________
Attn: President Title: ______________________________
SECURED PARTY:
Address of Secured Party: B III CAPITAL PARTNERS. L.P., a
Delaware limited partnership
c/o DDJ Capital Management, LLC
141 Linden Street, Suite S-4 By: DDJ Capital III, LLC, its
Wellesley, MA 02181 General Partner
Attn: General Counsel
By: DDJ Capital Management, LLC,
its Manager
By: ________________________________
Title: ______________________________
[SILICON GAMING LOGO]
FOR INFORMATION CONTACT:
Andrew Pascal, CEO (Analysts) John Penver (Investor Relations)
(650) 842-9000 (650) 842-9009
FOR IMMEDIATE RELEASE
SILICON GAMING ANNOUNCES COMPLETION OF
FINANCIAL RESTRUCTURING
PALO ALTO, California, November 29, 1999 -- Silicon Gaming, Inc. (OTC Electronic
Bulletin Board: SGIC) announced today that it has completed a financial
restructuring with the holders of its $47.25 million of outstanding Senior
Discount Notes (the "Notes").
As a result of the restructuring, $39.75 million of Notes were exchanged for
non-voting preferred stock that is convertible into 174,285,127 shares of common
stock of the Company, or approximately a 57% common equity interest in the
Company. The terms of the remaining $7.5 million of outstanding Notes were
modified to reduce the interest rate from 12.5% to 10% per annum (effective July
15, 1999) and to provide for interest to be payable in-kind at the Company's
option and subject to certain coverage ratio tests. The Notes will mature 5
years following the effective date of the restructuring. Accrued and unpaid
interest on the $7.5 million of Notes remaining outstanding following the
restructuring was forgiven through July 15, 1999.
As a part of the restructuring, the holders of the Notes have agreed to make an
additional investment in the Company of up to $5.0 million in the form of senior
secured notes (the "New Notes). The New Notes are not convertible and bear cash
interest at the rate of 10% per annum and in-kind interest at the rate of 3% per
annum. The New Notes mature in five years and are issuable in tranches. The
first $2.0 million was issued at the closing of the restructuring on November
24, 1999. To the extent required by the Company, the remaining $3.0 million of
New Notes will be issued upon the achievement of certain financial and operating
milestones, as determined by the holders of the Notes.
Effective upon closing of the restructuring, a majority of the members of the
Board of Directors of the Company resigned and two new members were appointed.
The Board of Directors now consists of Andrew Pascal (the President and Chief
Executive Officer of the Company), Robert Reis (a consultant to the Company) and
Stanford Springel.
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<PAGE>
In addition, as soon as practicable, the Company intends to conduct an Exchange
Offer whereby holders of common stock who elect to participate, may exchange
their shares of common stock for units consisting of a share of common stock and
a warrant to purchase 3.59662 additional shares of common stock. The exercise
price of the warrants will be at a premium to fair market value and will be
based on an enterprise value for the Company of $70 million. In addition, the
warrants would only be exercisable after the first anniversary of issuance and
would terminate four years from their issuance. The warrants might terminate
prior to their scheduled expiration if the Company's enterprise value, as
measured on the Nasdaq National Market or a national securities exchange,
exceeds $100 million. Holders of the warrants would have 180 days to exercise
prior to such termination.
As a result of the above transactions, the percentage ownership of the Company's
current equity holders , including all holders of options, warrants and
convertible preferred stock but excluding warrants and convertible preferred
stock issued as part of the restructuring, has been reduced from 100% to
approximately 5% of the outstanding fully-diluted common stock as of the
effective date of the restructuring. The Company has allocated 38% of its equity
(calculated prior to issuance of the out-of-the-money warrants described above)
as of the effective date to be issued as incentive compensation to employees. Of
the 116,190,084 shares of common stock issuable as incentive, 15,657,490 shares
were authorized for issuance on November 24, 1999. As discussed above, $39.75
million of existing Notes were exchanged for preferred stock that is convertible
into the remaining 57% (calculated prior to issuance of the out-of-the-money
warrants described above) of the Company's outstanding common stock as of the
effective date of the restructuring.
The capital structure of the Company will change dramatically as a result of the
restructuring. Immediately prior to the closing of the restructuring there were
approximately 20 million shares of common stock outstanding on a fully- diluted
basis. After the closing of the restructuring, and giving effect to the
conversion of preferred stock issued as part of the restructuring and exercise
of the warrants to be issued to current stockholders, the total number of shares
of common stock outstanding on a fully-diluted basis could increase to
approximately 450 million; or approximately 22 times the current number of
shares outstanding on a fully-diluted basis.
"Completing this debt restructuring was another important step in the process of
reengineering our company," said Andrew Pascal, President and Chief Executive
Officer of Silicon Gaming. "Since March of this year we have worked to implement
a new design for Silicon Gaming that we believe will result in our achieving
profitability. Our significant reductions in spending, our calculated
investments in new product development, and a significantly de-leveraged balance
sheet all mark the progress we've made in transitioning our business." Pascal
further noted, "We can now look forward and focus all of our attention on
capitalizing on the Company's current and future opportunities."
Silicon Gaming, Inc. is an industry leader in the design and manufacture of slot
machines such as the Odyssey(R) and Quest(TM), which feature such innovative
games as Banana-Rama Deluxe, Eureka, Strike-It-Rich, Vacation, Lucky-Draw,
TopHat 21 and Phantom Belle Poker. Headquartered in Palo Alto, California, the
Company is traded on the OTC Electronic Bulletin Board as SGIC.
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FORWARD-LOOKING STATEMENTS
This press release may contain certain forward-looking statements that involve
risks and uncertainties, including statements regarding the restructuring and
its terms and the proposed Exchange Offer and its terms. The Company's actual
results may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, the Company's ability to successfully obtain any necessary
regulatory approvals for the restructuring, the timely completion of the
Exchange Offer, the Company's capital requirements, expectation of losses,
dependence on a single product, risk of technical errors in the Company's
product, uncertain market acceptance of the Company's product, regulatory
approval of the Company's products, the Company's management of its growth,
intense competition, rapidly changing technology, dependence on key personnel
and those other risks identified in the Company's Form 10-K and 10-K/A for the
year ended December 31, 1998 and Form 10-Q for the quarter ended March 31, 1999,
June 30, 1999 and September 30, 1999.
For more information on Silicon Gaming, visit our website at
http://www.silicongaming.com
