<PAGE> 1
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Section 240.14a-12
SILICON GAMING, INC.
-------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.001 par value per share.
2) Aggregate number of securities to which transaction applies:
285,355,592
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$45,000,000 (Rule 0-11 (c)(1))
4) Proposed maximum aggregate value of transaction:
$45,000,000
5) Total fee paid:
$9,000
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount previously paid:____________________________________________________
2) Form, Schedule or Registration Statement No.:______________________________
3) Filing Party:______________________________________________________________
4) Date Filed:________________________________________________________________
<PAGE> 2
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
_________, 2001
Dear Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Silicon Gaming, Inc. to be held on ________, 2001 at 9:00 a.m. local time, at
the company's headquarters at 2800 West Bayshore Road, Palo Alto, California
94303.
At this special meeting, you will be asked to consider and vote to approve
an Agreement and Plan of Merger pursuant to which Silicon will merge with a
subsidiary of International Game Technology. Under the Merger Agreement, each
outstanding share of Silicon's outstanding common stock will be converted into
the right to receive cash, without interest. You will receive cash for each
share of Silicon common stock you own. The amount of cash you will receive is
dependent on various factors discussed in this proxy statement under the caption
"The Merger Agreement-Merger Consideration." Silicon anticipates that the cash
proceeds per share will be between $0.0825 and $0.0950. As part of the proposed
transaction, Silicon has agreed that prior to the closing of the proposed
merger, it will dispose of its shares of WagerWorks, Inc. ("WagerWorks"), a
majority-owned subsidiary of Silicon, other than a number of shares that would
equal 4.9% of WagerWorks on a fully-diluted basis. Silicon is evaluating various
options regarding the disposition of its shares of WagerWorks. The estimated
per-share proceeds you will receive stated above do not include any estimated
amounts to be received from the disposition of the shares of WagerWorks, if any.
When and if the disposition of the shares of WagerWorks is consummated prior to
the closing of the merger, the per share consideration paid to stockholders of
Silicon (including holders of preferred stock who would participate on an "as
converted" basis) estimated in the previous paragraph is expected to increase.
WagerWorks is a privately held company and there is no trading market for its
shares. We cannot predict with any certainty whether we will be able to dispose
of the shares of WagerWorks and if so what the price for those shares will be
upon any disposition contemplated above.
The board of directors of Silicon has approved the Merger Agreement. The
board of directors believes that the merger is fair to, and in the best
interests of, Silicon's stockholders and unanimously recommends that the
stockholders vote for approval of the Merger Agreement. US Bancorp Libra, an
investment banking firm, has advised us that the merger consideration is fair to
the equity holders of Silicon, taken as a whole, from a financial point of view.
We cannot complete the merger unless we obtain the approval of Silicon's
stockholders owning at least a majority of each of Silicon's outstanding classes
of capital stock and unless we obtain the necessary regulatory approvals
described in the enclosed proxy statement. Completion of the merger is also
subject to the satisfaction of several conditions. Accordingly, even if the
stockholders approve and adopt the Merger Agreement, there can be no assurance
that the merger will be completed.
We encourage you to read the entire document carefully. The proxy
statement provides detailed information about the merger we are proposing and
provides specific information about the parties involved and their interests. A
copy of the Merger Agreement is attached as Annex A to the proxy statement.
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. A prepaid return envelope is provided for this purpose. If you
date and mail your proxy card without indicating how you want to vote,
<PAGE> 3
your proxy will be counted as a vote "for" adoption of the Merger Agreement. If
you do not return your card or instruct your broker how to vote any shares held
for you in your broker's name, the effect will be a vote against the Merger
Agreement. You may revoke your proxy at any time before it is exercised and it
will not be used if you attend the meeting and elect to vote in person. Your
board of directors and I urge all stockholders to be present in person or by
proxy.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE
ENCLOSED ENVELOPE.
Sincerely,
Andrew S. Pascal
Chairman of the Board,
President and Chief Executive Officer
Proxy Statement dated _______, 2001 and first mailed to stockholders on
______, 2001.
<PAGE> 4
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________, 2001
To the Stockholders of Silicon Gaming, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Silicon
Gaming, Inc., a California corporation, will be held on ______________, 2001, at
9:00 a.m., local time, at Silicon's principal executive offices located at 2800
W. Bayshore Road, Palo Alto, California 94303, for the following purposes:
1. To consider and vote on a proposal recommended by the board of directors
of Silicon to approve and adopt an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of December 19 2000, by and among Silicon,
International Game Technology, a Nevada corporation ("IGT"), and
International Game Acquisition Corporation, a California corporation and a
wholly-owned subsidiary of IGT, as a result of which each outstanding
share of common stock, par value $.001 per share, of Silicon will be
converted, upon the effectiveness of the merger, into the right to receive
cash, without interest, with the amount of such cash payment to be
determined in accordance with the Merger Agreement.
2. To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
Only stockholders of record at the close of business on ______________, 2001
are entitled to notice of and to vote at the meeting. All stockholders are
cordially invited to attend the meeting in person. However, to assure your
representation at the meeting, you are urged to sign and return the enclosed
Proxy as promptly as possible in the envelope enclosed. Any stockholder
attending the meeting may vote in person even if he or she has previously
returned a Proxy.
Sincerely,
Andrew S. Pascal
Chairman of the Board, President
and Chief Executive Officer
Palo Alto, California
______________, 2001
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS .................................................. 1
SUMMARY ................................................................ 3
THE COMPANIES ....................................................... 3
THE MERGER .......................................................... 3
RECOMMENDATION OF THE BOARD OF DIRECTORS ............................ 4
OPINION OF FINANCIAL ADVISOR ........................................ 4
THE SPECIAL MEETING ................................................. 4
RECORD DATE; VOTE REQUIRED .......................................... 4
VOTING AGREEMENTS ................................................... 4
CONDITIONS TO COMPLETION OF THE MERGER .............................. 5
REGULATORY MATTERS .................................................. 6
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES AND EXPENSES .. 6
MATERIAL FEDERAL INCOME TAX CONSEQUENCES ............................ 6
INTERESTS OF CERTAIN PERSONS IN THE MERGER .......................... 6
DISSENTERS' APPRAISAL RIGHTS ........................................ 8
GENERAL ............................................................. 8
TIME AND PLACE ...................................................... 8
MATTERS TO BE CONSIDERED ............................................ 8
PROXIES ............................................................. 8
SOLICITATION OF PROXIES ............................................. 9
RECORD DATE, VOTING AND SHARE OWNERSHIP ............................. 9
THE MERGER ............................................................. 10
PARTIES TO THE MERGER ............................................... 10
BACKGROUND OF THE MERGER ............................................ 11
BACKGROUND OF THE MERGER ............................................ 11
REASONS FOR THE MERGER; RECOMMENDATION OF SILICON BOARD ............. 13
OPINION OF FINANCIAL ADVISOR ........................................ 14
REGULATORY MATTERS .................................................. 16
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO SILICON STOCKHOLDERS .... 18
INTERESTS OF CERTAIN PERSONS IN THE MERGER .......................... 19
DISSENTERS RIGHTS ................................................... 21
THE MERGER AGREEMENT ................................................... 23
FORM OF MERGER ...................................................... 23
MERGER CONSIDERATION ................................................ 23
EFFECTIVE TIME ...................................................... 26
EXCHANGE PROCEDURES ................................................. 27
REPRESENTATIONS AND WARRANTIES ...................................... 27
COVENANTS ........................................................... 28
CONDITIONS TO CONSUMMATION OF THE MERGER ............................ 36
TERMINATION OF THE MERGER AGREEMENT ................................. 38
VOTING AGREEMENTS ................................................... 41
</TABLE>
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<TABLE>
<S> <C>
MARKET PRICE OF SILICON COMMON STOCK ................................ 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ...... 43
OTHER STOCKHOLDERS MEETINGS ......................................... 44
WHERE YOU CAN FIND MORE INFORMATION ................................. 44
FORWARD LOOKING STATEMENT MAY PROVE INACCURATE ...................... 44
OTHER MATTERS ....................................................... 45
</TABLE>
Annex A Agreement and Plan of Merger
Annex B Fairness Opinion
Annex C California General Corporation Law Sections 1300-1312
<PAGE> 7
QUESTIONS AND ANSWERS
Q: WHAT IS THE PROPOSED TRANSACTION?
A: The board of directors of Silicon is proposing to merge the company with a
wholly-owned subsidiary of International Game Technology ("IGT"). IGT has formed
a subsidiary, International Game Acquisition Corporation, for the sole purpose
of consummating the merger. If the merger is consummated, International Game
Acquisition Corporation will merge with and into Silicon and Silicon will be the
surviving corporation. Silicon stockholders will receive cash for their shares
of common stock of Silicon and IGT will be the sole stockholder of the surviving
corporation.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive cash for each share of Silicon common stock you own. The
amount of cash you will receive is dependent on various factors discussed in
this proxy statement under the caption "The Merger Agreement-Merger
Consideration." Silicon anticipates that the cash proceeds per share will be
between $0.0825 and $0.0950. As part of the proposed transaction, Silicon has
agreed that prior to the closing of the proposed merger, it will dispose of its
shares of WagerWorks, Inc. ("WagerWorks"), a majority-owned subsidiary of
Silicon, other than a number of shares that would equal 4.9% of WagerWorks on a
fully-diluted basis. Silicon is evaluating various options regarding the
disposition of its shares of WagerWorks. The estimated per-share proceeds you
will receive stated above do not include any estimated amounts to be received
from the disposition of the shares of WagerWorks, if any. When and if the
disposition of the shares of WagerWorks is consummated prior to the closing of
the merger, the per share consideration paid to stockholders of Silicon
(including holders of preferred stock who would participate on an "as converted"
basis) estimated in the previous paragraph is expected to increase. WagerWorks
is a privately held company and there is no trading market for its shares. We
cannot predict with any certainty whether we will be able to dispose of the
shares of WagerWorks and if so what the price for those shares will be upon any
disposition contemplated above.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, sign it and mail it
in the enclosed return envelope as soon as possible, so that your shares may be
represented at the special meeting.
Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A: No. After the merger is complete, we will send you written instructions
for transmitting your share certificates for payment.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may revoke your proxy or change your vote by sending a notice to
the secretary of Silicon, by sending in a later-dated, signed proxy card before
the special meeting to Silicon Gaming, Inc., 2800 West Bayshore Road, Palo Alto,
California 94303, or by attending the special meeting and voting in person.
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Q: DO I HAVE DISSENTERS' RIGHTS?
A: Yes. Under California law, stockholders have dissenters' rights in
connection with the merger. See "The Merger-Dissenter's Appraisal Rights."
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We
expect to complete the merger during the first or second calendar quarters of
2001.
Q: WILL I RECOGNIZE GAIN OR LOSS ON THE TRANSACTION?
A: Yes. If the merger is completed, you will recognize gain or loss for
federal income tax purposes. You are urged to consult your own tax advisor to
determine your particular tax consequences.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: We do not expect to ask you to vote on any other matters at the special
meeting.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger or, if you would like
additional copies of this document, you should contact:
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
Attention: Investor Relations
Phone Number: (650) 842-9000
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED OR INCORPORATED IN THIS DOCUMENT, AND IF GIVEN OR MADE, THAT
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THE DELIVERY OF THIS DOCUMENT DOES NOT IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH IN THIS DOCUMENT OR IN THE AFFAIRS OF
SILICON OR IGT SINCE THE DATE OF THIS DOCUMENT.
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SUMMARY
This brief summary highlights selected information from the proxy
statement but may not contain all of the information that is important to you.
We have included page references parenthetically to direct you to a more
complete description of each topic presented in this summary. We urge you to
carefully read this entire document, the annexed documents and the other
available information referred to in "WHERE YOU CAN FIND MORE INFORMATION" (Page
___).
THE COMPANIES (PAGE ___)
Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
(650) 842-9000
Silicon Gaming, Inc. a California corporation, is engaged in the design,
development, production, marketing and sale of interactive, software-based
products for the gaming industry.
At September 30, 2000, our total assets were $15.7 million and we had an
accumulated deficit of $100.1 million and a shareholder's deficiency of $13.6
million. Our total revenue for fiscal 1999 was $17.1 million and our total
revenue for the nine-month period ended September 30, 2000 was $10.9 million.
International Game Technology
9295 Prototype Drive
Reno, Nevada 89511
(702) 448-7777
International Game Technology, which we refer to as IGT, is a world leader
in the design, development and manufacture of microprocessor-based gaming
products and software systems in all jurisdictions where gaming is legal.
At September 30, 2000, IGT's total assets were $1.623 billion and its
total stockholder's equity was $96.585 million. Its total revenue for fiscal
2000, which ended September 30, 1999, was $1.004 billion.
THE MERGER (PAGE ___)
We propose a merger in which Silicon will become a wholly-owned subsidiary
of IGT. On completion of the merger, each of your shares of Silicon common stock
will automatically become the right to receive cash, without interest.
The amount of cash you will receive is dependent on various factors discussed
in this proxy statement under the caption "The Merger Agreement-Merger
Consideration." Silicon anticipates that the cash proceeds per share will be
between $0.0825 and $0.0950. As part of the proposed transaction, Silicon has
agreed that prior to the closing of the proposed merger, it will dispose of its
shares of WagerWorks, Inc. ("WagerWorks"), a majority-owned subsidiary of
Silicon, other than a number of shares that would equal 4.9% of WagerWorks on a
fully-diluted basis. Silicon is evaluating various options regarding the
disposition of its shares of WagerWorks. The estimated per-share proceeds you
will receive stated above do not include any estimated amounts to be received
from the disposition of the shares of WagerWorks, if any. When and if the
disposition of the shares of WagerWorks is consummated prior to the closing of
the
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merger, the per share consideration paid to stockholders of Silicon (including
holders of preferred stock who would participate on an "as converted" basis)
estimated in the previous paragraph is expected to increase. WagerWorks is a
privately held company and there is no trading market for its shares. We cannot
predict with any certainty whether we will be able to dispose of the shares of
WagerWorks and if so what the price for those shares will be upon any
disposition contemplated above.
We have attached the Merger Agreement to this document as Annex A. Please
read the Merger Agreement. It is the legal document that governs the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS (PAGE ___)
The board of directors of Silicon has determined that the terms of the
Merger Agreement, which were established through arm's length negotiations with
IGT, is fair to, and in the best interests of Silicon and its stockholders.
Accordingly, the board of directors has unanimously approved the Merger
Agreement and unanimously recommends that Silicon's stockholders vote FOR
approval and adoption of the Merger Agreement.
OPINION OF FINANCIAL ADVISOR (PAGE ___)
US Bancorp Libra, a division of US Bancorp, Inc., our financial advisor,
delivered an opinion to Silicon's board of directors that, as of December 7,
2000, the cash merger consideration was fair from a financial point of view to
the equity holders of Silicon taken as a whole. We have attached the opinion as
Annex B. This opinion does not constitute a recommendation as to how any
stockholder should vote on the Merger Agreement. You should read it completely
to understand the procedures followed, assumptions made, matters considered and
limitations of the review undertaken by US Bancorp Libra in providing this
opinion.
THE SPECIAL MEETING (PAGE ___)
The special meeting of Silicon's stockholders will be held at 9.00 a.m.,
local time, on _________, 2001, at the company's headquarters at 2800 W.
Bayshore Road, Palo Alto, California 94303. At the special meeting, you will be
asked to approve and adopt the Merger Agreement, and to act on any other matters
that are properly brought before the special meeting.
RECORD DATE; VOTE REQUIRED (PAGE ___)
You may vote at the special meeting if you owned Silicon common stock at
the close of business on ______, 2001. The approval and adoption of the Merger
Agreement requires the affirmative vote of the holders of at least a majority of
the outstanding shares of each class of Silicon's capital stock entitled to vote
at the special meeting. Accordingly, a failure to vote or an abstention has the
same effect as voting against the merger.
You may vote your shares in person by attending the special meeting or by
mailing us your proxy if you are unable or do not wish to attend.
VOTING AGREEMENTS (PAGE ___)
Two major holders of shares of our Common Stock, Andrew Pascal and Paul
Mathews have entered into voting agreements with IGT. Mr. Pascal is the
company's President and Chief Executive Officer. Mr. Mathews is the company's
Executive Vice President and Chief Operating Officer. Under the voting
agreements, both of the stockholders agreed to vote all of their Silicon common
stock in favor
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of the merger. These voting agreements will terminate if the merger agreement is
terminated. The two stockholders collectively own approximately 45.1% of our
outstanding common stock (excluding additional shares that may be acquired upon
exercise of stock options).
In addition, B III Capital Partners, LP ("B III") has entered into a
voting agreement with IGT. B III holds 100% of the outstanding shares of
Silicon's Series D Preferred Stock the only series of preferred stock
outstanding. Under the voting agreement, B III agreed to vote all of its shares
of Series D Preferred Stock and any other shares of equity securities owned by
it, in favor of, and to otherwise consent to, the merger. In addition to its
Series D Preferred Stock, B III owns 441,460 of our outstanding common stock.
This voting agreement will terminate if the merger agreement is terminated or
the merger is not completed by May 30, 2001.
CONDITIONS TO COMPLETION OF THE MERGER
Completion of the merger depends on a number of conditions being met,
including:
- Silicon stockholder approval of the merger;
- receipt of necessary regulatory approvals;
- no temporary restraining order, preliminary or permanent injunction
or other order, judgment or decree to restrain or prohibit the
consummation of the merger or any other transaction described in the
Merger Agreement shall have been issued and remain in effect;
- there shall not have been instituted or pending, or threatened, any
proceeding by any governmental entity as a result of the Merger
Agreement or any of the transactions contemplated by the Merger
Agreement if such governmental entity were to prevail, would
reasonably be expected to have a material adverse effect on IGT or
the surviving corporation;
- all necessary or required gaming approvals from any gaming
authorities shall have been received or obtained;
- the representations and warranties of each of Silicon, IGT and
International Game Acquisition Corporation set forth in the Merger
Agreement shall be true and correct in all material respects as of
the date the Merger Agreement is closed as if made at and as of such
date, and each of Silicon, IGT and International Game Acquisition
Corporation shall in all material respects have performed each
obligation and complied with each covenant to be performed and
complied with by it under the Merger Agreement;
- Silicon will have completed the sale or disposition of it shares of
WagerWorks, other than a number of shares representing 4.9% of the
equity interest of WagerWorks;
- Silicon shall have modified its license agreement dated August 3,
2000 with Pearson Television, Inc., as required under Section 6.2(k)
of the Merger Agreement; and
- Silicon shall have modified its Cross License Agreement with
WagerWorks as required under Section 6.2(n) of the Merger Agreement.
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<PAGE> 12
- Either IGT or Silicon could choose to complete the merger even
though a closing condition has not been satisfied, as long as the
law allows it to do so. We cannot be certain when, or if, the
conditions to the merger will be satisfied or waived, or that the
merger will be completed.
REGULATORY MATTERS (PAGE ___)
The merger cannot take place until the necessary regulatory approvals have
been received and any waiting periods required by law have expired. Silicon and
IGT have filed (or will promptly file) all of the required applications or
notices necessary to complete the merger with each of the applicable regulatory
authorities. We cannot be sure whether or when we will receive the regulatory
approvals or that we will obtain the approvals without conditions that would be
detrimental to Silicon or IGT.
We cannot complete the merger unless gaming regulatory requirements are
complied with, and approvals obtained, in a number of jurisdictions in which
Silicon and IGT operate gaming activities.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES AND EXPENSES (PAGE __)
Silicon and IGT can mutually decide at any time to terminate the merger
agreement without completing the merger. Also, either Silicon or IGT can decide
to terminate the merger agreement in a number of situations, including the final
denial of regulatory approval or the failure to complete the merger by May 30,
2001.
If either party terminates the Merger Agreement, under certain
circumstances, it will have to pay the other a termination fee. If Silicon
terminates the Merger Agreement under certain circumstances, it will have to pay
IGT up to $3.5 million. If IGT terminates the Merger Agreement under certain
circumstances, it will have to pay Silicon $2.5 million in addition to the $2.5
million prepayment amount.
Whether or not the merger is completed, the parties will each pay their
own fees and expenses.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE ___)
The merger will be a taxable transaction to you. You will recognize
taxable gain or loss in the merger in an amount determined by the difference
between the cash merger consideration received and your tax basis in Silicon's
common stock canceled for that cash payment. The gain or loss will be a capital
gain or loss if Silicon common stock is a capital asset in your hands and will
be a long-term capital gain or loss if your holding period exceeds one year.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE ___)
In considering the recommendation of Silicon's board of directors to
approve the merger, you should be aware that some of our directors and executive
officers have interests in the merger that are in addition to the benefits they
will receive as stockholders. These interests exist because of rights under
benefit and compensation plans maintained by Silicon. Additionally, our stock
option plans provide for accelerated vesting of stock options as a result of the
merger.
In order to complete the proposed merger transaction we implemented a
retention and severance plan under which many of our employees will receive
retention and severance packages. We implemented this plan because our revenues
no longer justify supporting our full staff of employees, and we do not have
sufficient cash to adequately fund a severance and retention plan and still
maintain our
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<PAGE> 13
business operations through the consummation of the merger without incurring
additional debt. Any debt we incurred, or cash we expended funding a plan, would
result in a lower aggregate merger consideration under the merger agreement. In
order for the company to remain a viable entity and to continue operations
through the merger transaction we believed we needed to give our existing
workforce incentives to remain through consummation of the merger. We also
believed we needed to compensate those employees we involuntarily terminated for
their efforts to bring value to the company since the consummation of our
restructuring in November of 1999. Employees who receive benefits under this
plan may also be current stockholders of the company and therefore entitled to
vote on the proposed merger transaction. The plan includes severance or
retention payments, accelerated vesting of options and waiver of option exercise
strike prices.
IGT has offered Andrew Pascal, Paul Mathews and Thomas Carlson, three of
our officers, consulting agreements. All three agreements are for a period of
six months. Two of the agreements are for an aggregate of $25,000 and one is for
an aggregate of $15,000. Under the terms of the agreements, the consultants will
be paid monthly regardless of the amount of consultation provided by each
person. Mr. Pascal owns 8,045,410 shares of common stock of Silicon and options
to purchase 15,103,509 shares of common stock, and Mr. Mathews owns 7,878,745
shares of common stock of Silicon. Collectively, Messrs. Pascal and Mathews hold
approximately 45.1% of the voting common stock of Silicon (excluding additional
shares that may be acquired upon exercise of stock options).
On November 24, 1999, Messrs. Pascal and Mathews were each issued
7,878,745 shares of common stock under the 1999 Long Term Compensation Plan.
Messrs. Pascal and Mathews each issued a promissory note to the company for
$117,431.17 as consideration for the shares. The board of directors has agreed
to waive any amounts due under the promissory notes as part of Messrs. Pascal
and Mathews severance and retention package, contingent upon consummation of the
merger.
Following the merger, IGT has agreed that all rights to indemnification of
the officers and directors of Silicon for some events occurring before the
merger will survive the merger. IGT has also agreed, subject to a limitation on
the premium costs, to maintain directors' and officers' liability insurance
covering Silicon's directors and officers for a period of six years.
B III is the holder of 39,750 shares of Series D Preferred Stock, the only
series of preferred stock currently outstanding. B III also holds approximately
$11.3 million in aggregate principal amount of two classes of outstanding senior
notes issued by Silicon in November of 1999. Under the agreements controlling
those notes, as well as the Certificate of Determination under which the Series
D Preferred Stock is governed, we must get B III's consent prior to consummating
this merger. B III has agreed to consent to the transaction, and has entered a
voting agreement with IGT under which it agreed to vote all of its shares of
capital stock of Silicon in favor of the merger transaction. As part of the
merger transaction, all outstanding amounts owed to B III under the notes,
including accrued interest and early payment premiums, will be paid to B III out
of the merger consideration prior to determining the per share proceeds for the
holders of common stock. B III is entitled to receive a prepayment premium under
one class of the senior notes of approximately $500,000, if those notes are paid
in full prior to their maturity. B III has also agreed that the shares of Series
D Preferred Stock it holds will participate in the merger consideration as if
those shares had been converted into shares of common stock. The 39,750 shares
of Series D Preferred Stock are convertible into 174,285,107 shares of common
stock. The 39,750 shares of Series D Preferred Stock, on an as converted basis,
represents the right to receive approximately 61% of the per share merger
consideration.
The members of Silicon's Board of Directors knew about these additional
interests and considered them when they approved the merger.
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DISSENTERS' APPRAISAL RIGHTS (PAGE ___)
Silicon's stockholders are entitled under California law to exercise
dissenters' appraisal rights in connection with the merger.
THE SPECIAL MEETING
GENERAL
This document is furnished in connection with the solicitation of proxies
from the holders of Silicon's common stock by Silicon's board of directors for
use at the special meeting. This document and the accompanying form of proxy are
first being mailed to Silicon stockholders on or about ___________, 2001.
TIME AND PLACE
The special meeting will be held at our headquarters at 2800 West Bayshore
Road, Palo Alto, California 94303, on ____________, 2001, at 9:00 a.m., local
time.
MATTERS TO BE CONSIDERED
At the special meeting, stockholders will be asked to consider and vote
upon the approval and adoption of the Merger Agreement and on other matters that
may properly be raised at the special meeting. It is not anticipated that any
other matters will be raised at the special meeting.
PROXIES
The accompanying form of proxy is for use at the special meeting if you
will be unable or do not wish to attend in person. All shares of Silicon common
stock represented by proxies properly received prior to or at the special
meeting and not revoked will be voted in accordance with the instructions
indicated in the proxies. If no voting instructions are indicated on a proxy,
the shares represented by that proxy will be voted in favor of the Merger
Agreement proposal. Any proxy given on the accompanying form may be revoked by
the person giving it at any time before it is voted. Proxies may be revoked, or
the votes reflected in the proxy changed, by:
- submitting, including by telecopy, a written notice of revocation
bearing a later date than the date of the proxy to the Secretary of
Silicon, before the vote is taken at the special meeting;
- submitting a properly executed later-dated proxy relating to the
same shares; or
- attending the special meeting and voting in person.
In order to vote in person at the special meeting, you must attend the
meeting and cast your votes in accordance with the voting procedures established
for the meeting. Attendance at the meeting will not in and of itself constitute
a revocation of a proxy. Any written notice of revocation or subsequent proxy
must be sent so as to be delivered at or before the vote is taken at the special
meeting to:
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Silicon Gaming, Inc.
2800 W. Bayshore Road
Palo Alto, California 94303
Facsimile: (650) 842-9001
Phone: (650) 842-9000
Attention: Secretary
Stockholders who require assistance in changing or revoking a proxy should
contact Silicon's Secretary at the address or phone number provided above.
Stockholders should not send in any stock certificates with their proxy
cards. A letter of transmittal with instructions for the surrender of
certificates representing Silicon common stock will be mailed to Silicon
stockholders as soon as practicable after the effective time of the merger.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by Silicon. We retained the
services of EquiServe to assist in the solicitation of proxies for which we will
pay approximately __________ plus out-of-pocket expenses. In addition, we may
reimburse brokerage houses and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation materials to such
beneficial owners. We will furnish copies of solicitation materials to such
brokerage houses and other representatives. Proxies may also be solicited by
employees, officers and directors of Silicon, personally or by telephone or
telecopy. Employees, officers and directors will not be compensated for
soliciting proxies. Except as described above, we do not presently intend to
solicit proxies other than by mail.
RECORD DATE, VOTING AND SHARE OWNERSHIP
Stockholders of record on _________, 2001 are entitled to notice of and to
vote at the special meeting. As of the record date, __________ shares of
Silicon's common stock, $.001 par value, were issued and outstanding and were
held by approximately 7,500 stockholders. On the record date, the directors and
executive officers of Silicon and their affiliates were entitled to vote
15,924,155 shares of Silicon common stock, or approximately 45.14% of the shares
of Silicon common stock outstanding on the record date.
Each stockholder is entitled to one vote for each share of common stock
held by such stockholder. A stockholder who abstains from voting on any or all
matters will be deemed present at the meeting for quorum purposes, but will be
deemed not to have voted in favor of the particular matter (or matters) as to
which the stockholder has abstained. In the event a nominee (such as a brokerage
firm) that is holding shares for beneficial owners does not receive instructions
from such beneficial owners as to how to vote those shares on certain matters
and does not have discretionary authority to vote on those matters, then the
shares held by the nominee will be deemed present at the meeting for quorum
purposes but will not be deemed to have voted on such matters (a so-called
"broker non-vote").
Approval and adoption of the Merger Agreement requires the affirmative
vote of each of the holders of a majority of Silicon common stock and Silicon
preferred stock outstanding on the record date, each voting as a separate class.
Accordingly, a proxy marked "abstain" will have the effect of a vote against the
proposal. Similarly, the failure of stockholder to return a proxy or attend the
special meeting to vote in person will have the effect of a vote against the
merger agreement proposal. The board of directors urges you to complete, date
and sign the accompanying proxy and return it promptly in the enclosed,
postage-paid envelope.
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Two executive officers, who collectively own approximately 45.1% of the
outstanding Silicon common stock (excluding additional shares that may be
acquired upon exercise of stock options), have entered into voting agreements
with IGT in which they agree, among other things, to be present at the special
meeting and to vote for the Merger Agreement proposal. The voting agreements are
described in more detail under the heading "The Merger Agreement - Voting
Agreements" below.
In addition, B III has entered into a voting agreement with IGT. B III
holds 100% of the outstanding shares of Silicon's Series D Preferred Stock, the
only series of preferred stock outstanding. Under the voting agreement, B III
agreed to vote all of its shares of Series D Preferred Stock and any other
shares of equity securities owned by it in favor of and to otherwise consent to
the merger. In addition to its Series D Preferred Stock, B III owns 441,460
shares of our outstanding common stock. This voting agreement will terminate if
the merger agreement is terminated or the merger is not completed by May 30,
2001.
THE MERGER
The members of the board of directors of Silicon have approved and adopted
the Merger Agreement by and among Silicon, IGT, and International Game
Acquisition Corporation, a copy of which is attached hereto as Annex A. The
board of directors recommends the approval and adoption of the Merger Agreement.
The members of the board of directors of Silicon believe that the proposed
merger is fair and in the best interests of Silicon and the stockholders.
Pursuant to the merger, all outstanding shares of Silicon's common stock, $.001
par value per share will be converted into the right to receive cash. See "The
Merger Agreement - Merger Consideration".
No member of the board of directors or management of Silicon has indicated
any intention to oppose any action proposed to be taken with respect to the
Merger at the Special Meeting.
PARTIES TO THE MERGER
IGT AND INTERNATIONAL GAME ACQUISITION CORPORATION
IGT is one of the largest manufacturers of computerized casino gaming
equipment and products and operators of proprietary gaming machines, including
spinning reel slot machines and video gaming machines. IGT also develops and
operates electronically-linked, inter-casino proprietary gaming machine systems,
know as wide area progressive systems. In addition, IGT has developed and sells
systems for video lotteries and casino management systems.
International Game Acquisition Corporation is a wholly-owned subsidiary of
IGT organized for the sole purpose of effecting the merger. It has not conducted
any business operations and, upon completion of the merger, its separate
corporate existence will cease.
ALL INFORMATION CONTAINED IN THIS DOCUMENT CONCERNING IGT OR INTERNATIONAL
GAME ACQUISITION CORPORATION HAS BEEN SUPPLIED BY IGT AND HAS NOT BEEN
INDEPENDENTLY VERIFIED BY SILICON.
SILICON GAMING
We are engaged in the design, development, production, marketing and sale
of interactive, software-based products for the gaming industry. To date we have
deployed our products in video-based
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slot machines that we have designed and developed for use in casinos and other
gaming establishments. These machines combine a multimedia gaming platform with
the software-based games. Our games feature high-quality animation, video clips,
digital sound and a level of visual appeal and interactivity. For a more
detailed description of our business, please read the enclosed annual report on
Form 10-K for the fiscal year ended December 31, 1999.
BACKGROUND OF THE MERGER
BACKGROUND OF THE MERGER
The terms and conditions of the merger were determined through arm's
length negotiations between the senior management of Silicon and IGT, and the
respective boards of directors of Silicon and IGT. The discussions resulted in
written proposals from IGT to acquire Silicon in a cash-out merger. The
following is a brief discussion of the contacts and negotiations that have
occurred between Silicon and IGT.
In September 2000, Andrew S. Pascal, President and Chief Executive Officer
of Silicon, communicated with representatives from six companies to discuss a
strategic partnership with or acquisition of Silicon. Between September 2000 and
October 5, 2000, Silicon received proposals for the acquisition of Silicon from
three separate entities. On October 5, 2000, the board of directors of Silicon
met to review the alternative transactions and resolve the most appropriate
course of action. After careful consideration of each offer, the board concluded
that IGT appeared to be the most viable candidate and instructed Mr. Pascal to
continue discussions with IGT.
On October 6, 2000, Mr. Pascal spoke with representatives of IGT and
discussed with them the proposed deal structure and terms. IGT and its counsel
reviewed Silicon's balance sheet items and discussed the tax implications of a
stock purchase versus an asset sale. IGT then made a counter proposal which
contemplated the purchase of the outstanding stock of Silicon, rather than an
asset acquisition. Mr. Pascal contacted Mr. Stan Springel and Mr. Rob Reis, the
other members of Silicon's Board of Directors, and informed them of IGT's offer.
The board concluded that IGT's proposal appeared to be acceptable, and that
Silicon should proceed in negotiations with IGT regarding this transaction.
On October 6, 2000, Mr. Pascal contacted IGT and indicated that Silicon
would accept their offer, provided that the parties executed a letter of intent
no later than the end of the following week and that the letter of intent
provided for a break-up fee payable by IGT equal to of 5% of the transaction
value. IGT and Mr. Pascal had further discussions regarding the structure of the
deal and how changes in the balance sheet would result in price adjustments and
they also discussed the capital structure of Silicon.
On October 9, 2000, Mr. Pascal contacted the other bidders to inform them
that Silicon intended to accept the offer from IGT.
On October 11, 2000, Mr. Pascal received a fax from one of the other
bidders detailing a revised offer. It consisted of a cash-for-stock transaction
in the amount of $42.0 million with a $1.0 million non-refundable deposit to be
paid upon acceptance of the offer. Mr. Pascal immediately contacted Silicon's
outside counsel to inform them of the new offer and to confirm the process for
reviewing and considering the proposal. Outside counsel advised Mr. Pascal to
contact the other members of the board of directors to inform them of the new
proposal and discuss the approach for reaching a decision and obtaining the
greatest value for the stockholders of Silicon and the greatest certainty of
consummating a transaction.
On October 12, 2000, Mr. Pascal spoke with Messrs. Springel and Reis, the
other directors of Silicon, and outside counsel to discuss the process for
obtaining the best offer for Silicon. The board
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concluded that a deadline would be established, all active bidders would be
given an opportunity to submit their best and highest offer prior to this
deadline and all offers received prior to the deadline would be given due
consideration.
On October 12, 2000, Mr. Pascal called IGT to inform them of the situation
and the process Silicon was adhering to, which was to accept best and final
offers by noon on October 13, 2000, after which the board would meet to review
the offers and make a decision. Mr. Pascal also indicated that Silicon would
look for an irrevocable advance at the time of accepting the offer, in exchange
for which Silicon would agree not to solicit additional offers from other
parties.
On October 13, 2000, Silicon extended the deadlines for receiving the best
offer to October 16, 2000, and communicated this extension to IGT and the other
bidder.
On October 16, 2000, Silicon received IGT's final proposal for an
acquisition of Silicon's common stock for $45.0 million (less outstanding
liabilities of Silicon at closing) in cash, of which $2.5 million would be
prepaid upon the signing of a letter of intent. The proposal contemplated that
Silicon would dispose of all of its shares of WagerWorks other than a number of
shares representing 4.9% of the equity interest of WagerWorks. Silicon also
received the other bidder's proposal, which now proposed an acquisition of
Silicon's common stock for $42.0 million in cash, a refundable $1.0 million
advance, and survival of Silicon's representations and warranties beyond the
closing of the merger. A meeting of the board of directors was held to review
the proposals from both IGT and the competing bidder. After consideration of the
alternative proposals, the Silicon board of directors concluded that the IGT
transaction was in the best interests of Silicon's shareholders, and it
unanimously voted to accept the IGT proposal.
From October 16, 2000 through December 19, Silicon and its outside counsel
worked with IGT and its outside counsel to negotiate and draft the definitive
merger agreement as well as the voting agreements and consulting agreements. IGT
performed its diligence review on Silicon, and the various officers and
personnel of each company met or communicated to discuss in greater detail the
business operations of Silicon, including Silicon's agreements with third
parties, its employees and its plans for conduct of its business through
consummation of the proposed merger. Silicon continued to communicate with B III
regarding the proposed transaction, and B III negotiated with IGT and its
counsel with regard to its voting agreement.
On October 26, 2000, the board of directors of Silicon met to discuss the
adoption of a severance and retention plan. The board members discussed the
functionality of such plan and Silicon's need to avoid the incurrence of
additional debt. After discussion with outside counsel, the board of directors
of Silicon agreed that the adoption of a severance plan was advisable and would
continue investigating various alternatives.
On November 16, 2000, Silicon engaged US Bancorp Libra, a division of US
Bancorp Investments, Inc., to analyze the fairness of the proposed transaction
to the stockholders of Silicon.
On November 7, 2000, the board of directors of Silicon met to discuss the
severance plan. After discussion among the board members of the various terms of
the severance plan, the severance plan was approved and adopted subject to
further refinements and/or adjustments as the board of directors deemed
necessary.
On November 29, 2000, the board of directors of Silicon met to discuss the
merger transaction. The board members reviewed the current draft of the merger
agreement and discussed the terms and
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provisions with the outside counsel. US Bancorp Libra attended the meeting via
telephone and indicated that, subject to completion of its due diligence, it
could render its opinion within the next week.
On December 7, 2000, the board of directors again met to discuss the
merger transaction. US Bancorp Libra participated in the meeting and indicated
that, in its opinion, based on its diligence review and analysis, the merger
transaction was fair to the equity holders of Silicon, taken as a whole, from a
financial point of view, and that it would deliver its written and signed
opinion, as of December 7, 2000. The board of directors asked questions of US
Bancorp Libra regarding its diligence review and analysis. The board of
directors reviewed the latest draft of the Agreement and Plan of Merger and
discussed the terms and provisions with outside counsel, our President and Chief
Executive Officer, and our Chief Financial Officer. The board of directors
determined at that time that the proposed merger transaction was in the best
interests of the company and its stockholders. The board of directors voted to
approve the Agreement and Plan of Merger, and to call a special meeting of the
stockholders to vote on the approval of the merger agreement.
Between December 7 and December 19, 2000, the parties continued to
negotiate minor revisions to the documentation and on December 19, 2000, entered
into the definitive Agreement and Plan of Merger attached to this Proxy
Statement as Annex A.
On January 4, 2001, the board of directors met and ratified the final
Merger Agreement and severance and retention plan.
REASONS FOR THE MERGER; RECOMMENDATION OF SILICON BOARD
The board of directors of Silicon believes that the merger is in the best
interest of Silicon and its stockholders, and unanimously approved the Merger
Agreement and recommends the approval and adoption of the Merger Agreement by
Silicon stockholders. In reaching this decision, the board of directors
consulted with Silicon management and with Silicon's financial and legal
advisors and considered a variety of factors, including the following material
factors:
- the earnings, operations, financial condition and business prospects
of Silicon, including the uncertainty of our ability to continue
operations in the long term;
- the belief that IGT is an attractive and strong merger partner
because of the existing strong business of IGT and financial ability
to complete the proposed merger transaction;
- a review of the possible alternatives to a sale of Silicon,
including the prospects of continuing to operate Silicon as an
independent company. We considered the value to the stockholders of
these alternatives, the timing and likelihood of achieving value
from these alternatives, and the possibility that Silicon's future
stock price might not have a present value greater than the
consideration to be paid in the merger;
- the presentation by US Bancorp Libra, its analysis of the value of
Silicon and its opinion dated as of December 7, 2000 that, as of the
date of the opinion, the merger consideration was fair from a
financial point of view to the equity holders of Silicon taken as a
whole;
- the ability to complete the merger, including, in particular, the
likelihood of obtaining regulatory approval and the provisions of
the Merger Agreement regarding IGT's and Silicon's obligations to
pursue the regulatory approvals;
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- the terms of the Merger Agreement, as negotiated, including IGT's
agreement to pay, under certain circumstances, a termination fee if
it terminates the agreement, our ability to respond to, and to
accept, an unsolicited higher offer if consistent with the board of
director's fiduciary responsibilities and the requirement that we
pay a termination fee in those circumstances;
- the current and prospective environment in which Silicon operates,
including economic conditions and the competitive environment of the
gaming industry;
- the interest of Silicon's officers and directors that are different
from or in addition to the interests of Silicon stockholders
generally; and
- the willingness of Silicon's three largest stockholders to approve
the merger and to execute voting agreements supporting the
transaction.
The above summary of the information considered and the factors discussed
by the board of directors is not meant to be exhaustive, but includes the
material matters considered by the board of directors. In reaching its
determination to approve the Merger Agreement, the board of directors did not
assign any relative or specific weight to the factors, and individual directors
may have considered various factors differently. The board of directors
considered all of the factors as a whole and considered the factors in their
totality to be favorable to and to support the decision to approve the Merger
Agreement and to recommend that Silicon's stockholders approve it. The board of
directors relied on the experience and expertise of US Bancorp Libra, its
financial advisor, for quantitative analysis of the financial terms of the
merger.
OPINION OF FINANCIAL ADVISOR
U. S. Bancorp Libra, a division of U.S. Bancorp Investments, Inc.
("Libra"), was retained to serve as a consultant to Silicon in a limited
capacity and has delivered a written opinion to the Company's Board of
Directors, dated December 7, 2000 (the "Opinion"), to the effect that, as of the
date of such opinion, the Merger Consideration to be received by the equity
holders of the Company in the Merger is fair from a financial point of view to
such holders. The full text of the Opinion, which sets forth the assumptions
made, matters considered and limitations on the review undertaken in connection
with such Opinion, is attached as Annex B to the this Proxy Statement, as filed
with the Securities and Exchange Commission in connection with the Merger, a
copy of which is being provided to equity holders. The summary of the Opinion
set forth in this proxy statement is qualified in its entirety by reference to
the full extent of such Opinion. Equity holders are urged to read such Opinion
carefully and in its entirety.
No limitations were imposed by Silicon on the scope of Libra's
investigation or the procedures to be followed by Libra in rendering its
Opinion. Libra was not requested to and did not make any recommendation to the
board of directors of Silicon as to the form or amount of the consideration to
be accepted by Silicon in the merger, which was determined through arm's length
negotiations between Silicon and IGT. In arriving at its Opinion, Libra did not
ascribe a specific range of value to Silicon, but rather made its determination
as to the fairness, from a financial point of view, of the consideration to be
offered to the holders of Silicon Common Stock in the merger on the basis of the
financial and comparative analyses described below.
It should be understood that, although subsequent developments may affect
Libra's Opinion, Libra does not have any obligation to update, revise or
reaffirm their Opinion. Libra's Opinion does not address Silicon's underlying
business decision to effect the merger or the strategic and operational benefits
of the merger. Libra's Opinion is directed only to the fairness, from a
financial point of view, of the proposed consideration to be offered to equity
holders of Silicon in the merger and does not constitute
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a recommendation to any holder as to how such holder should vote with respect to
the merger.
In arriving at its Opinion, Libra, among other things: (i) reviewed
certain publicly available business and historical financial information
relating to Silicon, (ii) reviewed certain internal financial information and
other data relating to the business and financial prospects of Silicon,
including estimates and financial forecasts prepared by management of Silicon,
that were provided to Libra by Silicon and not publicly available, (iii)
discussed the proposed transaction with Silicon's largest equity holder, (iv)
discussed the sale process with Silicon's management, (v) conducted discussions
with members of Silicon's senior management regarding the information and other
data relating to the business and financial prospects of Silicon, (vi) reviewed
publicly available financial and stock market data with respect to certain other
companies in lines of business Libra believed to be generally comparable to
those of Silicon, (vii) compared the financial terms of the merger with the
publicly available information with respect to the financial terms of certain
other transactions that Libra believed to be generally relevant, (viii) reviewed
the draft Merger Agreement provided, and (ix) conducted such other financial
studies, analyses, and investigations, and considered such other information as
Libra deemed necessary or appropriate.
In arriving at its Opinion, Libra assumed and relied upon the accuracy and
completeness of the financial and other information used by Libra without
assuming any responsibility for independent verifications of such information
and further relied upon the assurances of the management of Silicon that it is
not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial forecasts and estimates
of Silicon, upon advice of Silicon, Libra assumed that such forecasts and
estimates were reasonably prepared on a basis reflecting the best currently
available estimates and judgment of the management of Silicon as to the future
financial performance of Silicon and that Silicon would perform substantially in
accordance with such projections. In arriving at its Opinion, Libra did not make
any detailed physical inspection of the properties or assets of Silicon and did
not make or obtain any evaluations or appraisals of the assets or liabilities
(contingent or otherwise) of Silicon. Libra's Opinion necessarily was based upon
economic, monetary, market, and other conditions as they existed on, and could
be evaluated as of, December 7, 2000.
In connection with the preparation and delivery of its Opinion to the
board of directors of Silicon, Libra performed a variety of financial and
comparative analyses, as described below. The preparation of an opinion involves
various determinations as to the most appropriate and relevant methods of
financial and comparative analysis and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its Opinion,
Libra did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Libra believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and factors, without considering all analyses and factors, could create
a misleading or incomplete view of the process underlying its Opinion. In its
analyses, Libra made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Silicon. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Silicon did not authorize Libra to, and Libra did not, solicit indications
of interest in a business combination with Silicon from any party. Accordingly,
Libra's Opinion does not address the relative merits of the merger as compared
to any alternative business transaction that might be available to Silicon.
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Transaction Terms.
The value to be received by holders of Silicon common stock is estimated
to be between $0.0825 and $0.0950 per share in cash, subject to adjustment under
certain circumstances.
Comparable Public Company Analysis.
Libra compared the historical operating, financial and stock market
performances of certain publicly traded companies that it considered relevant
with the historical operating, financial and stock market performance of
Silicon, based upon information provided to Libra by the management of Silicon
and information that was publicly available. The companies that Libra included
as comparable gaming equipment companies were Casino Data Systems, Inc.,
Innovative Gaming Corp. of America, International Game Technology, Inc., Mikohn
Gaming Corp., Shuffle Master, Inc. and WMS Industries, Inc. (the "Silicon
Comparable Companies"). For each of the Silicon Comparable Companies with
meaningful operating data, Libra reviewed the revenues and earnings before
interest, taxes, depreciation and amortization.
For each of the Silicon Comparable Companies, Libra compared total
enterprise multiples of revenue and total enterprise multiples of earnings
before interest, taxes, depreciation and amortization.
Precedent Transaction Analysis.
Libra compared the price being paid for Silicon to certain other gaming
equipment manufacturer transactions. Libra compared the total enterprise value
to revenue and total enterprise value to earnings before interest, taxes,
depreciation and amortization of such transactions to the comparable multiples
being paid for Silicon.
Libra is an internationally recognized investment banking firm and, as
part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The board of directors of Silicon
selected Libra because of its expertise, reputation and familiarity with Silicon
in particular and the gaming industry in general and because its investment
banking professionals have substantial experience in transactions similar to the
merger.
As compensation for its services in connection with the Opinion, Silicon
has agreed to pay Libra a fee, upon rendering of the opinion, equal to
approximately $100,000. In addition, Libra is to receive a fee of $100,000 for
valuation work performed on WagerWorks, Inc. Furthermore, Silicon has agreed to
reimburse Libra for reasonable out-of-pocket expenses incurred in connection
with the merger and to indemnify Libra for certain liabilities that may arise
out of its engagement by Silicon and the rendering of its Opinion.
Libra is acting as the provider of an Opinion with the merger. In the
ordinary course of its business, Libra, its successors and affiliates, for their
own accounts and for the accounts of their customers, may trade securities of
Silicon or IGT and, accordingly, may at any time hold a long or short position
in such securities.
REGULATORY MATTERS
Silicon and IGT are subject to extensive gaming regulations. Silicon, IGT
and their subsidiaries hold registrations, approvals, gaming licenses or permits
in each jurisdiction in which they operate
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gaming activities. In each of these jurisdictions, regulatory requirements must
be complied with in order for us to complete the merger. Generally, regulatory
authorities have broad discretion in granting, renewing and revoking gaming
licenses and granting approvals.
The following discussion is an abbreviated description of the various
gaming regulatory requirements applicable to the merger. For a more detailed
description of these gaming regulatory requirements generally, please see the
Annual Report on Form 10-K of IGT for the year ended December 31, 1999 and the
Annual Report on Form 10-K of Silicon for the year ended December 31, 1999.
Nevada Gaming Regulations.
The manufacturing and distributing of gaming devices and operation of
casino slot route within Nevada are subject to the Nevada Gaming Control Act and
the regulations of the Nevada Gaming Commission and the Nevada State Gaming
Control Board (collectively, the "Nevada Act") and various local ordinances and
regulations.
IGT's and Silicon's respective operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission, the Nevada State Gaming
Control Board, and various local licensing agencies (collectively, the "Nevada
Gaming Authorities"). Regulations of the Nevada Gaming Commission provide that
control of a registered publicly-traded corporation such as Silicon cannot be
acquired through a tender offer, merger, consolidation, acquisition of assets,
management or consulting agreements or any form of takeover whatsoever without
the prior approval of the Nevada Gaming Commission. IGT has filed applications
seeking the necessary approvals with the Nevada State Gaming Control Board and
the Nevada Gaming Commission. Silicon also has filed an application in
connection with the merger. The Nevada State Gaming Control Board reviews and
investigates applications for approval and makes recommendations on those
applications to the Nevada Gaming Commission for final action. IGT is currently
registered as a publicly-traded corporation and has been found suitable to own
the shares of its subsidiaries that engage in the manufacture and distribution
of gaming devices in Nevada. Accordingly, IGT does not expect significant delays
in obtaining necessary approvals. However, there can be no assurance that these
approvals will be granted or will be granted on a timely basis or without
burdensome conditions. Furthermore, any such approval, if granted, does not
constitute a finding, recommendation or approval by the Nevada State Gaming
Control Board or the Nevada Gaming Commission as to the merits of the merger.
Any representation to the contrary is unlawful.
In seeking approval to acquire control of Silicon, IGT must satisfy the
Nevada Gaming Commission as to a variety of stringent standards. The Nevada
State Gaming Control Board and the Nevada Gaming Commission will consider all
relevant material facts in determining whether to grant this approval, and may
consider not only the effects of the merger but also any other facts that are
deemed relevant. Such facts may include, among others:
- The business history of the applicant, including its record of
financial stability, integrity and success of its operations, as
well as its current business activities;
- The adequacy of the proposed financing; and
- Whether the merger will create a significant risk that IGT, Silicon
or their subsidiaries will not satisfy their financial obligations
as they become due or satisfy all financial and regulatory
requirements imposed by the Nevada Act.
Following receipt of the necessary approvals of the Nevada Gaming
Commission and completion of the merger, Silicon will be registered by the
Nevada Gaming Commission as an intermediary company
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of IGT and will be found suitable as the sole stockholder of Silicon
Gaming-Nevada, Inc. In addition, the officers and directors of Silicon may also
be required to be found suitable or licensed by the Nevada Gaming Authorities.
The Nevada Gaming Authorities may deny an application for licensing, a finding
of suitability or registration for any cause that they deem reasonable. A
finding of suitability is comparable to licensing, and both require the
submission of detailed personal and financial information followed by a thorough
investigation. All individuals required to file applications for findings of
suitability as officers and directors of Silicon at the time of completion of
the merger have filed applications with the Nevada State Gaming Control Board
and the Nevada Gaming Commission.
Other Regulatory Matters.
Other gaming regulatory approvals may be required prior to the merger
being consummated. The merger cannot take place until the necessary regulatory
approvals have been received and any waiting periods required by law have
expired. Silicon and IGT have filed (or will promptly file) all of the required
applications or notices necessary to complete the merger with each of the
applicable regulatory authorities. We cannot be sure whether or when regulatory
approval will be obtained or that the regulatory approval will be obtained
without conditions that are detrimental to Silicon or IGT.
We cannot complete the merger unless gaming regulatory requirements are
complied with, and approval is obtained from applicable regulatory authorities.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO SILICON STOCKHOLDERS
The following is a summary of the material United States federal income
tax consequences of the merger to Silicon's stockholders. The summary does not
purport to be a description of all tax consequences that may be relevant to
Silicon stockholders, and assumes an understanding of tax rules of general
application. It does not address special rules which may apply to Silicon
stockholders based on their tax status, individual circumstances or other
factors unrelated to the merger. Stockholders are encouraged to consult their
own tax advisors regarding the merger.
The receipt of cash by you in exchange for Silicon common stock pursuant
to the merger will be a taxable transaction for federal income tax purposes and
my also be a taxable transaction under applicable state, local and foreign tax
laws. You will generally recognize gain or loss for federal income tax purposes
in an amount equal to the difference between the amount of cash you receive and
your adjusted tax basis in Silicon common stock exchanged. The gain or loss will
be a capital gain or loss if you held the Silicon common stock as a capital
asset, and will be a long-term capital gain or loss if, at the effective time of
the merger, you held Silicon common stock for more than one year. The
deductibility of capital losses is subject to certain limitations.
Under the federal income tax backup withholding rules, unless an exemption
applies, IGT is required to and will withhold 31% of all payments to which you
are entitled in the merger, unless you provide a tax identification number and
you certify under penalties of perjury that the number is correct. If you are an
individual your tax identification number is your social security number. If you
are not an individual your tax identification number is your employer
identification number. You should complete and sign the substitute Form W-9,
which will be included with the letter of transmittal to be returned to the
exchange agent, in order to provide the information and certification necessary
to avoid backup withholding, unless an applicable exception exists and is proved
in a manner satisfactory to the exchange agent. Some of our stockholders,
including corporations and some foreign individuals, are not subject to these
backup withholding and reporting requirements. In order for a foreign individual
to qualify as an exempt recipient, however, he or she must submit a Certificate
of Foreign Status on Form W-8 attesting
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to his or her exempt status. Any amounts withheld will be allowed as a credit
against the holder's federal income tax liability of that year.
The foregoing discussion may not apply to Silicon stockholders who
acquired their Silicon common stock as a result of the exercise of employee
stock options or other compensation arrangement with Silicon or who are not
citizens or residents of the United States or who are otherwise subject to
special tax treatment. Each Silicon stockholder is urged to consult his, her or
its tax advisor to determine the tax consequences of the merger, including the
effects of applicable state, local, foreign or other tax laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Silicon's board of directors to
approve the merger, you should be aware that some of our directors and executive
officers have interests in the merger that are in addition to the benefits they
will receive as stockholders. These interests exist because of rights under
benefit and compensation plans maintained by Silicon and, in the case of some of
the executive officers, under employment agreements with Silicon that may
provide some of our executive officers with severance benefits if their
employment is terminated following the merger. Additionally, some of our
compensation and benefit plans provide for accelerated vesting of stock options
as a result of the merger.
Severance and Retention Plan
There are currently outstanding options to purchase up to 75,790,509
shares of Silicon common stock issued under the 1999 Long Term Compensation
Plan. The board of directors has approved a measure to waive the exercise price
of all options outstanding that were issued under this plan and are held by
employees currently employed by Silicon or who were recently terminated. In
addition, option agreements held by certain terminated employees were amended
prior to their termination to allow them to exercise their options past the
standard 90 days allowed, until the later of date of the consummation of the
merger, or thirty days following the formal termination of the merger agreement.
We implemented this plan because our revenues no longer justify supporting our
full staff of employees, and we do not have sufficient cash to adequately fund a
severance and retention plan and still maintain our business operations through
the consummation of the merger without incurring additional debt. Any debt we
incurred, or cash we expended funding a plan, would result in a lower aggregate
merger consideration under the merger agreement. In order for the company to
remain a viable entity and to continue operations through the merger transaction
we believe we needed to give our existing workforce incentives to remain through
consummation of the merger. We also believe we needed to compensate those
employees we involuntarily terminated for their efforts to bring value to the
company since the consummation of our restructuring in November of 1999.
The plan includes severance or retention payments, accelerated vesting of
options and waiver of option exercise strike prices. Employees who receive
benefits under this plan may also be current stockholders of the company and
therefore entitled to vote on the proposed merger transaction. Without this
severance and retention plan it is likely that employees would voluntarily leave
Silicon and seek employment elsewhere. If too many of our employees left
voluntarily, and we were unable to continue our business operations through
consummation of the merger, it could result in an adverse impact on the value of
Silicon or a termination of the proposed merger agreement, both of which could
mean a decrease in value for our stockholders. Employees who voluntarily leave
the company prior to consummation of the merger will not participate in the
severance and retention plan. Andrew Pascal, Thomas Carlson and Paul Matthews
will not receive any cash severance payments under the plan.
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Nearly all of the options granted under the 1999 Long Term Compensation
Plan vested 20% upon their issuance, and 1/48th for each of the 48 consecutive
months following issuance. Of all the options issued under the plan,
approximately 40% of the initial grant amount has vested. Under the terms and
provisions of the plan, in the event of a merger, all unvested options
immediately become exercisable. All outstanding options held by our employees,
or recently terminated employees, will participate in the merger as if they had
exercised their options on the date of the consummation of the merger.
Essentially, these options will be treated as shares and included in the total
outstanding number of shares used to determine the per share merger
consideration.
Of the outstanding options to purchase 75,790,509 shares of common stock,
nearly 86% (or approximately 64,972,081) were issued in February of 2000 at an
exercise price of $0.0075 per share. Additional options to purchase 6,416,181
shares of common stock were issued subsequent to February of 2000, with exercise
prices ranging from $0.0075 per share to $0.075 per share. The total aggregate
exercise price to be waived for these options to purchase an aggregate of
71,388,262 shares of common stock is approximately $960,000. The remaining
outstanding options to purchase 4,402,247 shares of common stock, were issued at
exercise prices ranging from $0.1875 to $0.4531. Although the exercise price
will be waived for these options as well, we have excluded the exercise price of
these options in calculating the aggregate exercise price to be waived on the
assumption that none of the holders of these options would have elected to
exercise their options because their exercise prices are substantially in excess
of the range of proceeds we estimate will be received by stockholders of the
company in the merger. These options to purchase 4,402,247 shares of common
stock represent approximately 1.5% of the aggregate merger consideration to be
received by the stockholders of Silicon in the proposed merger.
The exercise prices for outstanding options granted under the 1994 Stock
Option Plan, the 1996 Outside Directors Stock Option Plan and the 1997
Nonstatutory Stock Option Plan, all of which are plans adopted prior to our debt
restructuring in November 1999, will not be waived.
Waiver of Promissory Notes
On November 24, 1999, Andrew Pascal and Paul Mathews were issued
restricted stock under the 1999 Long Term Compensation Plan. Each was issued
7,828,745 shares of restricted stock at a price of $0.015 per share. Messrs.
Pascal and Mathews issued promissory notes to Silicon as consideration for these
shares, each in the amount of $117,431.17, and also pledged their shares as
collateral against the obligations under those promissory notes. The board of
directors has elected to waive any amounts due under these notes so long as the
merger is consummated. As such, Messrs. Pascal and Mathews will likely not have
to pay the promissory notes or any interest accrued to date. As of December 1,
2000, each of the notes had accrued interest in the amount of $7,503.85. Mr.
Pascal is the company's President and Chief Executive Officer. Mr. Mathews is
the company's Executive Vice President and Chief Operating Officer.
Consulting Agreements
IGT has offered Messrs. Pascal, Mathews and Carlson, three of our
officers, consulting agreements. All three agreements are for a period of six
months. Two of the agreements offered to Messrs. Pascal and Mathews are for an
aggregate of $25,000 and the consulting agreement offered to Mr. Carlson, the
company's Chief Financial Officer, is for an aggregate of $15,000. Under the
terms of the agreements, the consultants will be paid monthly regardless of the
amount of consultation provided by each person. Mr. Pascal owns 8,045,410 shares
of common stock of Silicon and options to purchase 15,103,509 shares of common
stock, and Mr. Mathews owns 7,878,744 shares of common stock of Silicon. Mr.
Carlson holds options to purchase 5,656,773 shares of common stock.
Collectively, Messrs.
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Pascal and Mathews hold approximately 45.1% of the voting common stock of
Silicon (excluding additional shares that may be acquired upon exercise of stock
options).
Indemnification of Directors and Officers
Following the merger, IGT has agreed all rights to indemnification the
officers and directors of Silicon have for some events occurring before the
merger will survive the merger. IGT has also agreed to pay, subject to a
limitation on premium costs, for one half of the expense of purchasing directors
and officers insurance policies that will cover the officers and directors of
Silicon for wrongful acts that occur prior to the consummation of the merger.
The policies will remain in force for six years after the date of the merger.
All three board members and all of the officers of the company will benefit from
this agreement and the policies.
B III
B III is the holder of 39,750 shares of Series D Preferred Stock, the only
series of preferred stock currently outstanding. B III also holds approximately
$11.3 million in aggregate principal amount of two classes of outstanding senior
notes issued by Silicon in November of 1999. Under the agreements controlling
those notes, as well as the Certificate of Determination under which the Series
D Preferred Stock are governed, we must get B III's consent prior to
consummating this merger. B III has agreed to consent to the transaction, and
has entered a voting agreement with IGT under which it agreed to vote all of its
shares of capital stock of Silicon in favor of the merger transaction. As part
of the merger transaction, all outstanding amounts owed to B III under the
notes, including accrued interest and early payment premiums, will be paid to B
III out of the merger consideration prior to determining the per share proceeds
for the holders of common stock. B III is entitled to receive a prepayment
premium under one class of the senior notes of approximately $500,000, if those
notes are paid in full prior to their maturity. B III has also agreed that the
shares of Series D Preferred Stock it holds will participate in the merger
consideration as if those shares had been converted into shares of common stock.
The 39,750 shares of Series D Preferred Stock are convertible into 174,285,107
shares of common stock.
The members of Silicon's board of directors knew about these additional
interests and considered them when they approved the merger.
DISSENTERS RIGHTS
If you hold Silicon common stock and you do not wish to accept the merger
consideration, as described in this proxy statement, then Chapter 13 (Sections
1300 through 1312) of the California General Corporation Law provides that you
may elect instead to receive cash in the amount of the "fair market value" of
your shares (exclusive of any appreciation or depreciation in connection with
the proposed merger) determined as of the day before the first announcement of
the terms of the proposed merger if dissenters rights are available. Dissenters'
rights will be available if demands for payment are properly filed with Silicon
with respect to 5% or more of Silicon outstanding shares on or prior to the date
of Silicon's special shareholders meeting.
Chapter 13 is set forth in its entirety in Annex C to this proxy
statement. If you wish to exercise your dissenters' rights or to preserve the
right to do so, you should carefully review Annex C. If dissenters' rights are
available and you fail to comply with the procedures specified in Chapter 13 in
a timely manner, you may lose your dissenters' rights. Because of the complexity
of these procedures, you should seek the advice of counsel if you are
considering exercising your dissenters' rights.
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If you wish to exercise your dissenters' rights under Chapter 13, you must
satisfy each of the conditions described below:
Demand for Purchase. You must deliver to Silicon a written demand for
purchase of your shares of Silicon common stock, and it must be received not
later than the date of Silicon's special shareholders meeting. This written
demand is in addition to and separate from any proxy or vote against the
principal terms of the merger agreement. Merely voting against the approval of
the principal terms of the merger agreement will not constitute a demand for
appraisal within the meaning of Chapter 13.
The demand for purchase must be made in writing and must be mailed or
delivered to Silicon's offices at 2800 W. Bayshore Road, Palo Alto, California
94303, Attention: Corporate Secretary. The demand must state the number and
class of shares you hold of record that you demand to be purchased and the
amount claimed to be the "fair market value" of those shares on December 18,
2000, the day before the announcement of the merger (exclusive of any
appreciation or depreciation in connection with the proposed merger). The
statement of the fair market value will constitute an offer by you to sell such
dissenting shares at that price.
Voting Your Dissenting Shares Against the Merger. You must vote your
dissenting shares against the merger.
Submission of Stock Certificates. If it is determined that dissenters'
rights are available, you must deliver your shares to Silicon within 30 days
after the date on which notice of shareholder approval of the merger is mailed
to you by Silicon. The certificates representing the shares will be stamped or
endorsed with a statement that they are dissenting shares. The notice will be
mailed by Silicon within 10 days after the approval of the merger and will
contain a statement of the price which Silicon has determined to be the fair
market value of Silicon common Stock on December 18, 2000, the day before the
first announcement of the merger. The statement of price will constitute an
offer to purchase any dissenting shares at that price.
Disagreement Regarding Dissenting Shares of Fair Market Value. If Silicon
denies that the shares are dissenting shares or if you disagree with Silicon as
to the calculation of "fair market value," you must file a petition in the
Superior Court of the appropriate county demanding a determination of the fair
market value of your shares of Silicon common stock. This petition must be filed
by either you or Silicon within six months of the notice of approval of the
merger described above. If a suit is filed to determine the fair market value of
the shares of Silicon common stock, the costs of the action will be assessed or
apportioned as the court concludes is equitable, provided that Silicon must pay
all such costs if the value awarded by the court is more than 125% of the price
offered by Silicon. You will continue to have all the rights and privileges
incident to your dissenting shares until the fair market value of the shares is
agreed upon or determined or you lose your dissenters' rights.
If dissenters' rights are available and you properly demand appraisal of
your shares of Silicon common stock under Chapter 13 but you fail to perfect or
withdraw your right to appraisal, your shares of Silicon common stock will be
converted into Merger Consideration as described in "The Merger Agreement -
Merger Consideration" .
You will lose your right to require Silicon to purchase your shares of
Silicon common stock if:
- the merger is terminated,
- you transfer the dissenting shares prior to submitting them for
endorsement as dissenting shares,
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- you and Silicon do not agree upon the status of the shares as
dissenting shares or upon the purchase price, and neither you nor
Silicon files a complaint or intervenes in a pending action within
six months after the date on which notice of approval of merger was
mailed to shareholders or
- with the consent of Silicon, you withdraw your demand for purchase.
Dissenters' rights cannot be validly exercised by persons other than
shareholders of record regardless of the beneficial ownership of the shares. If
you are a beneficial owner of shares that are held of record by another person,
such as a broker, a bank or a nominee, and you want to dissent from approval of
the merger, you should instruct the record holder to follow the procedures in
Annex C for perfecting your dissenters' rights.
If you are considering exercising your dissenters' rights, you should be
aware that the fair market value of your shares of Silicon common stock as
determined under Chapter 13 could be greater than, the same as, or less than the
merger consideration. The Opinion delivered by Libra is not an opinion as to
fair market value under Chapter 13.
The foregoing is a summary of the provisions of Chapter 13 of the General
Corporation Law of the State of California and is qualified in its entirety by
reference to the full text of Chapter 13, which is included as Annex C.
THE MERGER AGREEMENT
This section describes the material provisions of the Merger Agreement,
the legal document that governs the merger, and the voting agreements. The
following information, as it relates to matters contained in or contemplated by
the agreements, is qualified in its entirety by reference to the full text of
the Merger Agreement, a copy of which is attached as Annex A to this proxy
statement and incorporated into this document. We urge you to read the agreement
in its entirety.
FORM OF MERGER
Pursuant to the Merger Agreement, at the effective time of the merger,
International Game Acquisition Corporation will merge with and into Silicon
under California law. As a result of the merger, the separate corporate
existence of International Game Acquisition Corporation will cease and Silicon,
as the surviving corporation in the merger, will continue its existence as a
wholly-owned subsidiary of IGT and will continue under the name of Silicon. As a
result of the merger, all of the properties, assets, rights, privileges,
immunities and powers of Silicon and International Game Acquisition Corporation
will vest in the surviving corporation, and all liabilities and obligations of
Silicon and International Game Acquisition Corporation will become the
liabilities and obligations of the surviving corporation.
Prior to the merger, Silicon intends to dispose of its shares of common
stock of WagerWorks, other than a number of shares equal to 4.9% of the equity
interest of WagerWorks, on a fully diluted basis as of the date of the Merger
Agreement, in accordance with Section 5.10 of the Merger Agreement. See
"WagerWorks Disposition". This disposition is a condition precedent to
completion of the merger.
MERGER CONSIDERATION
At the effective time of the merger, each share of Silicon common stock
then outstanding will be converted into the right to receive cash, without
interest, as described in Section 2.1 of the Merger
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Agreement. Under the Merger Agreement, upon consummation of the merger, IGT, in
consideration for 100% of the equity interests in Silicon, will pay $45,000,000
(the "Aggregate Merger Consideration"), of which $2,500,000 (the "Prepayment
Amount") was previously paid to Silicon on October 17, 2000 as a nonrefundable
deposit. The Aggregate Merger Consideration is subject to adjustments as set
forth in Section 2.1(b) of the Merger Agreement, which include:
- an increase of the Aggregate Merger Consideration, on a dollar for
dollar basis, in an amount equal to the aggregate of
- accounts receivables (net of any allowance for doubtful
accounts),
- cash on hand (including any proceeds from the disposition of
WagerWorks), and
- prepaid expenses
to the extent these items are reflected as current assets on the
estimated Company closing balance sheet provided by Silicon at least
ten business days prior to closing (the "Agreed Upon Pre-Closing
Balance Sheet");
- a decrease of the Aggregate Merger Consideration, on a dollar for
dollar basis, in an amount equal to the aggregate of
- all obligations and liabilities of Silicon that would remain
outstanding after the closing, (including transaction costs
incurred but not yet paid) as set forth on the Agreed Upon
Pre-Closing Balance Sheet; provided that any liabilities or
obligations (including, without limitation, estimates of
warranty costs, the estimated costs of settling or resolving
any pending or threatened litigation (other than a specific
existing dispute with a Silicon distributor) and, if
applicable, the amount of accounting fees payable by Silicon
pursuant to the Merger Agreement not reflected on the Agreed
Upon Pre-Closing Balance Sheet will be treated as reductions
in the Aggregate Merger Consideration, and
- any obligations and liabilities of Silicon retired by IGT
prior to or as a condition of the closing including, without
limitation, $11.3 million in aggregate principal amount of
senior discount notes held by B III, and any accrued interest
or prepayment premiums due on those notes, and $1.0 million of
indebtedness due under a promissory note issued to an
individual investor, each of which are to be paid in full in
cash at the closing of the merger; and
- the Aggregate Merger Consideration will be adjusted if the aggregate
dollar amount of net operating loss of Silicon for the period from
November 24, 1999 through the closing date ("NOL") plus the total
amount of inventory reflected on Silicon's balance sheet as of the
closing date ("Gross Inventory") (and together, the "NOL-Gross
Inventory Amount") as set forth on the Agreed Upon Pre-Closing
Balance Sheet is less than $10.0 million or greater than $13.0
million as follows:
- If the NOL-Gross Inventory Amount is more than $13.0 million
the Aggregate Merger Consideration will be increased by the
present value of the tax benefit created by the amount of NOL
Gross Inventory Amount in excess of $13.0 million using a 37%
tax-rate and a 9.75% discount rate.
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- If the NOL-Gross Inventory Amount is less than $10.0 million
the Aggregate Merger Consideration will be decreased by the
present value of the tax benefit lost by the amount of NOL
Gross Inventory Amount less than $10.0 million using a 37%
tax-rate and a 9.75% discount rate.
Silicon's common stockholders will not be entitled to the entire amount of
Aggregate Merger Consideration. The holders of Silicon's Series D Preferred
Stock (and Series E Preferred Stock, if any) and the holders of the $11.3
million in aggregate principal amount of outstanding senior notes, and the $1.0
million promissory note issued to an individual investor will be paid off as
part of the merger transaction, which payment will include any accrued and
unpaid interest and any applicable premium. After payments are made to the
Series D Preferred Stockholders (and Series E Preferred Stock, if any) and
holders of Silicon's outstanding senior notes the remainder of the consideration
will be divided among Silicon's common stockholders.
Series D Preferred Stock
Under the terms and provisions of the Certificate of Determination for the
Series D preferred Stock, in the event of a Change of Control (as defined in the
Certificate of Determination, which definition includes a merger of Silicon with
another corporation) the holders of at least a majority of the shares of Series
D Preferred Stock then outstanding taken together as a series may require
Silicon to redeem the outstanding shares of Series D Preferred Stock by
delivering a notice to Silicon of their election to redeem the Series D
Preferred Stock (a "Redemption Notice") within the ninety (90) day period
following the Change of Control.
Under the redemption provisions of the Certificate of Determination, the
shares of Series D Preferred Stock would be redeemed at an amount (the "Series D
Redemption Amount") equal to the greater of (A) the amount that would be paid if
such holders' Series D Preferred Stock were converted into common stock
immediately prior to the Change of Control and such shares of common stock were
purchased or participated in such Change of Control or (B) the Fair Market Value
(as defined in the Certificate of Determination) 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. Under the Certificate of
Determination, the number of shares of common stock into which each share of
Series D preferred Stock may be converted is 4,384.53149701.
B III, the holder of all outstanding shares of Series D Preferred Stock,
has agreed to waive its right to require a redemption of those shares, so long
as it is paid merger consideration in an amount equal the amount it would
receive if it converted all of its shares of Series D Preferred Stock (and
Series E Preferred Stock, if any) into shares of common stock. The 39,750 shares
of Series D Preferred Stock held by B III are convertible into 174,285,127
shares of common stock.
Senior Notes
B III holds approximately $11.3 million in principal amount of outstanding
senior secured notes. These notes represent approximately $7.5 million in
principal amount of notes that were not converted to equity during our
restructuring in November 1999, as well as $3.0 million in new notes, of which
$2.0 million were issued contemporaneously with the restructuring and $1.0
million was issued shortly thereafter. The outstanding principal balance
includes approximately $828,000 in deferred interest payments that have been
added to principal under the terms of the notes. In the restructuring, B III
agreed to exchange $39.75 million in aggregate principal amount of our
outstanding Senior Discount Notes and to amend the terms of the remaining $7.5
million in aggregate principal amount of Senior Discount Notes
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in exchange for approximately 57% of the equity interest in the company, as
represented by the 39,750 shares of Series D Preferred Stock. The total amount
outstanding of the remaining notes, including any interest accrued, prepayment
premium and other amounts payable on those notes, is to be paid off as part of
the merger transaction contemporaneously with the closing. In the securities
purchase agreements pursuant to which the notes were issued, as well as the
restructuring agreement entered into in November 1999 between Silicon and B III,
and in the Certificate of Determination for the Series D Preferred Stock, we
must obtain B III's prior written consent to the transaction. B III has agreed
to consent to the merger on the terms set forth in the merger agreement, which
provide that all outstanding notes B III holds, plus any accrued interest,
prepayment premium and other amounts payable on those notes, is paid off
contemporaneously with the closing of the merger. IGT also required cancellation
of the notes to consummate the merger.
CONVERSION AMOUNT
Each share of common stock issued and outstanding immediately prior to the
effective time of the merger will be converted into the right to receive cash in
an amount equal to the quotient of the Aggregate Merger Consideration (as
adjusted in accordance with Section 2.1 of the merger agreement) minus the $2.5
million prepayment amount, divided by the total number of shares of Silicon
common stock issued and outstanding at the effective time, assuming for such
purposes that
- each outstanding share of Series D Preferred Stock shall have
been converted into 4,384.53149701 shares of Silicon common
stock,
- all then outstanding stock options issued under the 1999 Long
Term Compensation plan have been accelerated and exercised in
full,
- each outstanding share of Series E Preferred Stock shall have
been converted into 1,000 shares of Silicon common stock (and
any shares issuable as the result of the exercise prior to the
closing of any exchange warrants or any other outstanding
warrants are issued and outstanding),
rounded to the nearest hundredth of a whole cent (the "Conversion Cash), and
each share of Series D Preferred Stock issued and outstanding immediately prior
to the effective time will be converted into the right to receive cash in an
amount equal to the product of 4,384.53149701 multiplied by an amount equal to
the Conversion Cash and each share of Series E Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive cash in an amount equal to the product of 1,000 multiplied by
an amount equal to the Conversion Cash.
We do not anticipate that there will be any shares of Series E Preferred Stock
outstanding at the effective time of the merger. See "Exchange Warrant" and
"Series E Preferred Stock". Based on these assumptions, the total number of
shares of common stock participating in the merger (assuming for such purpose
that the Series D Preferred Stock has been converted into common stock) is
285,355,592 shares.
EFFECTIVE TIME
As soon as practicable on the day the merger closes, and all regulatory
approvals have been received, Silicon and IGT will file articles of merger and
all other filing required by California law with the Secretary of State of
California in the form required by California law. The merger will become
effective when the filings are made with and accepted by the Secretary of State
of California or such other time as agreed by IGT and Silicon and specified in
the filings.
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EXCHANGE PROCEDURES
As of the effective time of the merger, each certificate previously
representing shares of Silicon's common stock will represent only the right to
receive the merger consideration upon the surrender of the certificates and the
holder of the certificate will not have any additional rights with respect to
the shares of Silicon common stock.
After the effective time of the merger, an exchange agent designated by
IGT will mail a notice and letter of transmittal to each record holder of
Silicon's common stock advising such record holder of the effectiveness of the
merger and providing instructions for surrendering to the exchange agent Silicon
certificates representing Silicon common stock in exchange for per share
consideration. The holder of the Preferred Stock is expected to surrender its
stock certificates at the closing of the merger in exchange for direct payment
from IGT.
Upon proper surrender of a certificate to the exchange agent, together
with a properly completed and duly executed letter of transmittal, the holder of
the certificate will be entitled to receive in exchange for the certificate a
check in an amount equal to the product of the merger consideration and the
number of shares of Silicon common stock represented by the certificate
surrendered, less any required tax withholding. The surrendered certificate will
be canceled. No interest will be paid or accrue on the merger consideration.
If any Silicon stock certificate has been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming a Silicon
certificate lost, stolen or destroyed, IGT will direct the exchange agent to
issue in exchange for the shares of Silicon common stock represented by the
missing certificate, the merger consideration. The board of directors of IGT
may, in its discretion and as a condition to the issuance of any per share
consideration to the owner of shares of Silicon common stock represented by a
missing certificate, require the owner to provide IGT with an affidavit and a
bond in a sum as IGT may reasonably direct as an indemnity against any claim
that may be made against IGT or the exchange agent with respect to the missing
certificate.
Any per share consideration that remains undistributed by the exchange
agent to former holders of Silicon common stock and Series D Preferred Stock as
of the date that is one year after the effective date shall be returned by the
exchange agent to IGT upon demand, and any holder of Silicon certificates who
has not theretofore surrendered his or her shares of Silicon common stock in
accordance with the Merger Agreement shall thereafter look only to IGT for
satisfaction of his or her claims for per share consideration.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations, warranties and
agreements of Silicon, IGT and International Game Acquisition Corporation,
including representations and warranties regarding their due organization, good
standing, authority to enter into the Merger Agreement and consummate the merger
and compliance with gaming laws and regulations. We also made additional
representations and warranties relating to:
- capitalization;
- ownership of subsidiaries and other equity interest;
- timely filing and accuracy of documents filed with the SEC;
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- absences of certain changes or events in our business since
Silicon's latest Balance Sheet;
- absence of pending or threatened litigation;
- bona fide accounts receivable;
- validity and enforceability of material contracts;
- compliance with applicable laws respecting employment and employment
practices;
- absence of any labor union;
- absence of agreements with brokers or finders;
- necessary vote of stockholders to approve the merger;
- good and marketable title to and valid leasehold interest in our
material properties;
- taxes, benefit plans and ERISA;
- compliance with applicable laws and permits;
- environmental liabilities and compliance with environmental laws;
- licenses to intellectual property and absence of infringement;
- insurance and bank accounts;
- transactions with related parties;
- absence of non-competition restrictions on the operation of our
business; and
- the terms of our outstanding "exchange" warrants issued on June 30,
2000.
Additionally, IGT and International Game Acquisition Corporation made
representations and warranties regarding the information to be supplied for
inclusion in this document, their due organization and authority to enter into
the Merger Agreement, the absence of a broker, and the operation of
International Game Acquisition Corporation pending the merger.
COVENANTS
CONDUCT OF THE BUSINESS PENDING THE MERGER
We have agreed that during the period from the date of the Merger
Agreement to the effective time of the merger, except as expressly permitted by
the Merger Agreement, that we will not, and will not allow any of our
subsidiaries to:
- declare, set aside or pay dividends;
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- split, combine or reclassify any shares of our capital stock or
purchase, redeem or otherwise acquire any shares of our capital
stock;
- issue, deliver, sell, award, pledge, dispose of or otherwise
encumber or authorize or propose the issuance, delivery, grant,
sale, award, pledge, or other encumbrance or authorization of any
shares of our capital stock or any securities convertible into or
any rights, warrants or options to acquire any of our capital stock;
- accelerate the vesting of any of the stock options, except as
contemplated under the terms of the stock options or the stock
option plans under which any stock options were granted (other than
as contemplated by our severance and retention plan discussed under
"Interests of Certain Person in the Merger");
- amend our articles of incorporation, by-laws or other comparable
organizational documents or alter the corporate structure or
ownership of any of our material subsidiaries;
- acquire or agree to acquire (1) by merging or consolidating with or
purchasing a substantial portion of the assets of, any organization
or division of any organization, or (2) any assets with a fair
market value in excess of $250,000, other than purchases of
inventory, fixtures, furniture, supplies, vehicles and equipment in
the ordinary course of business consistent with past practice;
- commence or agree to commence the operation or development of a
casino or other gaming operations of any nature;
- mortgage or otherwise encumber or sell, lease, exchange or otherwise
dispose of any of our properties or assets;
- incur any indebtedness for borrowed money, guarantee any
indebtedness or debt securities of another person or issue or sell
any debt securities or warrants or other rights to acquire any of
our debt securities;
- make any loans advances or capital contributions to, or investments
in any other person;
- make or agree to make any new capital expenditures which
individually exceed $250,000 per fiscal quarter;
- make or rescind any express or deemed election relating to material
taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy
relating to material taxes, or change any of our methods of
reporting income or deductions for federal income tax purposes from
those employed in the preparation of its federal income tax return
for the taxable year ending March 31, 2000, except as may be
required by applicable law;
- pay, discharge or satisfy any claims, liabilities or obligations;
- increase the compensation payable to any of our directors, officers
or employees other than usual and customary increases to employees
who are not officers;
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- pay or agree to pay any pension, retirement allowance, severance,
continuation or termination benefit or other material employee
benefit not provided for by any existing pension plan, benefit plan
or employment agreement described in our documents filed with the
SEC prior to the date of the Merger Agreement;
- establish, adopt or commit to any additional pension, profit
sharing, bonus, incentive, deferred compensation, stock purchase,
stock option, stock appreciation right, group insurance, severance
pay, termination pay or other material employee benefit plan,
agreement or arrangement, or amend or modify or increase the
benefits under any collective bargaining agreement or any employee
benefit plan, agreement or arrangement;
- enter into any severance or employment agreement with or for the
benefit of any person;
- increase the rate of compensation under or otherwise change the
terms of any existing employment agreement;
- modify, or amend in any material respect, or renew, fail to renew or
terminate, any material contract or agreement which we or one of our
subsidiaries is a party or waive, release, or assign any material
rights or claims;
- change our fiscal year;
- authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution of Silicon;
- enter into any collective bargaining agreement;
- engage in any transaction with, or enter into any agreement,
arrangement or understanding with, directly or indirectly, any of
our officers or directors;
- engage in any transaction or enter into any agreement in which we
would sell any of our inventory or assets at a price below that
which would be negotiated if the merger agreement and the related
merger were not contemplated;
- enter into any agreement of any nature with WagerWorks and any
entity controlled by or under common control with WagerWorks or
modify, amend, assign, terminate, grant any waiver or release or
change in any way any existing agreement with WagerWorks except for
the Cross License as required by the merger agreement; or
- authorize any of, or commit or agree to take any of, the foregoing
actions.
REGULATORY APPROVALS
Provided that IGT is not obligated to take any action which would require
IGT to surrender or terminate a gaming approval held by it or its subsidiaries,
IGT and Silicon have agreed to:
- use all reasonable efforts to file, as soon as practicable after the
date of the Merger Agreement, all notices, reports and other
documents required to be filed with any governmental entity or any
gaming authority with respect to the merger and the other
transactions contemplated by the Merger Agreement and Silicon shall,
upon the request of
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IGT, submit promptly any additional information requested by any
such governmental entity or gaming authority and IGT may, in its
discretion, respond to such requests;
- give the other party prompt notice of the commencement or threat of
commencement of any proceedings by or before any governmental entity
or gaming authority with respect to the merger or any of the other
transactions contemplated by the Merger Agreement;
- keep the other party informed as to the status of any such
proceeding or threat;
- promptly inform the other party of any communication to or from the
any governmental entity or gaming authority regarding the merger;
and
- cooperate with the other party and use its reasonable best efforts
to receive all necessary and appropriate consents of third parties
to the transactions contemplated by the Merger Agreement, satisfy
all requirements prescribed by law for, and all conditions set forth
in the Merger Agreement to, the consummation of the merger, and
effect the merger in accordance with the Merger Agreement at the
earliest practicable date;.
SPECIAL MEETING
As soon as practicable following the date of the Merger Agreement, Silicon
will call, give notice of and convene a meeting of its stockholders to be held
as promptly as practicable for the purpose of voting upon a proposal to adopt
the Merger Agreement. Silicon will use its best commercially reasonable efforts
to solicit proxies representing at least a majority of the outstanding shares of
Silicon common stock eligible to vote at the Silicon stockholders meeting.
Silicon agrees to promptly advise IGT if at any time prior to the special
meeting any material information provided by it in the Proxy Statement is or
becomes incorrect or incomplete in any material respect and to provide IGT with
the information needed to correct such inaccuracy or omission.
NO SOLICITATION
Under the terms of the merger agreement, we have agreed that we will not,
nor will we permit any of our subsidiaries to, directly or indirectly, through
any officer, director, representative, agent or affiliate:
- initiate, solicit, encourage, induce or otherwise facilitate the
initiation or submission of any inquiries, proposals or offers that
constitute or may reasonably be expected to lead to an acquisition
proposal;
- furnish any information regarding Silicon to any person in
connection with or in response to an acquisition proposal or an
inquiry or indication of interest that could reasonably be expected
to lead to an acquisition proposal, unless required by law;
- enter into or maintain or continue discussions or negotiate with any
person in furtherance of such inquiries or to obtain an acquisition
proposal;
- agree to, approve, recommend or endorse any acquisition proposal; or
- enter into any letter of intent, contract or similar agreement
contemplating or otherwise relating to any acquisition proposal.
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However, prior to the adoption of this Merger Agreement by Silicon's
stockholders, Silicon is not prohibited from furnishing nonpublic information
regarding Silicon to, or entering into discussions with, any person in response
to a superior proposal that is submitted to Silicon by such person if:
- neither Silicon nor any Silicon representative has violated any of
the restrictions set forth above;
- the board of directors concludes in its good faith judgment, that
such action is required in order for the board of directors to
comply with its fiduciary obligations to Silicon's stockholders
under applicable law;
- at or prior to furnishing any such nonpublic information to, or
entering into discussions with, such person, Silicon gives IGT
written notice of its intention to furnish nonpublic information to,
or enter into discussions with, such person, and Silicon receives
from such person an executed confidentiality agreement; and
- at or prior to furnishing any such nonpublic information to such
person, Silicon furnishes such nonpublic information to IGT.
Silicon will immediately notify IGT after receipt of any acquisition
proposal or any request for nonpublic information relating to Silicon in
connection with an acquisition proposal or for access to any of the premises,
books or records of Silicon by any person or entity that informs Silicon or its
board of directors that it is considering making, or has made, an acquisition
proposal.
PRESS RELEASES
Silicon and IGT will consult each other before issuing, and provide each
other the opportunity to review and comment upon, any press releases or other
public statements with respect to any transactions described in the Merger
Agreement, except as may be required by law, court process or by obligations
pursuant to a listing agreement with Nasdaq.
ACCESS TO INFORMATION AND CONFIDENTIALITY
Until the effective time of the merger, we have agreed to give and to
cause our subsidiaries to give IGT and its officers, employees, accountants,
counsel, financial advisors and other representative reasonable access during
normal business hours to all of our properties, premises, books, records,
contracts, commitments, and personnel. Additionally, we will furnish promptly to
IGT:
- a copy of each report, schedule, registration statement and other
documents filed by us during such period pursuant to the
requirements of federal or state securities laws; and
- all other information with respect to our business, properties and
personnel as IGT reasonably requests.
Except as required by law, Silicon and IGT have agreed to treat any
confidential information of the other party in accordance with the
confidentiality agreement between Silicon and IGT.
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CONSULTATION AND REPORTING
Until the effective time of the merger, Silicon will confer with IGT on a
regular and frequent basis to report material operational matters with respect
to its business and to report on the general status of its ongoing operations.
NOTIFICATION OF CHANGES
Silicon and IGT have each agreed to give the other prompt written notice
of any event that causes any representation or warranty given by the other party
to become untrue. The parties will each also have until the closing to
supplement or amend any of the schedules described in Articles 3 or 4 with
respect to any matter arising or discovered after the date of the Merger
Agreement, if existing or known on the date of the Merger Agreement, that would
have been required to be set forth or described in such schedules.
DISPOSITION OF WAGERWORKS STOCK
We own 10,000,000 shares of the common stock of WagerWorks, Inc., a
Delaware corporation. Our holdings of WagerWorks stock represent 100% of the
outstanding common stock, and approximately 51% of the total equity interest of
the company on a fully diluted basis. The other 49% equity interest of the
company is represented by Series A Preferred Stock held by three other investors
and equity reserved for issuance under WagerWorks' employee stock option plan.
WagerWorks is a start-up company that is working on developing products for
online or Internet based gaming. It has not developed any working products to
date and is not generating any revenues. There is no trading market for the
shares of WagerWorks and its fair market value is difficult to ascertain.
As part of the merger transaction negotiation, we are required to dispose
of all of our WagerWorks stock other than a number of shares equal to 4.9% of
the total equity interest of WagerWorks on a fully diluted basis on the date of
the Merger Agreement. The disposition of the WagerWorks stock must take place on
or before the consummation of the merger. The money received for the disposition
of WagerWorks would be used towards working capital. The net proceeds received
from the disposition that is remaining at the close of the merger would increase
the amount of consideration IGT would have to pay in the merger transaction on a
dollar for dollar basis, subject to any adjustment to the net operating loss
carry forwards that occurs as a result of a gain on the disposition of
WagerWorks. We cannot predict with any certainty when the disposition of the
WagerWorks stock will take place, if ever. We cannot predict with any certainty
whether we will be able to find a suitable purchaser for the WagerWorks stock,
or at what price such dispositions would take place.
We have received a verbal commitment from two of the investors in
WagerWorks, that, if we have not found an alternative buyer for our shares of
WagerWorks prior to the effective date of the merger they will purchase the
shares for cash at a to-be-negotiated price; provided we receive an opinion from
our independent financial advisor, that the negotiated price is fair to the
equity holders of Silicon, taken as a whole, from a financial point of view.
Both of the two investors in WagerWorks that have provided this verbal
commitment are currently lenders to Silicon, and one of these parties is also a
Silicon shareholder.
EXCHANGE WARRANTS
On June 30, 2000, we issued 11,585,457 warrants in an exchange offer,
pursuant to which we offered all of our stockholders the opportunity to exchange
their shares of common stock for a unit that consisted of one share of common
stock and a warrant to purchase 3.59662 shares of common stock at an
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exercise price of $0.1528 per share. These exchange warrants are not exercisable
until the earlier of the first year after their issuance, or, an "Extraordinary
Transaction", which is defined as
- 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,
- the sale or transfer or all or substantially all of the
properties and assets of the company and its subsidiaries, or
- any purchase by any party (or group of affiliated parties)
other than any investment fund or funds associated with DDJ
Capital Management LLC, of all of the shares of capital stock
of the company.
The merger transaction with IGT would constitute an Extraordinary
Transaction under the warrant agreement that governs these exchange warrants.
Under their terms, the exchange warrants would become immediately exercisable in
connection with the merger. However, we anticipate that the merger consideration
payable in exchange for each share of outstanding stock will be considerably
less than the $0.1528 exercise price of these exchange warrants. We anticipate
that the merger consideration per share of Silicon common stock will be between
$0.825 and $0.950 (not including any adjustments from the disposition of
WagerWorks). We are required to give the holders of the exchange warrants 20
days prior notice of the merger in order to give them the opportunity to
exercise their warrants in connection with the merger.
In addition, by their terms, the exchange warrants terminate on the
effective date of an Extraordinary Transaction unless provision is made in such
transaction in the sole discretion of the parties to the transaction for the
assumption of the exchange warrants or the substitution for the exchange
warrants of new warrants of the successor person or entity or a parent or
subsidiary thereof. Until the earlier to occur of the effective date of the
Extraordinary Transaction, the holders of exchange warrants may exercise the
warrants in accordance with their terms, but after such effective date, holders
of exchange warrants may not exercise the warrants unless they are assumed or
substituted by the successor as provided above. In the proposed merger
transaction, IGT will not assume or substitute for the exchange warrants. As a
result, the exchange warrants will terminate upon the effectiveness of the
merger.
STOCK OPTIONS
Pursuant to the 1999 Long Term Compensation Plan, effective as of the
effective time of the merger, each outstanding stock option, granted under that
plan, whether or not exercisable or vested, will become fully exercisable and
vested. In lieu of administering the simultaneous exercise of options and
issuance of stock certificates and participation in the merger transaction, at
the effective time of the merger each stock option that is outstanding will be
canceled, and in consideration of such cancellation Silicon will pay the holders
of the stock options merger consideration as if they had exercised their options
and held shares of Silicon common stock.
Upon payment of all amounts required to be paid, all plans pursuant to
which stock options are issued shall terminate as of the effective time of the
merger, and no holder of stock options or participant in any such plan shall
have any rights thereunder to acquire any equity securities of Silicon, the
surviving corporation or any subsidiary or affiliate thereof.
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There are currently outstanding options to purchase up to 75,790,509
shares of Silicon common stock issued under the 1999 Long Term Compensation
Plan. The board of directors has approved a measure to waive the exercise price
of all options outstanding that were issued under this plan and are held by
employees currently employed by Silicon or who were recently terminated. In
addition, option agreements held by certain terminated employees were amended
prior to their termination to allow them to exercise their options past the
standard 90 days allowed, until the later of date of the consummation of the
merger, or thirty days following the formal termination of the merger agreement.
We implemented this plan because our revenues no longer justify supporting our
full staff of employees, and we do not have sufficient cash to adequately fund a
severance and retention plan and still maintain our business operations through
the consummation of the merger without incurring additional debt. Any debt we
incurred, or cash we expended funding a plan, would result in a lower aggregate
merger consideration under the merger agreement. In order for the company to
remain a viable entity and to continue operations through the merger transaction
we believed we needed to give our existing workforce incentives to remain
through consummation of the merger. We also believed we needed to compensate
those employees we involuntarily terminated for their efforts to bring value to
the company since the consummation of our restructuring in November of 1999. The
plan includes severance or retention payments, accelerated vesting of options
and waiver of option exercise strike prices.
The plan includes severance or retention payments, accelerated vesting of
options and waiver of option exercise strike prices. Employees who receive
benefits under this plan may also be current stockholders of the company and
therefore entitled to vote on the proposed merger transaction. Without this
severance and retention plan it is likely that employees would voluntarily leave
Silicon and seek employment elsewhere. If too many of our employees left
voluntarily, and we were unable to continue our business operations through
consummation of the merger, it could result in an adverse impact on the value of
Silicon or a termination of the proposed merger agreement, both of which could
mean a decrease in value for our stockholders. Employees who voluntarily leave
the company prior to consummation of the merger will not participate in the
severance and retention plan.
Nearly all of the options granted under the 1999 Long Term Compensation
Plan vested 20% upon their issuance, and 1/48th for each of the 48 consecutive
months following issuance. Of all the options issued under the plan,
approximately 40% of the initial grant amount has vested. Under the terms and
provisions of the plan, in the event of a merger, all unvested options
immediately become exercisable. All outstanding options held by our employees,
or recently terminated employees, will participate in the merger as if they had
exercised on the date of the consummation of the merger. Essentially, these
options will be treated as shares and included in the total outstanding number
of shares used to determine the merger consideration to be given to each
stockholder.
Of the outstanding options to purchase 75,790,509 shares of common stock,
nearly 86% (or approximately 64,972,081) were issued in February of 2000 at an
exercise price of $0.0075 per share. Additional options to purchase 6,416,181
shares of common stock were issued subsequent to February of 2000, with exercise
prices ranging from $0.0075 per share to $0.075 per share. The total aggregate
exercise price to be waived for these options to purchase an aggregate of
71,388,262 shares of common stock is approximately $960,000. The remaining
outstanding options to purchase 4,402,247 shares of common stock, were issued at
exercise prices ranging from $0.1875 to $0.4531. Although the exercise price
will be waived for these options as well, we have excluded the exercise price of
these options in calculating the aggregate exercise price to be waived on the
assumption that none of the holders of these options would have elected to
exercise their options because their exercise prices are substantially in excess
of the range of proceeds we estimate will be received by stockholders of the
company in the merger. These options to purchase 4,402,247 shares of common
stock represent approximately 1.5% of the aggregate merger consideration to be
received by the stockholders of Silicon in the proposed merger.
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The exercise prices for outstanding options granted under the 1994 Stock
Option Plan, the 1996 Outside Directors Stock Option Plan and the 1997
Nonstatutory Stock Option Plan, all of which are plans adopted prior to our debt
restructuring in November 1999, will not be waived.
INDEMNIFICATION AND INSURANCE
All rights to indemnification for acts or omissions occurring prior to the
effective time now existing in favor of the current or former directors or
officers of Silicon and its subsidiaries as provided in its respective articles
or certificates of incorporation or bylaws or existing indemnification
agreements shall survive the merger and shall continue in full force and effect
in accordance with their terms.
IGT also will provide, for a period of not less than six (6) years after
the effective time, Silicon's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring at or prior
to the effective time that is no less favorable than Silicon's existing
directors and officers insurance policy or, if substantially equivalent
insurance coverage is unavailable, the best available coverage; provided,
however, that IGT and the surviving corporation shall be required to pay
one-half the premium for such insurance coverage, which shall not in the
aggregate exceed 150% of the annual premium currently paid by Silicon for such
insurance, but in any case shall purchase as much of such coverage as possible
for such amount.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Silicon and IGT to consummate the merger are contingent
upon and subject to the satisfaction or waiver of certain occurrences including
the following:
- Silicon stockholder approval of the merger;
- receipt of necessary regulatory approvals;
- no temporary restraining order, preliminary or permanent injunction
or other order, judgment or decree to restrain or prohibit the
consummation of the merger or any other transaction described in the
Merger Agreement shall have been issued and remain in effect;
- there shall not have been instituted or pending, or threatened, any
proceeding by any governmental entity as a result of the Merger
Agreement or any of the transactions contemplated by the Merger
Agreement if such governmental entity were to prevail, would
reasonably be expected to have a material adverse effect on IGT or
the surviving corporation;
- all necessary or required gaming approvals from any gaming
authorities shall have been received or obtained;
- the representations and warranties of each of Silicon, IGT and
International Game Acquisition Corporation set forth in the Merger
Agreement shall be true and correct in all material respects as of
the date the Merger Agreement is closed as if made at and as of such
date, and each of Silicon, IGT and International Game Acquisition
Corporation shall in all material respects have performed each
obligation and complied with each covenant to be performed and
complied with by it under the Merger Agreement;
- Silicon will have completed the sale or disposition of WagerWorks,
Inc.;
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- Silicon shall have modified its license agreement dated August 3,
2000 with Pearson Television, Inc., as required under Section 6.2(k)
of the Merger Agreement; and
- Silicon shall have modified its Cross License Agreement with
WagerWorks as required under Section 6.2(n) of the Merger Agreement.
- Silicon will have performed or complied in all material respects
with the obligations and covenants required to be complied with or
performed by it under the Merger Agreement;
- all consents and approvals of third parties necessary for the
consummation of the transactions contemplated by the Merger
Agreement shall have been obtained;
- IGT will have received a certificate executed by the Chief Executive
Officer and Chief Financial Officer of Silicon dated the Closing
Date, certifying that the conditions relating to Silicon's
representations and warranties, covenants and consents and approvals
have been fulfilled. Silicon shall also have delivered to IGT (i) a
certificate of good standing from the Secretary of State of the
State of California and of comparable authority in other
jurisdictions in which Silicon and its Subsidiaries are incorporated
or qualified to do business stating that each is a validly existing
corporation in good standing; (ii) duly adopted resolutions of the
Board of Directors and stockholders of Silicon approving the
execution, delivery and performance of this Agreement and the
instruments contemplated hereby, certified by the Secretary of
Silicon; and (iii) a true and complete copy of the articles of
incorporation or comparable governing instruments, as amended, of
Silicon and its Subsidiaries certified by the Secretary of State of
the state of incorporation or comparable authority in other
jurisdictions, and a true and complete copy of the by-laws or
comparable governing instruments, as amended, of Silicon and its
Subsidiaries certified by the Secretary of Silicon and its
Subsidiaries, as applicable;
- IGT shall have received resignations from all of the directors and
officers of Silicon, such resignations to be effective as of the
Effective Time;
- Andrew Pascal, Paul Mathews and B III, as parties to their
respective voting agreements, shall have voted their shares of
Silicon Common Stock in accordance therewith;
- The parties to that certain Stockholders Agreement dated November
24, 1999 (the "Stockholders Agreement") shall have terminated such
Stockholders Agreement subject to effectiveness of the Merger and,
upon such effectiveness, the Stockholders Agreement shall no longer
be of any legal force or effect;
- The Consulting Agreements entered into with Andrew Pascal, Paul
Mathews and Tom Carlson shall each be in force and effect;
- There shall be no restriction (other than that imposed by applicable
securities laws) on the right of IGT or Silicon to dispose of the
shares of WagerWorks retained by Silicon; and
- All outstanding warrants, options, or rights to acquire equity
securities of Silicon shall have been exercised or have been
terminated as of the Closing or be exercisable solely for the amount
of cash merger consideration per share that would have been received
had the warrant been exercised prior to the Closing.
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Please see Article 6 of the Merger Agreement for a complete statement of
the conditions to the obligations of the respective parties to consummate the
merger.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the merger abandoned at any
time prior to the effectiveness of the merger, whether before or after the
approval by the stockholders, as follows:
- by mutual consent of the Boards of Directors of Silicon and IGT;
- by either Silicon or IGT if there has been a material breach by the
other of any representation or warranty contained in the Merger
Agreement or of any covenant contained in the Merger Agreement which
has not been cured within 10 days after written notice is given to
the party committing such breach;
- by either Silicon or IGT if the merger has not occurred by May 30,
2001;
- by either Silicon or IGT if any governmental entity shall have
issued a final, non-appealable order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
prohibiting the merger;
- by either Silicon or IGT if Silicon special meeting shall have been
held and completed and the Merger Agreement shall not have been
adopted by the required affirmative vote of Silicon stockholders at
such meeting;
- by IGT, if the Board of Directors of Silicon (i) withdraws or
modifies adversely its recommendation of the merger following the
receipt by Silicon of an acquisition proposal, (ii) recommends an
acquisition proposal to Silicon stockholders or (iii) fails to call
or hold Silicon stockholders meeting because it has received an
acquisition proposal; and
- by IGT for the following reasons:
- any representation made by Silicon in the Merger Agreement is
materially untrue as of the time such representation is made;
provided that such misrepresentation or misrepresentations
are, with respect to Silicon, reasonably likely to cause or
result in an adverse affect in an amount greater than
$1,000,000;
- the aggregate liabilities of Silicon at closing exceed
$45,000,000;
- at closing, Silicon does not own the patents or patent
applications listed on Schedule 3.19 to the Merger Agreement
or Silicon has licensed any of such patents or patent
applications to a third party other than IGT or WagerWorks;
- Silicon fails to negotiate in good faith the terms or
conditions of the Merger Agreement and to make commercially
reasonable efforts to provide IGT with the information or
other assistance reasonably necessary to consummate the
transactions contemplated by the Merger Agreement; or
- Silicon fails to take all reasonable actions within its
control necessary to permit the closing of the merger; or
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- on or before May 30, 2001, we have not completed our
disposition of WagerWorks; and
- by Silicon if, prior to approval of the merger by its stockholders
and as a result of a superior proposal, the board of directors of
Silicon determines, in good faith, after consultation with legal
counsel and its financial advisor, that the failure to terminate the
merger agreement and accept such superior proposal would be
inconsistent with the proper exercise of its fiduciary duties;
provided, however, that before Silicon may terminate the merger
agreement, Silicon must notify IGT of the proposed termination and
IGT, within five (5) business days of receipt of such notice, has
the right, in its sole discretion, to offer to amend the merger
agreement to provide for terms substantially similar to those of the
superior proposal and Silicon must negotiate in good faith with IGT
with respect to such proposed amendment; provided, further, that if
IGT and Silicon are unable to reach an agreement with respect to
IGT's proposed amendment within ten (10) days after such good faith
negotiations have commenced, Silicon may terminate the merger
agreement.
IGT has agreed to pay us $2.5 million in addition to the $2.5 prepayment
amount, which we may retain, if:
- IGT is in material breach of any representation or warranty
contained in the Merger Agreement or of any covenant contained in
the Merger Agreement which in either case cannot be or has not been,
cured within 10 days after written notice of such breach is given to
IGT.
If IGT is required to pay such termination fee, Silicon shall grant to IGT
for no additional consideration, a fully paid up nonexclusive perpetual
worldwide license to Patent Number 6,104,815 ("Method and Apparatus for
Providing Authenticated, Secure On-Line Communications Between Remote
Locations") for use in IGT's traditional gaming applications and IGT shall grant
for no additional consideration to Silicon a fully paid up nonexclusive
perpetual license to Patent Number 5,265,874 for use in Silicon's operations.
We have agreed to pay IGT a termination fee of $3.5 million if the Merger
Agreement is terminated by IGT because:
- we are in material breach of any representation, warranty or
covenant contained in the Merger Agreement which is reasonably
likely to result in either an adverse effect on Silicon of an amount
greater than $1.0 million or a Material Adverse Effect (as described
in the Merger Agreement), unless such breach consists solely of any
representation or warranty made by Silicon in the Merger Agreement
that is materially untrue as of the time such representation or
warranty is made and that is reasonably likely to result in an
adverse effect on Silicon of an amount greater than $1.0 million;
- we terminate the Merger Agreement by proposing to approve, recommend
or endorse an acquisition proposal in violation of the no
solicitation provision of the Merger Agreement (Section 5.3 of the
Merger Agreement);
- we fail to obtain shareholder approval for the merger;
39
<PAGE> 46
- we withdraw or modify adversely our recommendation of the merger,
recommend an acquisition proposal to Silicon stockholders or fail to
call or hold a Silicon stockholders' meeting;
- we fail to complete the disposition of WagerWorks prior to May 30,
2001, unless IGT refuses to consent to the proposed WagerWorks
disposition on an "as is" basis and which, upon consummation,
results in no further liabilities or obligations of any nature
whatsoever relating thereto or arising therefrom to Silicon or its
subsidiaries or any of the conditions to the closing of the merger
contained in Article 6 of the Merger Agreement have not been
satisfied; or
- we enter into a definitive agreement with respect to another
acquisition proposal, and IGT is not at such time in material breach
of any representation, warranty or covenant set forth in the Merger
Agreement.
Silicon must repay the $2.5 million prepayment amount to IGT and no
further payments shall be made by either party to the other if the merger is
terminated:
- by mutual consent of the Boards of Directors of Silicon and IGT;
- by either Silicon or IGT if there has been a material breach by the
other of any representation or warranty contained in the Merger
Agreement or of any covenant contained in the Merger Agreement which
has not been cured within 10 days after written notice is given to
the party committing such breach and (in the case of any such breach
by Silicon) such breach is not reasonably likely to cause or result
in either (i) an adverse effect on Silicon of an amount greater than
$1.0 million or (ii) a Material Adverse Effect;
- by either Silicon or IGT if the merger has not occurred by May 30,
2001;
- by either Silicon or IGT if any governmental entity shall have
issued a final, non-appealable order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
prohibiting the merger; or
- by IGT for the following reasons:
- any representation or warranty made by Silicon in the Merger
Agreement is materially untrue as of the time such
representation or warranty is made and is reasonably likely to
result in an adverse effect on Silicon of an amount greater
than $1.0 million;
- the total aggregate liabilities of Silicon at closing exceed
$45,000,000;
- at closing, Silicon does not own the patents or patent
applications listed on Appendix A to the License Agreement
dated October 16, 2000 by and between IGT and Silicon or
Silicon has licensed any of such patents or patent
applications to a third party other than IGT or WagerWorks;
- Silicon fails to make commercially reasonable efforts to
provide IGT with the information or other assistance
reasonably necessary to consummate the transactions
contemplated by the Merger Agreement; or
40
<PAGE> 47
- Silicon fails to take all reasonable actions within its
control necessary to permit the closing of the merger.
VOTING AGREEMENTS
Contemporaneously with the execution of the Merger Agreement, in order to
induce IGT to enter into the Merger Agreement, two of our major stockholders,
Mr. Andrew Pascal and Mr. Paul Mathews, entered into a voting agreement with
IGT. Mr. Pascal is the company's President and Chief Executive Officer. Mr.
Mathews is the company's Executive Vice President and Chief Operating Officer.
Under the voting agreements, each of these stockholders agreed to vote all of
Silicon common stock owned by that stockholder in favor of the merger.
Additionally, each of these stockholders has agreed not to pledge or otherwise
dispose of any Silicon common stock owned by that stockholder.
These two major stockholders collectively own approximately 45.1% of our
common stock (excluding additional shares that may be acquired upon exercise of
stock options). The voting agreements terminate upon a termination of the Merger
Agreement.
Preferred Stock Voting Agreement
In addition, B III Capital Partners, LP has entered into a voting
agreement with IGT. B III holds 100% of the outstanding shares of Silicon's
Series D Preferred Stock, the only series of preferred stock outstanding. Under
the voting agreement, B III agreed to vote all of its shares of Series D
Preferred Stock in favor of the merger. This voting agreement will terminate if
the merger agreement is terminated.
Under the terms of the Series D Preferred Stock, in the event of a change
of control, such as the proposed merger, the holders of a majority of the
outstanding shares of Series D Preferred Stock could elect to require use to
redeem the outstanding shares of Series D Preferred Stock. However, B III, as
part of the voting agreement, has agreed that from the date of the voting
agreement through the earlier of (a) the closing date of the proposed merger,
(b) the termination of the merger agreement or (c) May 31, 2001, to waive its
rights, if any, as a holder of Silicon's Series D Preferred Stock to cause
Silicon to redeem its shares of Series D Preferred Stock.
The obligations of B III under the voting agreement, including the
obligations to vote for and consent to the proposed merger and the transactions
contemplated by the merger agreement are subject to the condition precedent that
Silicon completes the disposition of the WagerWorks shares pursuant to a
transaction or series of transactions acceptable to and approved by B III.
Under the voting agreement, B III:
- agreed that upon consummation of the merger its shares of
Series D Preferred Stock would be converted into a right to
receive cash as specified in Section 2.1 of the Merger
Agreement;
- agreed that it would not sell, transfer, pledge or otherwise
dispose of any of its shares of capital stock of Silicon or
any interest therein (including the granting of a proxy to any
person);
- agreed to not convert its shares of Series D Preferred Stock
into shares of common stock during the term of the voting
agreement;
- agreed that from the date of the voting agreement until its
termination, B III would not,
41
<PAGE> 48
directly or indirectly, (i) take any action to solicit,
initiate or encourage any acquisition proposal of Silicon or
(ii) engage in negotiations or discussions with, or disclose
any nonpublic information relating to Silicon or any
subsidiary of Silicon (other than WagerWorks) to, or otherwise
assist, facilitate or encourage, any person (other than IGT
and International Game Acquisition Corporation) that may be
considering making, or has made, an acquisition proposal; and
- agreed that, upon the consummation of the merger and repayment
in full, in cash, of the outstanding principal amounts owed it
under the senior notes it holds, plus any and all accrued and
unpaid interest and other amounts due thereon (including any
premium payable) through and including the effective time of
the merger, it would release Silicon, in a form of general
release reasonably satisfactory to IGT and B III, from any
further liabilities and obligations of any nature whatsoever
relating to Silicon, subject to retention of certain
indemnification obligations we have under the terms of the
debt restructuring we effected with B III in November 1999.
MARKET PRICE OF SILICON COMMON STOCK
Our common stock trades on the OTC Bulletin Board under the symbol SGIC.
The following table sets forth the high and low sales price of Silicon's common
stock for the periods set forth:
<TABLE>
<CAPTION>
1998 1999 2000
------------------------ ----------------------- ----------------------
HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $11.1875 $ 8.2500 $ 1.6875 $ 0.4375 $ .7500 $ .2344
Second Quarter 10.3750 7.5000 0.8125 0.3125 .5312 .2500
Third Quarter 9.9375 3.1250 0.5938 0.1875 .4531 .1406
Fourth Quarter 3.8750 1.3750 0.3438 0.0781 .3125 .0469
</TABLE>
The preceding table sets forth the high and low closing sale prices as
reported for Silicon during each of the quarters in 1998, 1999 and 2000. Until
February 1999, Silicon's common stock was listed on the Nasdaq Stock Market
under the symbol 'SGIC'. In February 1999 Silicon's common stock was delisted
from the Nasdaq National Market and Silicon's stock now trades on the OTC
Bulletin Board system under the symbol 'SGIC'.
As of December 1, 2000 there were approximately 7,500 beneficial owners of
Silicon's common stock.
On December 18, 2000, the last trading day before the execution of the
merger agreement was publicly announced, the closing sales price per share of
Silicon's common stock on the OTC Bulletin Board was $0.625. The closing price
of Silicon's common stock on _________was $_____. Stockholders are urged to
obtain current information with respect to the market price of Silicon's common
stock.
Silicon has never paid cash dividends on its common stock and it doesn't
anticipate paying cash dividends in the foreseeable future.
42
<PAGE> 49
Our registrar and transfer agent is EquiServe, 150 Royall Street, Canton,
MA 02021.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Silicon's Common Stock as of December 1, 2000 by (i) each person
known by Silicon to own beneficially more than five percent of the outstanding
shares of Common Stock, (ii) each director of Silicon, (iii) each of Silicon's
"named executive officers" and (iv) all directors and current executive officers
as a group.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially
Owned(1)
Five Percent Stockholders, Directors and Executive Percentage
Officers Number(2) Ownership (%)
----------------------------------------------------- ---------- -------------
<S> <C> <C>
Andrew S. Pascal.................................. 14,527,333 34.79
Paul D. Mathews.................................... 7,878,745 22.33
Betsy B. Sutter.................................... 1,640,293 4.44
Paul Miltenberger.................................. 2,296,410 6.11
Rob Reis........................................... 2,624,469 6.92
Stan Springel...................................... 1,312,235 3.59
All directors and current executive officers as a
group (7 persons)(3)........................... 30,279,485 61.00
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60
days after December 1, 2000, are deemed outstanding; such shares are not
deemed outstanding for purposes of computing percentage ownership of any
other person. The information set forth in this table does not include
shares beneficially owned or outstanding shares of common stock issuable
upon conversion of Series D Preferred Stock which is convertible only upon
75 days' prior notice to Silicon. Unless otherwise indicated in the
footnotes below, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) On November 24, 1999, Silicon adopted the "1999 Long Term Compensation
Plan" pursuant to a resolution of the Board of Directors. On the 7th of
February, 2000, the officers along with many of the employees, were
granted new options that took effect in fiscal year 2000. The schedule of
beneficial shares reflects the effects of this plan with regards to the
officers listed thereunder. Options granted under the 1999 Long term
Compensation Plan vest 20% on date of issuance, and the remainder vest
1/48th each calendar month after issuance, unless earlier terminated.
(3) Includes 14,355,330 shares issuable upon exercise of stock options that
are currently exercisable or will become exercisable within 60 days after
December 1, 2000 from the options that were granted on February 7th, 2000,
under the 1999 Long Term Compensation Plan. Does not include shares
issuable upon exercise of stock options that are not exercisable at or
within 60 days after December 1, 2000 but that will become immediately
exercisable upon consummation of the merger.
43
<PAGE> 50
OTHER STOCKHOLDERS MEETINGS
We intend to hold an annual meeting of our stockholders in 2001 only if
the merger is not consummated. If an annual meeting is held, eligible Silicon
stockholders may submit proposals to be considered for stockholder action at the
annual meeting if they do so in accordance with applicable regulations of the
SEC and our by-laws. If an annual meeting is held, it is expected that a
representative of Deloitte & Touche LLP will be present and available to respond
to appropriate questions from stockholders. The representative will also have
the opportunity to make a statement at the annual meeting if he or she so
desires.
WHERE YOU CAN FIND MORE INFORMATION
Silicon files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference rooms in Washington,
D.C., New York, New York, and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at http://www.sec.gov.
FORWARD LOOKING STATEMENT MAY PROVE INACCURATE
This document, and documents to which we refer you in this document,
contain forward-looking statements about, among other things, Silicon, IGT and
our expectations or beliefs concerning future events or future results of
operations. These statements are typically identified by terms indicating future
expectation such as "anticipates," "believes," "expects," "estimates,"
"intends," and similar expressions. These forward-looking statements are subject
to numerous risks and uncertainties and many factors could cause actual results
and events to differ significantly from those discussed in forward-looking
statements, including but not limited to,
- risks associated with negotiating and documenting a merger
transaction;
- uncertainty of consummating the transaction;
- uncertainty of obtaining stockholder approval;
- risk of failure to obtain necessary regulatory approvals, including
gaming regulatory approvals;
- risk of failure to obtain necessary consents from third parties;
- uncertainty generally associated with the operation of the business
of Silicon and in particular the financial condition of the company;
- uncertainty regarding the amount of proceeds expected to be
available for distribution to stockholders; and
- uncertainty of the proceeds to be received from the disposition of
the shares of WagerWorks, if any.
All forward-looking statements are subject to the risks and uncertainties
inherent with predictions and forecasts. They are necessarily speculative
statements, and unforeseen factors, such as competitive
44
<PAGE> 51
pressures, changes in regulatory structure, failure to gain the approval of
regulatory authorities, and changes in customer acceptance of gaming could cause
results to differ materially from any that may be expected. Forward-looking
statements are made in the context of information available as of the date
stated. In addition, events may occur in the future that we are not able to
accurately predict or control and that may cause actual results to differ
materially from the expectations described in the forward-looking statements.
Readers should not place undue reliance on the forward-looking statements
contained in this proxy statement. These forward-looking statements speak only
as of the date on which the statements were made. In evaluating forward-looking
statements, you should consider these risks and uncertainties, together with the
other risks described from time to time in our reports and documents files with
the Securities and Exchange Commission, and you should no t place undue reliance
on those statements.
OTHER MATTERS
Silicon knows of no other matters that will be presented for consideration
at the special meeting. If any other matters properly come before the special
meeting, it is the intention of the persons named in the enclosed form of Proxy
to vote the shares they represent as the Board of Directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
DATED: _________, 2001
45
<PAGE> 52
ANNEX A
AGREEMENT AND PLAN OF MERGER
<PAGE> 53
AGREEMENT AND PLAN OF MERGER
By and Among
INTERNATIONAL GAME TECHNOLOGY,
INTERNATIONAL GAME ACQUISITION CORPORATION,
and
SILICON GAMING, INC.
Dated December 19, 2000
<PAGE> 54
ARTICLE 1
THE CLOSING; THE MERGER; THE EFFECTS OF THE MERGER
<TABLE>
<S> <C>
1.1 Closing.............................................................. 2
1.2 The Merger; Effective Date and Effective Time........................ 2
1.3 Effects of Merger.................................................... 2
1.4 Articles of Incorporation and Bylaws of the Surviving Corporation.... 2
1.5 Directors and Officers of the Surviving Corporation.................. 3
1.6 Additional Actions................................................... 3
</TABLE>
ARTICLE 2
EFFECT ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
<TABLE>
<S> <C>
2.1 Effect on Capital Stock.............................................. 3
2.3 No Further Rights in Silicon Stock................................... 6
2.4 Undelivered Merger Consideration..................................... 6
2.5 Escheat.............................................................. 7
2.6 Dissenters' Rights................................................... 7
</TABLE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SILICON
<TABLE>
<S> <C>
3.1 Organization; Qualification; Subsidiaries.............................. 8
3.2 Silicon Capital Stock.................................................. 8
3.3 Authority; Enforceability.............................................. 10
3.4 No Conflicts or Consents............................................... 10
3.5 Permits; Compliance with Laws.......................................... 11
3.6 Title to Properties.................................................... 12
3.7 Corporate Formalities; Corporate Documents and Stockholder Agreements.. 12
3.8 SEC Documents; Financial Statements; Liabilities....................... 12
3.9 Absence of Certain Changes or Events................................... 13
3.10 Legal Proceedings...................................................... 15
3.11 Accounts Receivable.................................................... 15
3.12 Contracts.............................................................. 15
3.13 Environmental Matters.................................................. 16
3.14 Employee Matters....................................................... 17
3.15 ERISA and Related Matters.............................................. 18
3.16 Taxes.................................................................. 19
3.17 Transactions with Related Parties...................................... 21
3.18 Voting Requirements.................................................... 21
3.19 Intellectual Property.................................................. 21
</TABLE>
-i-
<PAGE> 55
<TABLE>
<S> <C>
3.20 Insurance.............................................................. 22
3.21 Bank Accounts; Power of Attorney....................................... 22
3.22 Fairness Opinion; No Finder's Fee...................................... 22
3.23 Noncompetition......................................................... 23
3.24 WagerWorks Transactions................................................ 23
3.25 WagerWorks Intellectual Property....................................... 23
3.26 Exchange Warrants...................................................... 23
3.27 WagerWorks Corporate Management Services Agreeemnt..................... 24
</TABLE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF IGT AND NEWCO
<TABLE>
<S> <C>
4.1 Organization........................................................... 24
4.2 Authority; Enforceability.............................................. 24
4.3 No Conflicts or Consents............................................... 24
4.4 No Finder's Fee........................................................ 25
4.5 Information Supplied................................................... 25
4.6 Financing.............................................................. 25
</TABLE>
ARTICLE 5
COVENANTS
<TABLE>
<S> <C>
5.1 Regulatory Approvals; Gaming Authority; Cooperation and Best Efforts... 25
5.2 Silicon Special Meeting................................................ 27
5.3 No Solicitation........................................................ 28
5.4 Press Releases......................................................... 30
5.5 Access to Information and Confidentiality.............................. 30
5.6 Consultation and Reporting............................................. 30
5.7 Notification of Changes................................................ 30
5.8 Fees and Expenses...................................................... 31
5.9 Conduct of Business.................................................... 31
5.10 Completion of Disposition of WagerWorks................................ 34
5.11 Stock Options.......................................................... 34
5.12 Interim Financing...................................................... 35
5.13 Indemnification and Insurance.......................................... 35
5.14 Certain WagerWorks Transactions........................................ 36
</TABLE>
ARTICLE 6
CLOSING CONDITIONS
<TABLE>
<S> <C>
6.1 Conditions Applicable to all Parties................................... 36
6.2 Conditions to IGT's and NewCo's Obligations............................ 37
</TABLE>
-ii-
<PAGE> 56
<TABLE>
<S> <C>
6.3 Conditions to Obligations of Silicon................................... 38
</TABLE>
ARTICLE 7
TERMINATION AND AMENDMENT
<TABLE>
<S> <C>
7.1 Termination............................................................ 39
7.2 Effect of Termination.................................................. 41
7.3 Expenses; Termination Fees............................................. 41
</TABLE>
ARTICLE 8
DEFINED TERMS
<TABLE>
<S> <C>
8.1 Definitions............................................................ 42
</TABLE>
ARTICLE 9
MISCELLANEOUS
<TABLE>
<S> <C>
9.1 Notices................................................................ 49
9.2 Headings; Gender....................................................... 50
9.3 Entire Agreement; No Third Party Beneficiaries......................... 50
9.4 Governing Law.......................................................... 50
9.5 Assignment............................................................. 51
9.6 Severability........................................................... 51
9.7 Counterparts........................................................... 51
9.8 Amendment.............................................................. 51
</TABLE>
<TABLE>
<S> <C>
EXHIBIT A Form of Voting Agreement
EXHIBIT B Form of Preferred Stock Voting Agreement
EXHIBIT C Form of Consulting Agreement
EXHIBIT D Form of Consulting Agreement
</TABLE>
-iii-
<PAGE> 57
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated December
19, 2000, is by and among International Game Technology, a Nevada corporation
("IGT"), and International Game Acquisition Corporation, a California
corporation ("NewCo"), on the one hand, and Silicon Gaming, Inc., a California
corporation ("Silicon"), on the other. Capitalized terms not otherwise defined
in this Agreement have the meanings ascribed to them in Article 8.
Background
A. The respective Boards of Directors of IGT, NewCo and Silicon have
approved the merger of NewCo with and into Silicon (the "Merger") in accordance
with California law, whereby, among other things, all outstanding shares of
Silicon common stock, $.001 par value per share ("Silicon Common Stock") will be
converted into the right to receive cash in the manner set forth in Article 2 of
this Agreement.
B. Prior to the Merger, Silicon intends to dispose of its shares of
common stock of WagerWorks, Inc. (formerly known as uBet.com, Inc.), a Delaware
corporation ("WagerWorks"), other than an amount equal to 4.9% of the equity
interest of WagerWorks, on a fully-diluted basis as of the date of this
Agreement (the "WagerWorks Shares"), in a manner satisfactory to IGT, Silicon
and the holders of a majority of the outstanding shares of Series D Preferred
Stock (the "WagerWorks Disposition").
C. The respective Boards of Directors of Silicon, IGT and NewCo have
determined that the Merger is in furtherance of their respective long-term
business interests, and is fair to and in the best interests of their respective
stockholders.
D. Andrew Pascal and Paul Mathews, the principal holders of the issued
and outstanding shares of Silicon Common Stock have executed a voting agreement
in the form attached hereto as Exhibit A (the "Common Stock Voting Agreement")
and B III Capital Partners, L.P., a Delaware limited partnership ("B III"), the
sole holder of the issued and outstanding shares of Silicon Series D Preferred
Stock has executed a voting agreement in the form attached hereto as Exhibit B
(the "Preferred Stock Voting Agreement," and together with the Common Stock
Voting Agreement, the "Voting Agreement") concurrent with the execution of this
Agreement.
E. Andrew Pascal and Paul Mathews have each executed a consulting
agreement in the form attached hereto as Exhibit C and Tom Carlson has executed
a consulting agreement in the form attached hereto as Exhibit D (each,
respectively, a "Consulting Agreement") concurrent with the execution of this
Agreement, which agreements will commence upon the Effective Date.
Agreement
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth in this Agreement, IGT, NewCo and Silicon agree as follows:
<PAGE> 58
ARTICLE 1
THE CLOSING; THE MERGER; THE EFFECTS OF THE MERGER
1.1 Closing.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at 10:00 a.m. on the third business
day following the satisfaction or waiver of each of the closing conditions set
forth in Article 6 (other than those conditions that can only be satisfied on or
as of the Closing Date, which must be satisfied or waived at or as of the
Closing) of this Agreement at the offices of Squire, Sanders & Dempsey L.L.P.,
600 Hansen Way, Palo Alto, California.
(b) At the Closing, each party to this Agreement will:
(i) deliver the documents and certificates required
to be delivered by it pursuant to Article 6;
(ii) provide proof or indication of the satisfaction
or waiver of each of the conditions to the other party's obligations
set forth in Article 6;
(iii) cause its appropriate officers to execute and
deliver Articles of Merger in substantially the form of Exhibit E (the
"Articles of Merger") and with such mutually agreed upon changes, if
any, thereto as may be necessary in accordance with the California
General Corporation Law in the view of the Secretary of State of the
State of California to permit the Articles of Merger to be filed with
the Secretary of State, ("CGCL"); and
(iv) consummate the Merger by causing to be filed
properly executed Articles of Merger with the Secretary of State of the
State of California in accordance with CGCL.
1.2 The Merger; Effective Date and Effective Time. On the terms and
subject to the conditions of this Agreement, and in accordance with the
applicable provisions of the CGCL, NewCo will merge with and into Silicon at the
Effective Time (as defined below). Following the Merger, the separate existence
of NewCo will cease and Silicon will continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of NewCo in accordance with the CGCL. The Merger will be effective
as of the date and time specified in the Articles of Merger (the "Effective
Date" and the "Effective Time", respectively).
1.3 Effects of Merger. The Merger will have the effects set forth under
the CGCL and as set forth in this Agreement.
1.4 Articles of Incorporation and Bylaws of the Surviving Corporation.
(a) The Articles of Incorporation of Silicon, as amended and
restated and filed with the Articles of Merger with the Secretary of State of
the State of California, shall be the
2
<PAGE> 59
Articles of Incorporation of the Surviving Corporation thereafter unless and
until amended in accordance with the terms of the Articles of Incorporation and
as provided by law.
(b) The Bylaws of NewCo, as in effect at the Effective Time,
shall be the Bylaws of the Surviving Corporation thereafter unless and until
amended in accordance with their terms, the terms of the Articles of
Incorporation and as provided by law.
1.5 Directors and Officers of the Surviving Corporation. At the
Effective Time, each of the directors and officers of Silicon shall resign. The
directors and officers of NewCo immediately prior to the Effective Time will be
the directors and officers of the Surviving Corporation thereafter, each to hold
a directorship or office in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation until the earlier of their resignation or
removal, or until their respective successors are duly elected or appointed and
qualified, as the case may be.
1.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider, or be advised, that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of NewCo or Silicon or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of NewCo or
Silicon, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of NewCo or Silicon, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement
ARTICLE 2
EFFECT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any further action on the part of IGT, NewCo, Silicon or the
stockholders of such entities:
(a) Capital Stock of NewCo. Each issued and outstanding share
of capital stock of NewCo will be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Merger Consideration. The consideration to be paid by IGT
for 100% of the equity interests in Silicon shall be $45,000,000 (the "Aggregate
Merger Consideration") of which $2,500,000 (the "Prepayment Amount") was
previously paid to Silicon on October 17, 2000 upon execution of the Letter
Agreement regarding the transaction, and of which the remaining $42,500,000,
subject to the following adjustments, will be paid at the Effective Time:
(i) The Aggregate Merger Consideration will be
increased, on a dollar for dollar basis, in an amount equal to the
aggregate of the following items, to the extent such items are
reflected as current assets on the Agreed Upon Pre-Closing Balance
Sheet:
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(A) accounts receivables (net of any allowance for
doubtful accounts); plus
(B) cash on hand; plus
(C) prepaid expenses.
(ii) The Aggregate Merger Consideration will be
decreased, on a dollar for dollar basis, in an amount equal to the
aggregate of the following:
(A) all obligations and liabilities of Silicon,
including Transaction Costs incurred but not yet paid by
Silicon, that remain outstanding as of the Closing as set
forth on the Agreed Upon Pre-Closing Balance Sheet, provided
that any liabilities or obligations (including, without
limitation, estimates of warranty costs, the estimated costs
of settling or resolving any pending or threatened litigation
(other than the Drews Distributing matter identified on
Schedule 3.10 hereto) and, if applicable, the amount of
accounting fees payable by Silicon under Section 2.1(c)
hereof) not reflected on the Agreed Upon Pre-Closing Balance
Sheet shall nevertheless be valued by mutual agreement between
Silicon, B III and IGT and such amounts shall be treated as
reductions in the Aggregate Merger Consideration; and
(B) obligations and liabilities of Silicon retired by
IGT prior to or as a condition of the Closing (to the extent
not included in Section 2.1(b)(ii)(A) above), including,
without limitation, indebtedness owed to B III under the
Amended Notes and the New Notes and indebtedness under the
Berg Note, each of which shall be paid in full, in cash, at
the Closing.
(iii) The Aggregate Merger Consideration will be
adjusted if the aggregate dollar amount of NOL plus Gross Inventory
(the "NOL-Gross Inventory Amount") as set forth on the Agreed Upon
Pre-Closing Balance Sheet is less than $10,000,000 or greater than
$13,000,000, as follows:
(A) If the NOL-Gross Inventory Amount is more than
$13,000,000, the Aggregate Merger Consideration will be
increased by the present value of the tax benefit created by
the amount of NOL-Gross Inventory Amount in excess of
$13,000,000 using a 37% tax-rate and a 9.75% discount rate;
and
(B) If the NOL-Gross Inventory Amount is less than
$10,000,000, the Aggregate Merger Consideration will be
decreased by the present value of the tax benefit lost by the
amount of NOL-Gross Inventory Amount less than $10,000,000
using a 37% tax-rate and a 9.75% discount rate.
(c) Pre-Closing Balance Sheet. At least ten Business Days
prior to Closing, Silicon will provide IGT with a copy of an estimated Silicon
balance sheet as of the anticipated Closing Date (the "Pre-Closing Balance
Sheet"). The Pre-Closing Balance Sheet shall be prepared in accordance with
GAAP, applied on a basis consistent with Silicon's past practices but shall also
reflect estimates of liabilities and obligations not required to be recorded in
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accordance with generally acceptable accounting principles as required by
Section 2.1(b)(ii)(A) hereof. Upon receipt of the Pre-Closing Balance Sheet, IGT
shall have five Business Days in which to review it and either accept it or
identify objections to it by written notice to Silicon. If, within five Business
Days following delivery of the Pre-Closing Balance Sheet to IGT, IGT has not
given notice to Silicon of objections to the Pre-Closing Balance Sheet, then the
Pre-Closing Balance Sheet shall be used as the balance sheet for determination
of adjustments to the Aggregate Merger Consideration, if any, pursuant to this
Section 2.1 (the "Agreed Upon Pre-Closing Balance Sheet"). If IGT has given
timely notice of an objection to any item on the Pre-Closing Balance Sheet then
Silicon and IGT shall promptly work with each other to resolve any such
objection. If such objection has not been resolved within two Business Days
after IGT gives notice of an objection, then the issues in dispute shall be
submitted to Ernst & Young (the "Accountants") provided that the date as of
which the Accountants shall be seeking to resolve the disagreement shall be the
date of the Pre-Closing Balance Sheet; provided, however, if the Accountants
shall not resolve any such disagreement within fifteen Business Days after the
date of the Pre-Closing Balance Sheet, then the date of the Pre-Closing Balance
Sheet shall be changed to a date within fifteen days of the then anticipated
Closing Date. If the issues are submitted to the Accountants for resolution, (i)
the determination by the Accountants, as set forth in a notice delivered to the
Parties, will be binding and conclusive on the Parties, and (ii) (A) if the
determination by the Accountants results in a decrease in the Aggregate Merger
Consideration of less than $200,000, then IGT will bear 100% of the fees and
costs of the Accountants for such determination (b) if the determination by the
Accountants results in a decrease in the Aggregate Merger Consideration of
$200,000 or more, then Silicon will bear 100% of the fees of the Accountants for
such determination and the portion of such costs to be borne by Silicon shall be
reflected as a liability of Silicon unless such cost has been paid in cash by
Silicon prior to the Closing Date.
(d) Conversion of Silicon Capital Stock; Conversion Cash.
Subject to Section 2.1(b), each share of Silicon Common Stock issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive cash in an amount equal to the quotient of the Aggregate Merger
Consideration (as adjusted in accordance with Section 2.1(b) hereof) minus the
Prepayment Amount , divided by the total number of shares of Silicon Common
Stock issued and outstanding at the Effective Time (assuming for such purposes
that each outstanding share of Series D Preferred Stock shall have been
converted into 4,384.53149701 shares of Silicon Common Stock, all then
outstanding Stock Options (excluding the Original Stock Options) have been
accelerated and exercised in full, each outstanding share of Series E Preferred
Stock shall have been converted into 1,000 shares of Silicon Common Stock and
any shares issuable as the result of the exercise prior to the closing of any
Exchange Warrants or any other outstanding warrants are issued and outstanding
), rounded to the nearest hundredth of a whole cent (the "Conversion Cash), and
each share of Series D Preferred Stock issued and outstanding immediately prior
to the Effective Time will be converted into the right to receive cash in an
amount equal to the product of 4,384.53149701 multiplied by an amount equal to
the Conversion Cash and each share of Series E Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted into the
right to receive cash in an amount equal to the product of 1,000 multiplied by
an amount equal to the Conversion Cash.
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2.2 Exchange of Stock Certificates; Record Date.
(a) Prior to the Effective Time, IGT will appoint the American
Stock Transfer & Trust Company or another entity selected by IGT (the "Exchange
Agent") to arrange for the exchange of certificates that, immediately prior to
the Effective Time, represented issued and outstanding shares of Silicon Common
Stock and Series D Preferred Stock and Series E Preferred Stock (the "Silicon
Certificates") for the per share consideration specified in Section 2.1 hereof.
On or before the Closing Date, IGT will deliver to the Exchange Agent, in trust
for the benefit of each holder of record of Silicon Common Stock and Series D
and Series E Preferred Stock the Conversion Cash. As soon as practicable after
the Effective Time, IGT will cause the Exchange Agent to mail a notice and
letter of transmittal to each record holder of Silicon Common Stock and Series D
and Series E Preferred Stock advising such record holder of the effectiveness of
the Merger and providing instructions for surrendering to the Exchange Agent the
Silicon Certificates representing Silicon Common Stock and Series D and Series E
Preferred Stock in exchange for per share consideration specified in Section 2.1
hereof. Each holder of Silicon Certificates, upon proper surrender thereof and a
duly completed letter of transmittal to the Exchange Agent, will be entitled to
receive from the Exchange Agent in exchange for the Silicon Certificates
(subject to any taxes required to be withheld) the amount specified in Section
2.1 hereof. Until properly surrendered, after the Effective Time each Silicon
Certificate will be deemed for all purposes to evidence only the right to
receive Conversion Cash. Holders of Silicon Certificates will not be entitled to
receive the amount specified in Section 2.1 hereof until their Silicon
Certificates are properly surrendered.
(b) If any Silicon Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
the Silicon Certificate to be lost, stolen or destroyed (a "Missing
Certificate"), IGT will direct the Exchange Agent to issue in exchange for the
shares of Silicon Common Stock represented by the Missing Certificate, the
amount specified in Section 2.1 hereof. The Board of Directors of IGT may, in
its discretion and as a condition to the issuance of any per share consideration
to the owner of shares of Silicon Common Stock represented by a Missing
Certificate, require the owner to provide IGT with an affidavit and a bond in a
sum as IGT may reasonably direct as an indemnity against any claim that may be
made against IGT or the Exchange Agent with respect to the Missing Certificate.
2.3 No Further Rights in Silicon Stock. As of the Effective Time, all
shares of Silicon Common Stock and Series D and Series E Preferred Stock will no
longer be outstanding and will automatically be canceled and retired and will
cease to exist, and each holder of a Silicon Certificate representing shares of
Silicon Common Stock and Series D and Series E Preferred Stock as of the
Effective Time will cease to have any rights with respect to the Silicon Common
Stock and Series D and Series E Preferred Stock, respectively, except the right
to receive per share consideration specified in Section 2.1 hereof.
2.4 Undelivered Merger Consideration. Any per share consideration that
remains undistributed by the Exchange Agent to former holders of Silicon Common
Stock and Series D and Series E Preferred Stock as of the date that is one year
after the Effective Date shall be returned by the Exchange Agent to IGT upon
demand, and any holder of Silicon Certificates who has not theretofore
surrendered his or her shares of Silicon Common Stock or Series D and
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Series E Preferred Stock in accordance with 2.2 shall thereafter look only to
IGT for satisfaction of his or her claims for per share consideration specified
in Section 2.1 hereof.
2.5 Escheat. Neither IGT nor the Surviving Corporation shall be liable
to any holder or former holder of Silicon Common Stock or Series D and Series E
Preferred Stock or to any other Person with respect to any per share
consideration delivered to any public official pursuant to any applicable
abandoned property law, escheat law, or similar legal requirement.
2.6 Dissenters' Rights. Notwithstanding anything in this Agreement to
the contrary, Shares issued and outstanding immediately prior to the Effective
Time and constituting "dissenting shares" (as defined in Section 1300 of the
CGCL) ("Dissenting Shares"), shall not be converted into the right to receive
the Conversion Cash, as provided in Section 2.2 hereof, unless and until such
holder fails to perfect or effectively withdraws or otherwise loses his or her
right to appraisal and payment under the CGCL. If, after the Effective Time, any
such holder fails to perfect or effectively withdraws or loses his or her right
to appraisal, such Dissenting Shares thereupon shall be treated as if they had
been converted as of the Effective Time into the right to receive the Conversion
Cash to which such holder is entitled, without interest thereon. Silicon shall
give IGT (i) prompt written notice of any demands received by Silicon for
appraisal of any Shares, attempted withdrawals of such demands and any other
instruments served, pursuant to applicable law received by Silicon relating to
dissenters' rights and (ii) the opportunity to direct all negotiations with
respect to dissenters under the CGCL. Silicon shall not, without the prior
written consent of IGT, voluntarily make any payment with respect to Dissenting
Shares, offer to settle or settle any demands of any holders of Dissenting
Shares or approve any withdrawal of such demands.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SILICON
Silicon represents and warrants to IGT and NewCo that as of the date of
this Agreement and, as amended as of the Closing Date:
3.1 Organization; Qualification; Subsidiaries. Schedule 3.1 lists the
jurisdiction of incorporation, the number of authorized and issued shares of
capital stock and the members of the Board of Directors of Silicon. Silicon is
duly organized, validly existing and in good standing under the laws of its
state of organization, having all requisite power and authority to own its
property and to carry on its business as it is now being conducted. Except as
disclosed in Schedule 3.1, Silicon does not, directly or indirectly, own of
record or beneficially, or have the right or obligation to acquire, any direct
or indirect ownership interest, capital stock, membership interest, partnership
interest, joint venture interest or other equity interest in any Person. All
outstanding shares of capital stock of Silicon and any of its Subsidiaries
(including WagerWorks) have been validly issued and are fully paid,
nonassessable and free and clear of any Adverse Claim. No actions or proceedings
to dissolve Silicon or any of its Subsidiaries (including WagerWorks) are
pending. Silicon and all of its Subsidiaries (including WagerWorks) are duly
qualified or licensed to do business and are in good standing in each
jurisdiction in which the property owned, leased or operated by such entity or
the conduct of its
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business requires qualification or licensing, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect.
3.2 Silicon Capital Stock(a) The authorized capital stock of Silicon
consists of as of the date hereof, and will consist of as of the Effective Time,
(i) 750,000,000 shares of Silicon Common Stock, $.001 par value per share, and
(ii) 6,884,473 shares of Silicon Preferred Stock, $.001 par value per share, of
which 39,750 shares are designated as Series D Preferred Stock and 61,000 shares
are designated as Series E Preferred Stock. The rights, privileges and
preferences of Silicon Common Stock and Silicon Preferred Stock are as stated in
Silicon's Articles of Incorporation, as amended to date.
(b) As of the close of business on December 19, 2000, (i)
35,279,976 shares of Silicon Common Stock were issued and outstanding, (ii)
39,750 shares of Series D Preferred stock were issued and outstanding, (iii) no
shares of Silicon Common Stock were held by Silicon in its treasury, and (iv) no
shares of Series E Preferred Stock were issued and outstanding.
(c) As of the close of business on December 19, 2000, (i)
75,790,509 shares of Silicon Common Stock were reserved for issuance upon
exercise of the Stock Options (as hereinafter defined), (ii) 54,985,667 shares
of Silicon Common Stock were reserved for issuance pursuant to the Exchange
Warrants issued and outstanding that were issued in the Exchange Offer on June
30, 2000, (iii) 174,285,127 shares of Silicon Common Stock were reserved for
issuance upon conversion of shares of Series D Preferred Stock, (iv) 60,807.731
shares of Series E Preferred Stock were reserved for issuance upon exercise of
the Series E Warrant (v) 60,807,731 shares of Silicon Common Stock were reserved
for issuance upon conversion of shares of the Series E Preferred Stock.
(d) All issued and outstanding shares of Silicon Common Stock
and all shares which may be issued upon the exercise of Stock Options and
conversion of the Series D Preferred Stock and Series E Preferred Stock will be
duly authorized, validly issued, fully paid and nonassessable, and are not
subject to and were not issued in violation of any preemptive rights.
(e) Schedule 3.2 hereto sets forth a schedule of the
outstanding Stock Options showing the name of the option holder, the grant date,
the current exercise price , the anticipated exercise price as of the Closing
Date, vesting schedule, the number of options vested as of the date hereof and
the payments, if any, due to the Option holders upon consummation of the Merger
(subject to modification as contemplated by Section 5.11 hereof). Schedule 3.2
hereto also sets forth a schedule of all warrants outstanding showing the name
of the warrant holder, the grant date, the current exercise price, the
anticipated exercise price as of the Closing Date, vesting schedule, the number
of warrants vested or exercisable as of the date hereof and the payments, if
any, due to the warrant holders upon consummation of the Merger (subject to
modification as contemplated by Section 5.11 hereof).
(f) Except for the Voting Agreements and the Stockholders
Agreement, to the Knowledge of Silicon, there are no voting trusts, voting
agreements, irrevocable proxies or other agreements with respect to any voting
shares of capital stock of Silicon.
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(g) There are no bonds, debentures, notes or other
indebtedness of Silicon or any of its subsidiaries having the right to vote (or
convertible into or exchangeable for other securities having the right to vote)
on any matters on which the stockholders of Silicon may vote.
(h) Except as set forth herein, as of the date of this
Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Silicon or any of its Subsidiaries (including WagerWorks) is a party or by
which any of them is bound obligating Silicon or any of its Subsidiaries
(including WagerWorks) to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Silicon or of any of its Subsidiaries (including WagerWorks) or obligating
Silicon or any of its Subsidiaries (including WagerWorks) to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Other than Silicon's
obligation following the consummation of a change of control to redeem the
Series D Preferred Stock and Series E Preferred Stock which obligation B III
has, with respect to the Merger, waived in accordance with the terms of the
Preferred Stock Voting Agreement, there are no outstanding contractual
obligations of Silicon or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock (or options to acquire any such
shares) of Silicon or any of its Subsidiaries. Except as set forth in Schedule
3.2, there are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on the revenues, earnings or financial performance of
Silicon or any of its Subsidiaries (including WagerWorks) or assets or
calculated in accordance therewith (other than ordinary course payments or
commissions to sales representatives of Silicon based upon revenues generated by
them without augmentation as a result of the transactions contemplated hereby)
or to cause Silicon or any of its Subsidiaries (including WagerWorks) to file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or which otherwise relate to the registration of any
securities of Silicon.
(i) WagerWorks Capital Stock. The authorized capital stock of
WagerWorks consists of as of the date hereof, and will consist of as of the
Effective Time, (i) 50,000,000 shares of common stock, $0.001 par value per
share, and (ii) 10,000,000 shares of preferred stock, $0.001 par value per
share, of which 4,233,128 shares are designated as Series A Preferred Stock. The
rights, privileges and preferences of the common stock and preferred stock of
WagerWorks are as stated in WagerWork's Articles of Incorporation, as amended to
date. As of the close of business on December 19, 2000, (i) 10,000,000 shares of
common stock were issued and outstanding, (ii) 3,742,330 shares of Series A
Preferred stock were issued and outstanding (such shares of Preferred Stock are
convertible into 3,742,330 shares of Common Stock), (iii) no shares of common
stock were held by WagerWorks in its treasury, and (iv) no other shares of its
capital stock were issued and outstanding.
(j) Other Subsidiary Capital Stock. The Subsidiaries are set
forth on Schedule 3.2 hereto. Each of the Subsidiaries (including WagerWorks) 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
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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, Silicon 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.
3.3 Authority; Enforceability.
(a) Silicon has all requisite corporate power and authority to
enter into and carry out its obligations under this Agreement or any of the
other agreements referred to in this Agreement to which it is a party. The
execution, delivery and performance of this Agreement or any of the other
agreements referred to in this Agreement to which it is a party and the
consummation of the transactions contemplated hereby or thereby has been duly
authorized by all necessary corporate action on the part of Silicon, except for
the approval of this Agreement by the stockholders of Silicon.
(b) This Agreement and each other agreement executed or to be
executed by Silicon in connection with the transactions contemplated by this
Agreement have been, or when executed will be, duly executed and delivered by
Silicon and constitute, or when executed and delivered will constitute, valid
and binding obligations of Silicon, enforceable against Silicon in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and equitable
principles which may limit the availability of certain equitable remedies in
certain instances.
3.4 No Conflicts or Consents.
(a) Except as set forth on Schedule 3.4, neither the
execution, delivery or performance of this Agreement or any of the other
agreements referred to in this Agreement to which Silicon is a party by Silicon
nor the consummation of the transactions contemplated by this Agreement or any
of the other agreements referred to in this Agreement to which Silicon is a
party:
(i) will violate, conflict with, or result in a
breach of any provision of, constitute a default (or an event that,
with notice or lapse of time or both, would constitute a default)
under, result in the termination of, or accelerate the performance
required by, or result in the creation of any Adverse Claim against any
of the material properties or material assets of Silicon under, (A) its
articles of incorporation or bylaws, (B) any material note, bond,
mortgage, indenture, deed of trust, or other debt obligation (other
than ordinary course trade credit) to which Silicon is a party or by
which any of its material assets are bound, or (C) any material lease,
agreement or other instrument or other obligation that is material to
the business or operations of Silicon and to which
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Silicon is a party, or by which any of its assets are bound, including
any contract for the provision of any form of gaming services or
products between Silicon or any of its Subsidiaries and any third
party; or
(ii) subject to obtaining the required Governmental
and Gaming Approvals required, violate any order, writ, injunction,
decree, judgment, statute, rule or regulation of any Governmental
Entity to which Silicon is subject or by which any of its assets are
bound (including, without limitation, those of the National Indian
Gaming Commission, or any other tribal or governmental authority
regulating any form of gaming).
(b) No filing or registration with, or authorization, consent
or approval of, any Governmental Entity is required by or with respect to
Silicon in connection with the execution and delivery of this Agreement by
Silicon, or is necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement, except for: (i) the filing of a
premerger notification and report form (the "HSR Report") by each of IGT and
Silicon under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), if applicable, (ii) the filing and recordation
requirements of the Law with respect to the Articles of Merger, (iii) the filing
of the Proxy Statement with the SEC and any other filings required by the
Securities Act or the Exchange Act, (iv) the filing with and approval of any
Gaming Authority, including approval by the Nevada State Gaming Control Board
and the Nevada Gaming Commission under the Nevada Gaming Control Act and the
rules and regulations promulgated thereunder and (v) the filing of appropriate
documents with the relevant authorities of other states in which Silicon is
qualified to do business. Neither Silicon nor any Subsidiary nor, to the
Knowledge of Silicon, any director or officer of Silicon or of any Subsidiary
has received any written claim, demand, notice, complaint, court order or
administrative order from any Governmental Entity in the past three years,
asserting that a license of it or them, as applicable, under any Gaming Laws is
being or may be revoked or suspended other than such claims, demands, notices,
complaints, court orders or administrative orders which would not have a
Material Adverse Effect on Silicon.
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3.5 Permits; Compliance with Laws. Each of Silicon and its Subsidiaries
has in effect all federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Permits") necessary for it to own, lease or operate its properties
and assets and to carry on its business as now conducted, and there has occurred
no default under any such Permit, except for the lack of Permits and for
defaults under Permits, which lack or default would not have a Material Adverse
Effect on Silicon. To the Knowledge of Silicon, no Governmental Entity is
considering limiting, suspending or revoking any of Silicon's or its
Subsidiaries' Permits. Except as disclosed in Silicon's SEC Documents filed
prior to the date of this Agreement and publicly available, Silicon and its
Subsidiaries are in compliance with all applicable statutes, laws, ordinances,
rules, orders and regulations of any Governmental Entity, except for
noncompliance which would not have a Material Adverse Effect on Silicon. Silicon
and each of its Subsidiaries are, and each of their respective directors,
officers, and persons performing management functions similar to officers are,
in material compliance with all applicable Gaming Laws.
3.6 Title to Properties. Silicon does not own any real property.
Schedule 3.6 sets forth a list of each real property lease to which Silicon or
any of its Subsidiaries is a party setting forth the location of the leased
premises, the term of the lease, the square footage of the leased premises and
the current monthly lease payments. Silicon and its Subsidiaries have good and
marketable title to, or valid leasehold interests in, all their properties and
assets except where such failure would not have a Material Adverse Effect on
Silicon.
3.7 Corporate Formalities; Corporate Documents and Stockholder
Agreements.
(a) Each of Silicon and its Subsidiaries (including
WagerWorks) has maintained its separate corporate existence and complied with
all necessary corporate formalities.
(b) Silicon has delivered to IGT true and complete copies of
its articles of incorporation and bylaws, as amended or restated through the
date of this Agreement, as well as the articles of incorporation and bylaws
governing each Subsidiary (including WagerWorks). The minute books of each of
Silicon and its Subsidiaries (including WagerWorks) contain complete and
accurate records of all corporate actions of the equity owners of the various
entities and of the boards of directors or other governing bodies, including
committees of such boards or governing bodies of the various entities. The stock
transfer records of Silicon contain complete and accurate records of all
issuances, and redemptions of stock by Silicon.
(c) Except as set forth on Schedule 3.7, there are no
agreements among or between any of the Silicon stockholders with respect to the
capital stock of Silicon to which Silicon is a party or of which Silicon has
Knowledge.
3.8 SEC Documents; Financial Statements; Liabilities.
(a) Silicon has timely filed all required reports, schedules,
forms, statements and other documents with the SEC since January 1, 1997 (the
"Silicon SEC Documents"). The Silicon SEC Documents, and any such reports, forms
and documents filed by Silicon with the SEC after the date of this Agreement,
complied, or will comply, at the time of filing as to form in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case
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may be, and the rules and regulations of the SEC promulgated thereunder
applicable to the Silicon SEC Documents, and except to the extent that
information contained in any Silicon SEC Document has been superseded by a later
filed Silicon SEC Document, none of the Silicon SEC Documents at the time of
filing contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The Silicon Financial Statements included in the Silicon
SEC Documents complied at the time of filing with the SEC as to form in all
material respects with the applicable accounting requirements and published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a basis consistent with prior periods, and
fairly present the consolidated financial position of Silicon at such dates and
the consolidated results of operations and cash flow for the respective periods
then ended, subject, in the case of the Silicon Interim Financial Statements, to
normal, recurring year-end audit adjustments that are not, individually or in
the aggregate, material in amount. The Silicon Audited Financial Statements have
been audited by Deloitte & Touche, LLP, independent auditors of Silicon, in
accordance with generally accepted auditing standards. Silicon is not, nor are
any of its respective assets subject to, any liability, commitment, debt or
obligation (of any kind whatsoever whether absolute or contingent, accrued,
fixed, known, unknown, matured or unmatured) of a type required by GAAP to be
reflected in the Silicon Financial Statements, except, (i) as and to the extent
reflected on the Silicon Latest Balance Sheet or the footnotes that are a part
of the Silicon Financial Statements, (ii) as may have been incurred or may have
arisen since the date of the Silicon Latest Balance Sheet in the ordinary course
of business and that are not material individually or in the aggregate or (iii)
are permitted or contemplated by this Agreement. Except as set forth in the
Silicon SEC Documents, Silicon has not made any change in the accounting
policies or practices applied in the preparation of the Silicon Financial
Statements. Schedule 3.8 hereto sets forth a list of any liability, commitment,
debt or obligation (of any kind whatsoever whether absolute or contingent,
accrued, fixed, known, unknown, matured or unmatured) of a type not required by
GAAP to be reflected in the Silicon Financial Statements that exists as of the
date of this Agreement (which schedule shall be updated as of the date of the
Pre-Closing Balance Sheet.
(c) The Silicon Latest Balance Sheet includes appropriate
reserves for all Taxes and other known liabilities incurred as of such date but
not yet payable.
3.9 Absence of Certain Changes or Events. Since the date of the Silicon
Latest Balance Sheet, Silicon has conducted its business only in the ordinary
course, and, except as set forth on Schedule 3.9, has not:
(a) amended its certificate of incorporation, bylaws or
similar organizational documents;
(b) incurred any liability or obligation of any nature
(whether absolute or contingent, accrued, fixed, known, unknown, matured or
unmatured), including, without limitation, increasing indebtedness for borrowed
money, except in the ordinary course of business and not exceeding $250,000
individually;
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(c) brought about any split, combination or reclassification
of any of its capital stock or any issuance or the authorization of any issuance
of any other securities in respect of, in lieu of, or in substitution for its
shares of capital stock;
(d) suffered or permitted any of its assets to be or remain
subject to any mortgage or other encumbrance, except for Permitted Liens;
(e) merged or consolidated with another entity or acquired or
agreed to acquire any business or any corporation, partnership or other business
organization, or sold, leased, transferred or otherwise disposed of any assets
except for assets sold for fair value in the ordinary course of business;
(f) made any capital expenditure or commitment therefore,
except in the ordinary course of business and, in the aggregate, in excess of
$500,000;
(g) declared or paid any dividend or made any distribution
with respect to any of its equity interests, or redeemed, purchased or otherwise
acquired any of its equity interests, or issued, sold or granted any equity
interests or any option, warrant or other right to purchase or acquire any such
interest;
(h) adopted any employee benefit plan or made any change in
any existing employee benefit plans;
(i) made any loan to any Person;
(j) except for employment agreements entered into in the
ordinary course of business and consistent with past practices with employees of
Silicon who are not directors or officers of Silicon, entered into or amended
any employment, severance or similar agreement or arrangement with any director,
officer or employee, or granted any increase in the rate of wages, salaries,
bonuses, profit sharing arrangements, severance or termination pay arrangements
or other compensation or benefits of any director, officer or employee;
(k) canceled, waived, released or otherwise compromised any
debt, claim or right, except in the ordinary course of business consistent with
past practices;
(l) made any change in any method of accounting or auditing
practice;
(m) suffered the termination, suspension or revocation of any
license or permit necessary for the operation of its business;
(n) entered into any transaction other than on an arm's-length
basis;
(o) suffered any damage, destruction or loss (whether or not
covered by insurance) which has had or could have a Material Adverse Effect on
Silicon;
(p) agreed, whether or not in writing, to do any of the
foregoing;
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(q) been the subject of, or incurred any liability under or
with respect to, any determination made by an arbitrator with respect to a
grievance filed under any collective bargaining or other labor agreement to
which Silicon is a party;
(r) suffered any Material Adverse Effect; or
(s) taken any other action which, if Article 5 had then been
in effect, would have been prohibited by such Article if taken without IGT's
consent (and no agreement, understanding, obligation or commitment to take any
such action exists).
3.10 Legal Proceedings. Except as set forth on Schedule 3.10, there is
no lawsuit, action, suit, claim or other proceeding at law or in equity, or
investigation, before or by any court or Governmental Entity or before any
arbitrator that is pending or, to the Knowledge of Silicon, threatened against
Silicon, or any unsatisfied judgment, order or decree or any open injunction
binding upon Silicon. Except as specifically set forth on Schedule 3.10, no
lawsuits, actions, suits, claims, proceedings, investigations, unsatisfied
judgments, orders, decrees or open injunctions will or are reasonably likely to
have a Material Adverse Effect or adversely effect the ability of Silicon to
enter into and perform its obligations under this Agreement.
3.11 Accounts Receivable. All of the accounts receivable reflected on
the Silicon Financial Statements or arising thereafter that have not been
collected have arisen only from bona fide transactions in the ordinary course of
business, represent valid obligations owing to Silicon and have been accrued in
accordance with GAAP.
3.12 Contracts.
(a) Schedule 3.12 lists and describes all Material Contracts.
A complete and correct copy of each Material Contract has been furnished to or
made available to IGT. To the Knowledge of Silicon, each Material Contract is
valid, binding and enforceable, except to the extent that enforcement may be
limited by bankruptcy, reorganization, insolvency and other similar laws and
court decisions relating to or affecting the enforcement of creditors' rights
generally and by general equitable principles. Silicon and, to the Knowledge of
Silicon, each other party to each Material Contract are in compliance in all
material respects with the provisions of each Material Contract by which such
party is bound.
(b) Except as may be set forth in the Silicon SEC Documents or
described on Schedule 3.12, Silicon is not a party to:
(i) any collective bargaining agreement;
(ii) any written or oral employment or other
agreement or contract with or commitment to any employee;
(iii) any agreement, contract or commitment
containing any covenant limiting its freedom to engage in any line of
business or to compete with any Person;
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(iv) any oral or written obligation of guaranty or
indemnification arising from any agreement, contract or commitment,
except as provided in its certificate of incorporation or bylaws;
(v) any joint venture, partnership or similar
contract involving a sharing of profits or expenses;
(vi) any non-disclosure agreement, non-competition
agreement, agreement with an officer, director or employee of Silicon,
tax indemnity, tax sharing or tax allocation agreement, or any
severance, bonus or commission agreement;
(vii) any indenture, mortgage, loan, credit,
sale-leaseback or similar contract under which Silicon has borrowed any
money or issued any note, bond or other evidence of indebtedness for
borrowed money or guaranteed indebtedness for money borrowed by others;
or
(viii) any hedge, swap, exchange, futures or similar
agreements or contracts.
3.13 Environmental Matters.
(a) Silicon and each of its Subsidiaries is, and has been, and
each of Silicon's former subsidiaries, while Subsidiaries of Silicon, was, in
compliance with all applicable Environmental Laws, except for noncompliance
which would not have a Material Adverse Effect on Silicon. The term
"Environmental Laws" means any federal, state, local or foreign statute, code,
ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, injunction or other authorization,
including the requirement to register underground storage tanks, relating to:
(A) emissions, discharges, releases or threatened releases of Hazardous Material
(as defined below) into the environment, including, without limitation, into
ambient air, soil, sediments, land surface or subsurface, buildings or
facilities, surface water, groundwater, publicly owned treatment works, septic
systems or land; (B) the generation, treatment, storage, disposal, use,
handling, manufacturing, transportation or shipment of Hazardous Material; (C)
protection of the environment; or (D) employee health and safety.
(b) During the period of ownership or operation by Silicon and
its Subsidiaries of any of their respective current or previously owned or
leased properties, there have been no releases of Hazardous Material in, on,
under or affecting such properties or, to the Knowledge of Silicon, any
surrounding site, except in each case for those which would not have a Material
Adverse Effect on Silicon. Silicon has not shipped any Hazardous Material to any
disposal site for which it is or will be subject to any liability, except for
such liabilities which would not have a Material Adverse Effect on Silicon.
Prior to the period of ownership or operation by Silicon and its Subsidiaries of
any of their respective current or previously owned or leased properties, no
Hazardous Material was generated, treated, stored, disposed of, used, handled,
released or manufactured at, or transported, shipped or disposed of from, such
current or previously owned or leased properties, and there were no releases of
Hazardous Material in, on, under or affecting any such property or any
surrounding site, except in each case for those which would not have a Material
Adverse Effect on Silicon. The term "Hazardous Material" means (A) hazardous
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materials, contaminants, constituents, medical wastes, hazardous or infectious
wastes and hazardous substances as those terms are defined in the following
statutes and their implementing regulations: the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq.,
the Clean Water Act, 33 U.S.C. Section 1251 et seq. and the Clean Air Act, 42
U.S.C. Section 7401 et seq., (B) petroleum, including crude oil and any
fractions thereof, (C) natural gas, synthetic gas and any mixtures thereof, (D)
asbestos and/or asbestos-containing material and (E) polychlorinated biphenyls
("PCBs") or materials or fluids containing PCBs in excess of 50 ppm.
3.14 Employee Matters.
(a) Schedule 3.14(a) sets forth:
(i) a list of the name, title, current annual
compensation rate (including bonus and commissions) of each employee of
Silicon;
(ii) employment, consulting, employee confidentiality
or similar agreements;
(iii) any employee handbook(s); and
(iv) any reports and/or plans prepared or adopted
pursuant to the Equal Employment Opportunity Act of 1972, as amended.
Accruals with respect to the bonus, sick leave and vacation benefits of
the employees of Silicon have been made in accordance with the terms of
the applicable Employee Plans and GAAP.
(b) Except as set forth on Schedule 3.14(b):
(i) (A) Silicon is in material compliance with all
Applicable Laws respecting employment and employment practices, terms
and conditions of employment, wages and hours and occupational safety
and health; (B) Silicon is not engaged in any unfair labor practice
within the meaning of Section 8 of the National Labor Relations Act;
and (C) there is no proceeding pending or to the Knowledge of Silicon,
threatened, or any investigation pending or to the Knowledge of Silicon
threatened, against Silicon, relating to subsection (A) or (B) above,
and Silicon has no Knowledge of any basis for any such proceeding or
investigation;
(ii) none of the employees of Silicon is a member of,
or represented by, any labor union and to the Knowledge of Silicon,
there are no efforts being made to unionize any of such employees; and
(iii) there are no charges, formal or informal, internal complaints of,
or proceedings involving, discrimination or harassment (including but
not limited to discrimination or harassment based upon sex, age,
marital status, race, religion, color, creed, national origin, sexual
preference, handicap or veteran status) pending or, to Silicon's
Knowledge, threatened. Nor are there any such investigations pending or
to
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the Knowledge of Silicon threatened, including, but not limited to,
investigations before the Equal Employment Opportunity Commission or
any federal, state or local agency or court, with respect to Silicon.
3.15 ERISA and Related Matters.
(a) Schedule 3.15(a) lists each Employee Plan that Silicon
maintains, administers or contributes to. Silicon has provided IGT a true and
complete copy of each such Employee Plan, current summary plan description,
(and, if applicable, related trust documents) and all amendments thereto
together with (i) the most recent annual report, if any, that has been prepared
in connection with each Employee Plan; (ii) all material communications received
from or sent to the Internal Revenue Service or the Department of Labor within
the last two years; and (iii) the most recent Internal Revenue Service
determination letter with respect to each Employee Plan, if any, and the most
recent application for a determination letter, if any.
(b) Schedule 3.15(b) identifies each Benefit Arrangement that
Silicon maintains or administers. Silicon has furnished to IGT copies or
descriptions of each Benefit Arrangement. To the Knowledge of Silicon, each
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations that are applicable to such Benefit Arrangement.
(c) Except as set forth on Schedule 3.15(c), neither Silicon
nor any of its Subsidiaries maintains or has ever maintained an "employee
benefit plan" (as defined in Section 3(3) of ERISA) which is or was (i) a plan
subject to Title IV of ERISA or (ii) a "multi-employer plan" (as defined in
Section 3(37) of ERISA).
(d) Benefits under any Employee Plan or Benefit Arrangement
are as represented in said documents and have not been increased or modified
(whether written or not written) subsequent to the dates of such documents.
Silicon and its Subsidiaries have not communicated to any employee or former
employee any intention or commitment to modify any Employee Plan or Benefit
Arrangement or to establish or implement any other employee or retiree benefit
or compensation arrangement.
(e) Each Employee Plan and related trust which is intended to
be qualified under Section 401(a) and 501(a) of the Code satisfies in form the
requirements of these sections, except to the extent amendments are not required
by law to be made until a date after the Closing Date, and has received a
favorable determination letter from the Internal Revenue Service regarding such
qualified status; and to the Knowledge of Silicon, no event has occurred
regarding the adoption of such plan that would adversely affect such
qualification. Each Employee Plan has been maintained and administered in
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Code. No Employee Plan has been operated in a manner which will
give rise to penalties, excise taxes or adverse tax consequences that would have
a Material Adverse Effect, and no Employee Plan has violated in a material
manner any provision of the Code or of ERISA.
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(f) Except for amounts accrued in the normal course of
operation of any Employee Plan or Benefit Arrangement and properly reflected in
the financial statements of Silicon, full payment has been made of all amounts
that Silicon has, or has been required to have, paid as contributions to any
Employee Plan or Benefit Arrangement under Applicable Law or under the terms of
any such plan or any arrangement. All amounts withheld by Silicon from its
employees have been paid to the appropriate Employee Plan or Benefit Arrangement
by the due date prescribed by the Department of Labor to avoid penalties.
(g) Silicon does not have any current or projected liability
in respect of post-retirement or post-employment health, life or other welfare
benefits for retired, current or former employees, except as may be required
under Part 6 of Subtitle B of Title I of ERISA.
(h) Except as set forth on Schedule 3.15(h) or in this
Agreement, no employee or former employee of Silicon or its Subsidiaries will
become entitled to any bonus, retirement, severance, job security or similar
benefit or enhanced benefit (including acceleration of compensation, an award,
vesting or exercise of an incentive award) or any fee or payment of any kind
solely as a result of any of the transactions contemplated by this Agreement.
3.16 Taxes. For purposes of this Section 3.16, the "Silicon Group"
means, individually and collectively, Silicon and any individual, trust,
corporation, partnership or any other entity as to which Silicon is liable for
Taxes incurred by such individual or entity either as transferee or pursuant to
Treasury Regulation Section 1.1502-6 or pursuant to any other provision of
federal, territorial, state, local, or foreign law or regulations. Except as set
forth on Schedule 3.16:
(a) All Returns required to be filed by or on behalf of
members of the Silicon Group have been duly filed on a timely basis and such
Returns (including all attached statements and schedules) are true, complete and
correct. All Taxes shown to be payable on the Returns or on subsequent
assessments with respect thereto have been paid in full on a timely basis, and
no other Taxes are payable by the Silicon Group with respect to items or periods
covered by such Returns (whether or not shown on or reportable on such Returns)
or with respect to any period prior to the date of this Agreement. No member of
the Silicon Group is currently the beneficiary of any extension of time within
which to file any Return.
(b) Each member of the Silicon Group has withheld and paid
over all Taxes required to have been withheld and paid over (including any
estimated taxes), and has complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party.
(c) There are no Liens on any of the assets of Silicon or its
subsidiaries with respect to Taxes other than Liens for Taxes not yet due and
payable, or for Taxes that are being contested in good faith through appropriate
proceedings and for which appropriate reserves have been established.
(d) The Returns of the Silicon Group are not currently the
subject of any audit by a governmental or taxing authority.
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(e) No deficiencies exist or are expected to be asserted with
respect to Taxes of the Silicon Group, and there is no basis for the assertion
of any material deficiency of Taxes. No notice (either in writing or verbally,
formally or informally) has been received by any member of the Silicon Group
that it has not filed a Return or paid Taxes required to be filed or paid by it.
(f) No member of the Silicon Group is a party to any pending
action or proceeding for assessment or collection of Taxes, nor has such action
or proceeding been asserted or threatened (either in writing or verbally,
formally or informally) against any member of the Silicon Group, or any of its
assets.
(g) No waiver or extension of any statute of limitations is in
effect with respect to Taxes or Returns of any member of the Silicon Group.
(h) Silicon and each member of the Silicon Group has disclosed
on its federal income tax returns all positions taken thereon that could give
rise to a substantial understatement penalty within the meaning of Section 6662
of the Code.
(i) There are no requests for rulings, subpoenas or requests
for information pending with respect to any member of the Silicon Group.
(j) No currently effective power of attorney has been granted
by any member of the Silicon Group with respect to any matter relating to Taxes.
(k) The amount of Silicon's liability or the liability of any
member of the Silicon Group for unpaid Taxes for all periods ending on or before
the date of this Agreement do not, in the aggregate exceed the amount of current
liability accruals for Taxes (excluding reserves for deferral of Taxes) as of
the date of this Agreement, and the amount of Silicon's liability or the
liability of any member of the Silicon Group for unpaid Taxes for all periods
ending on or before the Closing Date will not, in the aggregate, exceed the
amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes), as such accruals are reflected on the balance sheets of Silicon
or its subsidiaries, respectively, as of the Closing Date.
(l) No member of the Silicon Group has prepared or filed any
Return inconsistent with past practice or, on any such Return, taken any
position, made any election or adopted any method that is inconsistent with
positions taken, elections made or methods used in preparing or filing similar
Returns in prior periods, or settled or compromised any material federal, state
or local income tax liability.
(m) Prior to the Effective Time, Silicon has not distributed
the stock of any corporation in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code.
(n) No member of the Silicon Group has filed a consent under
Section 341(f) of the Code concerning collapsible corporations. No member of the
Silicon Group has made any payments, is obligated to make any payments, or is a
party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code. No
member of the Silicon Group has been a United States real
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property holding corporation within the meaning of Section 897 of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
No member of the Silicon Group is a party to any Tax allocation or sharing
agreement
3.17 Transactions with Related Parties.
(a) Schedule 3.17(a) and the Silicon SEC Documents list each
transaction between January 1, 1997 and the date of this Agreement that would be
required to be reported as a Certain Relationship or Related Transaction
pursuant to Item 404 of Regulation S-K.
(b) Schedule 3.17(b) lists (i) to Silicon's Knowledge, all
material claims of any nature that any officer or director of Silicon or any
Affiliate of such officer or director has with or against Silicon as of the date
of this Agreement that are not identified on the Silicon Latest Balance Sheet
and (ii) all material claims of any nature that Silicon has with or against any
officer or director of Silicon or any Affiliate of such officer or director as
of the date of this Agreement that are not identified on the Silicon Latest
Balance Sheet.
3.18 Voting Requirements. The affirmative vote of the holders of a
majority of the outstanding shares of Silicon Common Stock entitled to vote on
the Merger, and the affirmative vote of the holders of a majority of the
outstanding shares of Series D Preferred Stock and Series E Preferred Stock, if
any, are the only votes of the holders of any class or series of Silicon's
capital stock necessary to approve this Agreement and the transactions described
in this Agreement.
3.19 Intellectual Property.
(a) Schedule 3.19 lists (A) all patents held by Silicon and
its Subsidiaries and all pending patent applications by Silicon or any
Subsidiary, including for each such patent the serial or patent number, country,
filing and expiration date and title; (B) all registered trademarks of Silicon
or any of its Subsidiaries, and all pending applications for registration by
Silicon or any of its Subsidiaries of trademarks, including for each such
trademark the registration or application number, country, filing and expiration
date; (C) all registered copyrights of Silicon or any of its Subsidiaries and
all applications by Silicon or any of its Subsidiaries for registration of
copyrights, including the registration number, country and filing and expiration
date of each such copyright; (D) all licenses by Silicon or any of its
Subsidiaries to any person or entity of any of the rights identified in
subparagraphs (A) through (C) above; and (E) all licenses by any other person or
entity to Silicon or any of its Subsidiaries of any patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights or processes of any other person or entity.
(b) Each license identified in Schedule 3.19 (each a
"License") is a valid and binding obligation of Silicon or the Subsidiary
thereto, enforceable in accordance with its terms. With respect to each License,
there is no material default (or event that with the giving of notice or passage
of time would constitute a material default) by Silicon or the Subsidiary
thereto or, to the Knowledge of Silicon, the other party thereto. Silicon has
not received any notice (and Silicon does not have Knowledge) of claims asserted
by any person to use any patents,
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trademarks, service marks, trade names, copyrights, technology, know-how or
processes licensed by or to Silicon or challenging or questioning the validity
or effectiveness of any License.
(c) Silicon and its Subsidiaries have good and valid title to,
or otherwise possess adequate rights to use, all patents, trademarks, trade
names, copyrights, inventions, trade secrets, software licenses and other
proprietary information necessary to permit Silicon and its Subsidiaries to
conduct the business and operations of Silicon and its Subsidiaries in
substantially the same manner as it had been conducted prior to the date hereof.
(d) Except as set forth on Schedule 3.19 neither Silicon nor
any of its Subsidiaries has, nor, to Silicon's Knowledge has it been alleged to
have, infringed upon any patent, trademark, trade name or copyright or
misappropriated or misused any invention, trade secret or other proprietary
information entitled to legal protection.
(e) Silicon warrants and represents that all software,
hardware and firmware used in Silicon's products, except as set forth on
Schedule 3.19, was entirely internally-developed by Silicon and that all
inventorship, ownership, authorship, patent, copyright, trademark, trade secret
and other rights relating to the system are owned by Silicon free and clear of
any obligation or agreement to any other person and will not, as a result of the
Merger, be the subject of any obligation or agreement to any third party except
for the royalty agreement and obligations set forth in Schedule 3.19.
(f) Schedule 3.19 lists all agreements, including all
amendments thereto, to which Silicon or its Subsidiaries is a party, which
affect the ownership or use of the Media Products (each, a "License Agreement").
Except as set forth on Schedule 3.19 as a result of the transactions
contemplated by this Agreement, no additional payments are required under, nor
will any changes occur that affect, the terms of any License Agreement. Silicon
is not, and to its Knowledge none of the other parties to the agreements set
forth on Schedule 3.19 are, in material breach of such agreements. Except as set
forth on Schedule 3.19 no License Agreement requires the consent of a third
party in connection with the transactions contemplated by this Agreement. For
the purpose of this paragraph, "Media Products" shall mean any product of
Silicon which utilizes any copyright, trademark, video, film, photo, graphic,
sound, text or other content relating to or arising from any of the following
television programs or short subject films: (A) The Price is Right and (B)
Family Feud.
3.20 Insurance. IGT has been provided copies of or access to all
insurance policies or binders that relate to the businesses of each member of
the Silicon Group. All premiums due under the policies and binders have been
paid or accrued for and all policies and binders are in full force and effect.
As of the date of this Agreement, no notice of cancellation or non-renewal of
any policy or binder and no notice of disallowance of any claim under any
insurance policy or binder, has been received by Silicon. Except as provided in
the applicable policy or binder, Silicon does not have any liability for or
exposure to any premium expense for expired policies and there are no current
claims by Silicon under any such policy or binder as to which coverage has been
denied or disputed by the underwriters of such policies, nor are there any
material insured losses for which claims have not been made.
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3.21 Bank Accounts; Power of Attorney. Schedule 3.21 sets forth with
respect to each bank account or cash account maintained by Silicon at any bank,
brokerage or other financial firm, the name of the institution at which such
account is maintained, the number of the account, and the names of the
individuals having authority to withdraw funds from such account.
3.22 Fairness Opinion; No Finder's Fee. Silicon has received a written
opinion from US Bancorp Libra to the effect that the Merger Consideration is, as
of the date of this Agreement, fair from a financial point of view to
stockholders of Silicon. Except as set forth on Schedule 3.22, neither Silicon
nor any of its Subsidiaries (including WagerWorks) nor any of their respective
officers, directors or employees has employed any broker or finder, or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Silicon or any of its Subsidiaries (including WagerWorks) in connection with
this Agreement or the transactions contemplated hereby.
3.23 Noncompetition. Except as set forth in Schedule 3.23, Silicon and
its Subsidiaries are not, and after the Effective Time neither the Surviving
Corporation nor IGT will be, by reason of any agreement to which Silicon is a
party, subject to any non-competition or similar contractual restriction on
their respective businesses.
3.24 WagerWorks Transactions. Except as set forth on Schedule 3.24(a),
neither Silicon nor any of its Subsidiaries have (a) transferred or otherwise
conveyed in any manner any property or assets to WagerWorks or (b) granted any
license or right to WagerWorks to use any patents, trademarks, service marks,
trade names, copyrights, technology, know-how or processes owned or licensed by
Silicon and, except as set forth on Schedule 3.24(b), WagerWorks is not party to
any material agreement. Except as set forth on Schedule 3.24(c), Silicon is not
a party to any written or oral agreement to which WagerWorks is a party and
Silicon has made no representation, warranty or undertaking, contingent or
otherwise, to any third party with respect to the business, operations or
financial condition of WagerWorks or any agreement to which WagerWorks is a
party.
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3.25 WagerWorks Intellectual Property. Silicon represents and warrants
that WagerWorks has, pursuant to the Cross License Agreement, granted an
exclusive world wide license (including the right to sublicense) to Silicon to
use for any gaming-related purpose (excluding Internet Gaming) any patents,
trademarks, service mark, trade names, copyrights, technology, know-how or
processes owned or licensed by WagerWorks as of the date of the Cross-License
Agreement, including any such property that is the subject of pending patent
applications. Silicon further represents and warrants that Silicon has provided
to IGT copies of all agreements relating to all licenses referred to in this
Section 3.25. Silicon is not, and to its knowledge, WagerWorks is not, in
material breach of the license agreement identified on Schedule 3.24 hereto. For
the purpose of this Section 3.25 "Internet Gaming" shall mean gaming accessible
to end users solely via the world wide web protocol on the interconnected
worldwide network of computer networks that employ TCP/IP commonly known as the
Internet.
3.26 Exchange Warrants. Silicon represents and warrants that, by their
terms, all Exchange Warrants not previously exercised shall terminate upon the
consummation of the Merger and no warrants, options or other rights to purchase
shares of the capital stock of Silicon will exist.
3.27 WagerWorks Corporate Management Services Agreeemnt. Silicon
represents and warrants that, by its terms, the Corporate Management Services
Agreement by and between Silicon and WagerWorks dated as of June, 2000 is
terminable by Silicon for convenience upon 30 days' written notice to
WagerWorks.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF IGT AND NEWCO
IGT and NewCo represent and warrant to Silicon, as of the date of this
Agreement and as of the Closing Date, as follows:
4.1 Organization. Each of IGT and NewCo is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own its
properties and carry on its business as now being conducted.
4.2 Authority; Enforceability.
(a) Each of IGT and NewCo has the requisite corporate power
and authority to enter into this Agreement and to carry out its obligations
under this Agreement and any of the other agreements referred to in this
Agreement to which it is a party. The execution, delivery and performance of
this Agreement and any of the other agreements referred to in this Agreement to
which it is a party and the consummation of the transactions contemplated hereby
or thereby have been (or, in the case of NewCo, will be prior to the Effective
Time) duly authorized by all necessary corporate action on the part of IGT and
NewCo.
(b) This Agreement and each other agreement executed or to be
executed by IGT and NewCo in connection with the transactions contemplated by
this Agreement have been, or
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when executed will be, duly executed and delivered by IGT and NewCo and
constitute, or when executed and delivered will constitute, valid and binding
obligations of IGT and NewCo, enforceable against IGT and NewCo in accordance
with their terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally or by equitable principles which may limit the
availability of certain equitable remedies in certain instances.
4.3 No Conflicts or Consents.
(a) Neither the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement by IGT
and NewCo nor the consummation of the transactions contemplated by this
Agreement or any of the other agreements referred to in this Agreement will
violate, conflict with, or result in a breach of any provision of, constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, result in the termination of, or accelerate the
performance required by, or result in the creation of any Adverse Claim against
any of the material properties or assets of IGT or NewCo under the articles of
incorporation, bylaws or any other organizational documents of IGT or NewCo; any
material note, bond, mortgage, indenture, deed of trust, or other debt
obligation (other than ordinary course trade credit) to which IGT or NewCo is a
party, or by which IGT or NewCo or any of their respective material assets are
bound; or any material lease, agreement or other instrument or other obligation
that is material to the business or operations of IGT or NewCo and to which IGT
or NewCo is a party, or by which IGT or NewCo or any of their respective assets
are bound; or, subject to obtaining the required Governmental and Gaming
Approvals required, violate any order, writ, injunction, decree, judgment,
statute, rule or regulation of any Governmental Entity to which either IGT or
NewCo is subject or by which IGT or NewCo or any of their respective assets are
bound.
(b) No filing or registration with, or authorization, consent
or approval of, any Governmental Entity is required by or with respect to IGT or
NewCo in connection with the execution and delivery of this Agreement by IGT and
NewCo, or is necessary for the consummation of the Merger and the other
transactions contemplated by this Agreement, except for: (i) the filing of an
HSR Report by each of IGT and Silicon under the HSR Act, if applicable (ii) the
filing and recordation requirements of the CGCL with respect to the Articles of
Merger, and (iii) the filing with and approval of any Gaming Authority,
including approval by the Nevada State Gaming Control Board and the Nevada
Gaming Commission under the Nevada Gaming Control Act and the rules and
regulations promulgated thereunder.
4.4 No Finder's Fee. Neither IGT nor NewCo nor any of their respective
officers, directors or employees has employed any broker or finder, or incurred
any liability for any financial advisory fees, for a fairness opinion, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for IGT or NewCo in connection with this Agreement or the
transactions contemplated hereby.
4.5 Information Supplied. None of the information supplied or to be
supplied by IGT or NewCo specifically for inclusion or incorporation by
reference in the Proxy Statement will, at the time the Proxy Statement is first
mailed to Silicon's stockholders and at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit to state any
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material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
4.6 Financing. IGT has readily available funds sufficient in amount to
pay the Aggregate Merger Consideration and to pay all fees and expenses of IGT
and NewCo related to the transactions contemplated by this Agreement.
ARTICLE 5
COVENANTS
5.1 Regulatory Approvals; Gaming Authority; Cooperation and Best
Efforts.
(a) IGT and Silicon shall use all reasonable efforts to file,
as soon as practicable after the date of this Agreement, all notices, reports
and other documents required to be filed with any Governmental Entity or any
Gaming Authority with respect to the Merger and the other transactions
contemplated by this Agreement (all of the foregoing, collectively "Gaming
Approvals"), and to submit promptly any additional information requested by any
such Governmental Entity or Gaming Authority. Without limiting the generality of
the foregoing, IGT and Silicon shall, within thirty Business Days of the date of
this Agreement, prepare and file the notifications required to be filed under
the HSR Act. IGT will pay any filings fees required in filing the HSR Report.
Silicon shall, if requested to do so by IGT, respond as promptly as practicable
(A) to any inquiries or requests received from the Federal Trade Commission or
the Department of Justice for additional information or documentation and (B) to
any inquiries or requests received from any state attorney general, foreign
antitrust authority or other Governmental Entity in connection with antitrust or
related matters. IGT shall not be required to respond to such inquiries except
in its sole and absolute discretion.
(i) Each of Silicon and IGT shall (A) give the other
party prompt notice of the commencement or threat of commencement of any
Proceedings by or before any Governmental Entity or Gaming Authority with
respect to the Merger or any of the other transactions contemplated by this
Agreement, (B) keep the other party informed as to the status of any such
Proceeding or threat, and (C) promptly inform the other party of any
communication to or from the Federal Trade Commission, the Department of Justice
or any other Governmental Entity or Gaming Authority regarding the Merger.
Except as may be prohibited by any Governmental Entity or Gaming Authority or by
any legal requirement, Silicon and IGT will consult and cooperate with one
another, and will consider in good faith the views of one another, in connection
with any analysis, appearance, presentation, memorandum, brief, argument,
opinion or proposal made or submitted in connection with any Legal Proceeding
under or relating to the HSR Act or any other foreign, federal or state
antitrust or fair trade law.
(ii) Notwithstanding the foregoing, neither party
will be required to accept any conditions that may be imposed by the FTC or the
DOJ in connection with such filings, nor shall IGT be obligated to take any
action which would require the voluntary surrender, forfeiture or other
termination by IGT of a Gaming Approval then held by IGT or any of its
subsidiaries.
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(b) Each party will cooperate with the other and use its
reasonable best efforts to (i) receive all necessary and appropriate consents of
third parties to the transactions contemplated by this Agreement, (ii) satisfy
all requirements prescribed by law for, and all conditions set forth in this
Agreement to, the consummation of the Merger, and (iii) effect the Merger in
accordance with this Agreement at the earliest practicable date.
(c) Nothing contained in this Agreement shall give IGT,
directly or indirectly, the right to control or direct Silicon's operations
prior to the effectiveness of the Merger. Prior to the effectiveness of the
merger, Silicon shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision of its operations.
(d) Denial of License; Individuals. If any employee or
director of Silicon shall become an Ineligible Person prior to the Closing, then
(i) Silicon shall use its best efforts to cause each Ineligible Person to,
immediately resign from any position, including as director or officer, in
Silicon and each Ineligible Person shall have no further management role in IGT,
NewCo or Silicon, (ii) if required to do so by any Governmental Entity as a
condition to receipt of any Gaming Approval, Silicon, IGT or NewCo, as
applicable, shall use commercially reasonable efforts to cause each Ineligible
Person to, dispose of all of its securities or other ownership interests in
Silicon, IGT or Newco and (iii) Silicon, IGT or NewCo, as applicable, shall use
commercially reasonable efforts to cause each Ineligible Person to, cooperate
with Silicon, IGT and NewCo in their efforts to obtain and retain in full force
and effect the Gaming Approval. "Ineligible Person" shall mean any person who
owns any capital stock or other interest in Silicon, IGT or NewCo, as applicable
(i) who is denied a Gaming Approval, disqualified from eligibility for a Gaming
Approval or found unsuitable by any Governmental Entity before the Closing Date,
(ii) whose continued involvement in the business of Silicon, IGT or NewCo, as
applicable, as an employee, director, officer or otherwise, may, in Silicon's or
IGT's reasonable opinion after consultation with counsel, have a Material
Adverse Effect on the likelihood that any Governmental Entity will issue a
Gaming Approval to Silicon, the Surviving Corporation, NewCo or IGT or (iii) is
expressly precluded from having any continuing interest in Silicon, the
Surviving Corporation, NewCo or IGT in any Gaming Approval granted by a
Governmental Entity as a condition to the issuance or continued validity of any
Gaming Approval by any Governmental Entity.
5.2 Silicon Special Meeting.
(a) As soon as practicable following the date of this
Agreement, Silicon will call, give notice of and convene a meeting of its
stockholders (the "Silicon Stockholders Meeting") to be held as promptly as
practicable for the purpose of voting upon a proposal to adopt this Agreement.
The Silicon Stockholders Meeting shall be held on a date selected by Silicon in
consultation with IGT.
(b) Silicon shall use its best commercially reasonable efforts
to solicit proxies representing at least a majority of the outstanding shares of
Silicon Common Stock eligible to vote at the Silicon Stockholders Meeting. As
promptly as practicable after the execution of this Agreement, Silicon shall
prepare and file with the SEC the Proxy Statement relating to the Silicon
Stockholders Meeting. Subject to Section 5.2(c), (i) the Proxy Statement shall
include a recommendation (the "Board Recommendation") of the Board of Directors
of Silicon that
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Silicon's stockholders vote to adopt this Agreement at the Silicon Special
Meeting and (ii) the Silicon Board Recommendation shall not be withdrawn or
modified in a manner adverse to IGT, and no resolution by the Board of Directors
of Silicon or any committee thereof to withdraw or modify the Board
Recommendation shall be adopted or proposed. IGT shall furnish all information
concerning itself to Silicon as Silicon may reasonably request in connection
with the preparation of the Proxy Statement. Silicon will promptly respond to
any SEC comments on the Proxy Statement and Silicon will use its commercially
reasonable efforts to resolve all SEC comments as promptly as practicable to the
satisfaction of the SEC. As soon as reasonably practicable after clearance from
the SEC, Silicon shall mail the Proxy Statement to its stockholders. Silicon
shall provide IGT and its counsel reasonable opportunity to review and comment
on the Proxy Statement and any amendment or supplement to the Proxy Statement
prior to the filing thereof with the SEC. Silicon shall not mail any Proxy
Statement, or any amendment or supplement thereto, to which IGT reasonably
objects. Silicon and its counsel shall permit IGT and its counsel to participate
in all communications with the SEC and its Staff, including all meetings and
telephone conferences, relating to the Proxy Statement, the Merger or this
Agreement.
(c) Silicon agrees to promptly advise IGT if at any time prior
to the Silicon Stockholders' Meeting any material information provided by it in
the Proxy Statement is or becomes incorrect or incomplete in any material
respect and to provide IGT with the information needed to correct such
inaccuracy or omission. Silicon will furnish IGT with such supplemental
information as may be necessary in order to cause the Proxy Statement, insofar
as it relates to Silicon and its subsidiaries, to comply with applicable law
after the mailing thereof to stockholders of Silicon. IGT agrees promptly to
advise Silicon if at any time prior to the Silicon Stockholders' Meeting any
material information provided by it in the Proxy Statement is or becomes
incorrect or incomplete in any material respect and to provide Silicon with the
information needed to correct such inaccuracy or omission. IGT will furnish
Silicon with such supplemental information as may be necessary in order to cause
the Proxy Statement, insofar as it relates to IGT and its subsidiaries, to
comply with applicable law after the mailing thereof to the stockholders of
Silicon.
(d) Notwithstanding anything to the contrary contained in
Section 5.2(b), at any time prior to the adoption of this Agreement by the
Silicon stockholders, the Board Recommendation may be withdrawn or modified in a
manner adverse to IGT if: (i) a proposal for any merger, reorganization,
consolidation, share exchange, recapitalization, business combination, or other
similar transaction involving, or, any sale, transfer or other disposition of,
all or any significant portion of the assets or 50% or more of the equity
securities of, Silicon, is made to Silicon and is not withdrawn; (ii) Silicon's
Board of Directors determines in its good faith judgment that such offer
constitutes a Superior Proposal (as defined in Section 5.3(c)); and (iii)
Silicon's Board of Directors determines in its good faith judgment, that, in
light of such Superior Proposal, the withdrawal or modification of the Board
Recommendation is required in order for Silicon's Board of Directors to comply
with its fiduciary obligations to Silicon's stockholders under applicable law;
and (iv) neither Silicon nor any Silicon Representative shall have violated any
of the restrictions set forth in Section 5.3.
(e) Silicon shall comply with all provisions of the Exchange
Act and the Law in the solicitation of proxies from its stockholders to vote
upon the proposal to adopt this
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Agreement and will comply with the Exchange Act and the CGCL in the preparation,
filing and distribution of the Proxy Statement.
5.3 No Solicitation.
(a) In light of the consideration given by the Board of
Directors of Silicon prior to the execution of this Agreement to, among other
things, the transactions contemplated hereby, and in light of Silicon's
representations contained in Section 3.22, Silicon agrees that it will not, nor
shall it permit any of its Subsidiaries to, directly or indirectly, through any
officer, director, representative, agent or affiliate (a "Silicon
Representative"), (i) initiate, solicit, encourage, induce or otherwise
facilitate the initiation or submission of any inquiries, proposals or offers
that constitute or may reasonably be expected to lead to an Acquisition Proposal
(as defined below), (ii) furnish any information regarding Silicon to any Person
in connection with or in response to an Acquisition Proposal or an inquiry or
indication of interest that could reasonably be expected to lead to an
Acquisition Proposal, unless required by Applicable Law, (iii) enter into or
maintain or continue discussions or negotiate with any Person in furtherance of
such inquiries or to obtain an Acquisition Proposal, (iv) agree to, approve,
recommend or endorse any Acquisition Proposal, or (v) enter into any letter of
intent, contract or similar agreement contemplating or otherwise relating to any
Acquisition Proposal; provided, however, that prior to the adoption of this
Agreement by the Silicon stockholders, this Section 5.3(a) shall not prohibit
Silicon from furnishing nonpublic information regarding Silicon to, or entering
into discussions with, any Person in response to an Acquisition Proposal that is
submitted to Silicon by such Person (and not withdrawn) if (w) neither Silicon
nor any Silicon Representative shall have violated any of the restrictions set
forth in this Section 5.3, (x) the Board of Directors of Silicon concludes in
its good faith judgment, that such action is required in order for the Board of
Directors of Silicon to comply with its fiduciary obligations to Silicon's
stockholders under applicable law, (y) at or prior to furnishing any such
nonpublic information to, or entering into discussions with, such Person,
Silicon gives IGT written notice of Silicon's intention to furnish nonpublic
information to, or enter into discussions with, such Person, and Silicon
receives from such Person an executed confidentiality agreement, and (z) at or
prior to furnishing any such nonpublic information to such Person, Silicon
furnishes such nonpublic information to IGT (to the extent such nonpublic
information has not been previously furnished by Silicon to IGT).
(b) For purposes of this Agreement, "Acquisition Proposal"
means a proposal for any of the following (other than the transactions
contemplated by this Agreement, including the WagerWorks Disposition) that
involves: (A) any merger, reorganization, consolidation, share exchange,
recapitalization, business combination, liquidation, dissolution, or other
similar transaction involving, or, any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of, all or any significant portion of the assets
or 25% or more of the equity securities of, Silicon; (B) any tender offer or
exchange offer for 50% or more of the outstanding shares of capital stock of
Silicon or the filing of a registration statement under the Securities Act in
connection therewith; or (C) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(c) For purposes of this Agreement, "Superior Proposal" means
a bona fide proposal made by a third party to acquire Silicon pursuant to an
Acquisition Proposal that the Board of Directors of Silicon determines in its
good faith judgment to merit the withdrawal of
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the Board Recommendation because such third party proposal has more favorable
terms than the transactions contemplated by this Agreement, such proposal would
provide greater value from a financial point of view to the holders of the
capital stock of Silicon, and the party making the proposal has demonstrated
that the funds required for the consummation of its proposal are available.
(d) Silicon will immediately notify IGT after receipt of any
Acquisition Proposal or any request for nonpublic information relating to
Silicon in connection with an Acquisition Proposal or for access to any of the
premises, books or records of Silicon by any person or entity that informs
Silicon or its Board of Directors, formally or informally, that it is
considering making, or has made, an Acquisition Proposal. Such notice to IGT
will be made orally and in writing and will indicate in reasonable detail the
identity of the offering party and the terms and conditions of such proposal,
inquiry or contact; except such disclosure will be made to IGT only to the
extent such disclosure does not violate the fiduciary responsibilities of the
Board of Directors of Silicon, after being advised by its legal counsel, in
which case Silicon will provide IGT with a summary of the terms and conditions
of such proposal, inquiry or contact.
(e) Nothing contained in this Section 5.3 will prevent Silicon
from complying with Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange
Act, if applicable, with regard to an Acquisition Proposal made in the form of a
tender offer by a third party.
(f) Silicon shall immediately cease and cause to be terminated
any pre-existing discussions with any Person that relates to any Acquisition
Proposal; provided, however, that any such discussions may be recommenced so
long as Silicon complies with all of the provisions of this Section 5.3 before
doing so.
5.4 Press Releases. Silicon and IGT will consult with each other before
issuing, and provide each other the opportunity to review and comment upon, any
press releases or other public statements with respect to any transactions
described in this Agreement, including the Merger, and will not issue any such
press releases or make any such public statement prior to such consultation,
except as may be required by Applicable Law, court process or by obligations
pursuant to a listing agreement with Nasdaq.
5.5 Access to Information and Confidentiality.
(a) Prior to the Closing Date, Silicon will, and will cause
its Subsidiaries to, afford to IGT and its officers, employees, accountants,
counsel, financial advisors and other representatives, reasonable access during
normal business hours to its properties, premises, books, records, contracts,
commitments, and personnel and will furnish to IGT (i) a copy of each report,
schedule, registration statement and other documents filed by it during such
period pursuant to the requirements of federal or state securities laws, and
(ii) such other information with respect to its business, properties and
personnel as IGT reasonably requests.
(b) The confidentiality obligations of Silicon and IGT will
continue to be governed by the Confidentiality Agreement.
5.6 Consultation and Reporting. During the period from the date of this
Agreement to the Closing Date, Silicon will confer with IGT on a regular and
frequent basis to report material
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operational matters with respect to its business and to report on the general
status of its ongoing operations. Silicon will notify IGT of any unexpected
emergency or other change in the normal course of its business or in the
operation of its properties and of any governmental complaints, investigations,
adjudicator proceedings, or hearings (or communications indicating that the same
may be contemplated) and will keep IGT fully informed of such events and permit
IGT's representatives prompt access to all materials prepared by Silicon or on
its behalf or served on Silicon in connection therewith.
5.7 Notification of Changes.
(a) Silicon, on the one hand, and IGT and NewCo, on the other
hand, will promptly notify the other parties of any event that causes any
representation or warranty given by the other parties, respectively, in Article
3 and Article 4 to become untrue.
(b) Silicon, on the one hand, and IGT and NewCo, on the other
hand, will each have the right until the Closing to supplement or amend any of
the Schedules described in Article 3 or Article 4 with respect to any matter
arising or discovered after the date of this Agreement which, if existing or
known on the date of this Agreement, would have been required to be set forth or
described in such Schedules. For all purposes of this Agreement, including for
purposes of determining whether the conditions set forth in Article 6 have been
fulfilled, the Schedules will be deemed to include only that information
contained therein on the date of this Agreement and will be deemed to exclude
all information contained in any supplement or amendment thereto, except to the
extent that they reflect an event or condition that would not have a Material
Adverse Effect on the party making the representation and warranty; provided,
however, that if the Closing will occur, then all matters disclosed pursuant to
any such supplement or amendment will be deemed included in the Schedules at
Closing (without necessity of a written waiver or other action on the part of
any party) and to modify the applicable representations and warranties for all
purposes.
5.8 Fees and Expenses. IGT and Silicon Gaming will each pay the costs
and expenses incurred by it in pursuit of the consummation of the Merger and the
other transactions contemplated by this Agreement, including financial advisory
fees, fairness opinion fees, legal fees and accounting fees (the "Closing
Costs"). Notwithstanding the foregoing sentence, IGT will pay any HSR Report
filing fees incurred as a result of the Merger.
5.9 Conduct of Business. Except as set forth on Schedule 5.9 hereto,
Silicon shall, and shall cause its Subsidiaries to, carry on their respective
businesses in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith, use
all commercially reasonable efforts to preserve intact their current business
organizations, keep available the services of their current officers and key
employees and preserve their relationships with customers, suppliers and others
having business dealings with them (it being understood that Silicon may from
time to time lose customers in the ordinary course of business and that due to
Silicon's existing financial condition, Silicon may consider taking actions that
are inconsistent with the foregoing undertaking; in such case IGT agrees that it
shall not unreasonably withhold its consent to such actions).
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Except as expressly set forth in this Agreement or as consented to in
writing by IGT during the period from the date of this Agreement to the
Effective Time, Silicon shall not, and shall not permit any of its Subsidiaries
to:
(a) other than the disposition of WagerWorks as contemplated
by Section 5.10, the disposition of the Exchange Warrants as contemplated by
Section 5.10 and the disposition of the Stock Options as contemplated by Section
5.11, (i) declare, set aside or pay (whether in cash, stock, property or
otherwise) any dividends on, or make any other distributions in respect of, any
of its capital stock, other than dividends and distributions by any direct or
indirect wholly owned subsidiary of Silicon to IGT, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of Silicon or any of its subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities (except for the expiration of options in accordance with their
terms);
(b) other than the issuance of Silicon Common Stock upon the
exercise of Stock Options outstanding on the date of this Agreement in
accordance with their present terms or in accordance with the present terms of
any employment agreements existing on the date of this Agreement, and the
issuance of shares of Series E Preferred Stock upon the exercise of the Series E
Warrant in accordance with its terms, (i) issue, deliver, sell, award, pledge,
dispose of or otherwise encumber or authorize or propose the issuance, delivery,
grant, sale, award, pledge or other encumbrance (including limitations in voting
rights) or authorization of, any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities, (ii) amend, waive or otherwise modify the terms of any such rights,
warrants or options except as contemplated by this Agreement, or (iii)
accelerate the vesting of any of the Stock Options, except as contemplated under
the terms of the Stock Options or the stock option plans under which any Stock
Options were granted (provided, however, that the foregoing restrictions shall
not be applicable to any financing transaction undertaken by Silicon in
accordance with Section 5.12);
(c) amend its articles of incorporation, by-laws or other
comparable charter or organizational documents, or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the corporate
structure or ownership of any material subsidiary of Silicon;
(d) acquire or agree to acquire (for cash or shares of stock
or otherwise) (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, limited liability company, joint venture,
association or other business organization or division thereof or (ii) any
assets with a purchase price in excess of $250,000 except purchases of
inventory, fixtures, furniture, supplies, vehicles and equipment in the ordinary
course of business consistent with past practice;
(e) commence or undertake or agree to commence the operation
or development of a casino or other gaming operations of any nature (excluding
the existing gaming operations of Silicon), other than in the ordinary course of
business consistent with past practice;
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(f) mortgage or otherwise encumber or subject to any Lien
(other than purchase money security interests or liens granted in connection
with leases permitted by this Agreement), or sell, lease, exchange or otherwise
dispose of any of, its properties or assets, except for sales of its properties
or assets in the ordinary course of business consistent with past practice;
(g) (i) except in the ordinary course of business consistent
with past practices or pursuant to existing credit facilities, lines of credit
or similar agreements in aggregate amounts not to exceed $4.0 million, incur
(which shall not be deemed to include credit facilities, lines of credit or
similar arrangements until borrowings are made under such agreements) any
indebtedness for borrowed money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of Silicon or any of its subsidiaries, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing (provided,
however, that the foregoing restrictions shall not be applicable to any
financing transaction undertaken by Silicon in accordance with Section 5.12), or
(ii) make any loans, advances or capital contributions to, or investments in,
any other person, other than (A) to Silicon or any direct or indirect wholly
owned subsidiary of Silicon or (B) loans or advances to employees of Silicon or
any of its subsidiaries for travel or business expenses in the ordinary course
of business;
(h) make or agree to make any new capital expenditures which
individually exceed $250,000 per fiscal quarter;
(i) make or rescind any express or deemed election relating to
material taxes, settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
material taxes, or change any of its methods of reporting income or deductions
for federal income tax purposes from those employed in the preparation of its
federal income tax return for the taxable year ending December 31, 1999, except
as may be required by applicable law;
(j) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction, in
the ordinary course of business consistent with past practice or in accordance
with their terms, of claims subject to insurance or liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of Silicon included in Silicon SEC Documents
or incurred in the ordinary course of business consistent with past practice;
provided that Silicon will not settle or dismiss without the prior written
consent of IGT the Drews Distributing litigation identified on Schedule 3.10
hereto;
(k) except as set forth on Schedule 5.9, (i) increase the rate
of compensation payable or to become payable generally to any of Silicon's or
any of its Subsidiaries' directors, officers or employees other than usual and
customary increases to employees who are not officers, (ii) pay or agree to pay
any pension, retirement allowance, severance, continuation or termination
benefit or other material employee benefit not provided for by any existing
Pension Plan, Benefit Plan or employment agreement described in the Silicon SEC
Documents filed prior to the date of this Agreement and publicly available or
disclosed on Schedule 5.9, (iii) establish, adopt or commit itself to any
additional pension, profit sharing, bonus, incentive, deferred
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compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, continuation pay, termination pay, retirement or other
material employee benefit plan, agreement or arrangement, or amend or modify or
increase the benefits under or take any action to accelerate the rights or
benefits under any collective bargaining agreement or any employee benefit plan,
agreement or arrangement, including the Stock Option plans or other Benefit
Plan, (iv) enter into any severance, retention or employment agreement with or
for the benefit of any person (such agreements or undertakings are referred to
herein as "Retention Agreements"), or (v) increase the rate of compensation
under or otherwise change the terms of any existing employment agreement;
(l) with respect to any agreement related to the Media
Products and the Cross License, modify, amend, assign, terminate, grant any
waiver or release or change in any way any of such agreements and, with respect
to any other material contract or agreement, except in the ordinary course of
business consistent with past practice, modify, or amend in any material
respect, or renew, fail to renew or terminate, any such material contract or
agreement to which Silicon or any subsidiary is a party or waive, release or
assign any material rights or claims pertaining thereto;
(m) change fiscal years;
(n) authorize, recommend, propose or announce an intention to
adopt a plan of complete or partial liquidation or dissolution of Silicon;
(o) enter into any collective bargaining agreement;
(p) engage in any transaction with, or enter into any
agreement, arrangement or understanding with, directly or indirectly, any of
Silicon's officers or directors other than pursuant to such agreements (x)
existing on the date hereof and disclosed on Schedule 5.9, (y) entered into in
the ordinary course of business consistent with past practice or (z)
contemplated by this Agreement;
(q) engage in any transaction or enter into any agreement
which would sell any inventory or asset of Silicon or its Subsidiaries at a
price below that which would be negotiated if this Agreement and the related
merger were not contemplated;
(r) enter into any agreement of any nature with WagerWorks and
any entity controlled by or under common control with WagerWorks or modify,
amend, assign, terminate, grant any waiver or release or change in any way any
existing agreement with WagerWorks except for the Cross License as required by
Section 6.2(n) hereof; or
(s) authorize any of, or commit or agree to take any of, the
foregoing actions.
5.10 Completion of Disposition of WagerWorks. Promptly following the
execution of this Agreement, Silicon shall use its commercially reasonable
efforts to dispose of all of the outstanding capital stock of WagerWorks (except
the Wager Works Shares) held by Silicon in a manner satisfactory to IGT, Silicon
and the holders of a majority of the outstanding shares of Series D Preferred
Stock, such disposition to be effected on an "as-is" basis (except that Silicon
may represent that upon the disposition of the shares the purchaser will acquire
title to the shares
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free and clear of any encumbrances) and providing that upon the consummation of
such disposition, neither Silicon nor any of its Subsidiaries shall have any
further liabilities or obligations to any third party of any nature whatsoever
relating to or arising from the disposition of all outstanding capital stock of
WagerWorks; provided that no consent from IGT shall be required pursuant to this
Section 5.10 if (i) such disposition is a sale to one or more existing
stockholders or lenders of Silicon, (ii) Silicon has first obtained an opinion
of its financial advisor that the terms of such disposition are fair from a
financial point of view to the stockholders of Silicon and (iii) such sale is to
be effected on an "as is" basis (except that Silicon may represent that upon the
disposition of the shares the purchaser will acquire title to the shares free
and clear of any encumbrances).
5.11 Stock Options.
(a) IGT and Silicon shall, effective as of the Effective Time,
(i) cause each Stock Option that is outstanding to be canceled, and (ii) in
consideration of such cancellation and, except to the extent IGT or NewCo and
the holder of any such Stock Option otherwise agree, cause Silicon to pay such
holders of Stock Options which are outstanding and have vested in accordance
with its terms an amount in respect thereof equal to the product of (x) the
excess, if any, of the Conversion Cash over the exercise price of each such
Stock Option, and (y) the number of vested shares of Silicon Common Stock
subject to the Stock Option immediately prior to its cancellation (such payment
to be net of applicable withholding taxes).
(b) Upon payment of all amounts required to be paid pursuant
to paragraph (a) of this Section 5.11, all plans pursuant to which Stock Options
are issued shall terminate as of the Effective Time, and no holder of Stock
Options or participant in any such plan shall have any rights thereunder to
acquire any equity securities of Silicon, the Surviving Corporation or any
subsidiary or affiliate thereof.
(c) All other plans, programs or arrangements providing for
the issuance or grant of any other interest in respect of the capital stock of
Silicon or any of its Subsidiaries shall terminate as of the Effective Time, and
no participant in any such plans, programs or arrangements shall have any rights
thereunder to acquire any equity securities of Silicon, the Surviving
Corporation or any subsidiary or affiliate thereof.
(d) IGT and Newco agree that Silicon may, with the approval of
its Board of Directors and B III, modify the terms (but not the number of shares
purchasable upon the exercise of the Stock Options) of outstanding Stock Options
(excluding the Original Stock Options) prior to the Closing, including without
limitation, the exercise price thereof.
5.12 Interim Financing. Each time Silicon proposes to incur any
indebtedness for borrowed money, other than under existing credit lines, in an
amount exceeding $500,000, Silicon shall first (i) provide IGT written notice of
its intention to incur such indebtedness and include all material terms of such
borrowing proposal and (ii) allow IGT to elect, in its sole discretion, to lend
to Silicon the amounts specified in Silicon's written notice at a price and on
the terms at least as favorable to Silicon as those specified in such notice
provided that such loans shall not, if made by IGT, be senior to the
indebtedness outstanding to B III unless B III consents thereto. If the Merger
is consummated, any amounts loaned to Silicon under this
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provision that remain outstanding at the time of the Closing will be deducted
from the Merger Consideration in accordance with the provisions of Section
2.1(b). In the event that IGT exercises its rights and chooses to make interim
loans to Silicon, such loans shall only be made after IGT has provided notice to
any and all gaming authorities requiring such notice and has received all
necessary gaming authority approvals required to make such loans.
5.13 Indemnification and Insurance.
(a) IGT and NewCo agree that all rights to indemnification for
acts or omissions occurring prior to the Effective Time now existing in favor of
the current or former directors or officers (the "Indemnified Parties") of
Silicon and its Subsidiaries as provided in their respective articles or
certificates of incorporation or bylaws (or similar organizational documents) or
existing indemnification agreements shall survive the Merger and shall continue
in full force and effect in accordance with their terms.
(b) In addition, IGT will provide (or cause the Surviving
Corporation to provide), for a period of not less than six (6) years after the
Effective Time, Silicon's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring at or prior
to the Effective Time that is no less favorable than Silicon's existing
directors and officers insurance policy or, if substantially equivalent
insurance coverage is unavailable, the best available coverage; provided,
however, that IGT and the Surviving Corporation shall not be required to pay an
annual premium for such insurance coverage in excess of 150% of the annual
premium currently paid by Silicon for such insurance, but in any case shall
purchase as much such coverage as possible for such amount. Silicon hereby
represents that the annual premium for such policy for the year ended July 30,
2001 was $267,108.08.
(c) This Section 5.13 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit Silicon, IGT, the Surviving
Corporation and the Indemnified Parties and their respective heirs,
representatives, successors and assigns, and shall be binding on all successors
and assigns of IGT and the Surviving Corporation.
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5.14 Certain WagerWorks Transactions. Except as expressly set forth on
Schedule 3.24, during the period from the date of this Agreement to the
Effective Time, Silicon shall not, and shall not permit any of its Subsidiaries
to (a) amend any of the agreements set forth on Schedule 3.24 or 3.25, (b)
transfer or otherwise convey in any manner any property or assets to WagerWorks
or (c) grant any license or right to WagerWorks to use any patents, trademarks,
service marks, trade names, copyrights, technology, know how or processes owned
or licensed by Silicon or any of its Subsidiaries.
ARTICLE 6
CLOSING CONDITIONS
6.1 Conditions Applicable to all Parties. The respective obligations of
each party to consummate the transactions contemplated by this Agreement are
subject to the satisfaction or, where permissible, waiver by such party of the
following conditions at or prior to the Closing Date:
(a) Silicon Stockholder Approval. The Merger will have been
duly approved by holders of the outstanding shares of Silicon Common Stock and
Silicon Preferred Stock in accordance with the CGCL and the Articles of
Incorporation of Silicon.
(b) HSR Act. The waiting periods (and any extensions thereof)
applicable to the Merger under the HSR Act, if applicable, shall have been
terminated or shall have expired and no condition will have been imposed on
Silicon or IGT to obtain such termination that would require the divestiture of
any Silicon or IGT assets or otherwise have a Material Adverse Effect on either
party.
(c) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order, judgment or decree to
restrain or prohibit the consummation of the Merger or any of the other
transactions described in this Agreement shall have been issued and remain in
effect.
(d) Litigation. There shall not have been instituted or
pending, or threatened, any Proceeding by any Governmental Entity as a result of
this Agreement or any of the transactions contemplated hereby which, if such
Governmental Entity were to prevail, would reasonably be expected to have a
Material Adverse Effect on IGT or the Surviving Corporation.
(e) Gaming Approvals. All necessary or required gaming
approvals from any Gaming Authorities shall have been received or obtained.
(f) WagerWorks Disposition. Silicon will have completed the
WagerWorks Disposition in accordance with Section 5.10 hereof.
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6.2 Conditions to IGT's and NewCo's Obligations. The obligations of IGT
and NewCo to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions, unless waived in
writing by IGT:
(a) Representations and Warranties. The representations and
warranties of Silicon set forth in this Agreement that are qualified by
materiality, will be true and correct in all respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date, and the representations and warranties of Silicon not so qualified shall
be true and correct in all material respects as of the date of this Agreement
and as of the Closing Date, provided that those representations and warranties
which address matters only as of a particular date shall remain true and correct
as of such date.
(b) Covenants. Silicon will have performed or complied in all
material respects with the obligations and covenants required to be complied
with or performed by it under this Agreement at or prior to the Closing Date.
(c) Consents and Approvals. All consents and approvals of
third parties necessary for the consummation of the transactions contemplated by
this Agreement shall have been obtained.
(d) Closing Certificate. IGT will have received a certificate
executed by the Chief Executive Officer and Chief Financial Officer of Silicon
dated the Closing Date, certifying that the conditions specified in Section
6.2(a) through (c) have been fulfilled. Silicon shall also have delivered to IGT
(i) a certificate of good standing from the Secretary of State of the State of
California and of comparable authority in other jurisdictions in which Silicon
and its Subsidiaries are incorporated or qualified to do business stating that
each is a validly existing corporation in good standing; (ii) duly adopted
resolutions of the Board of Directors and stockholders of Silicon approving the
execution, delivery and performance of this Agreement and the instruments
contemplated hereby, certified by the Secretary of Silicon; and (iii) a true and
complete copy of the articles of incorporation or comparable governing
instruments, as amended, of Silicon and its Subsidiaries certified by the
Secretary of State of the state of incorporation or comparable authority in
other jurisdictions, and a true and complete copy of the by-laws or comparable
governing instruments, as amended, of Silicon and its Subsidiaries certified by
the Secretary of Silicon and its Subsidiaries, as applicable.
(e) Director and Officer Resignations. IGT shall have received
resignations from all of the directors and officers of Silicon, such
resignations to be effective as of the Effective Time.
(f) Voting Agreements. The parties to the Voting Agreements
shall have voted their shares of Silicon Common Stock in accordance therewith.
(g) Stockholders Agreement. The parties to that certain
Stockholders Agreement dated November 24, 1999 (the "Stockholders Agreement")
shall have terminated such Stockholders Agreement subject to effectiveness of
the Merger and, upon such effectiveness, the Stockholders Agreement shall no
longer be of any legal force or effect.
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(h) Consents and Approvals. IGT shall have received evidence,
in form and substance reasonably satisfactory to it, that such licenses,
permits, consents, approvals, waivers, findings of suitability, authorizations,
qualifications and orders of, and declarations, registrations and filings
(including, without limitation, all Gaming Approvals) (collectively, "Consents
and Filings") required to be made or obtained by Silicon or IGT from all
Governmental Entities and parties to loan or credit agreements, notes,
mortgages, indentures, leases or other contracts, agreements or instruments to
which Silicon, IGT or any of their respective subsidiaries is a party or by
which Silicon, IGT or any of their respective Subsidiaries or their respective
assets are bound or affected, as are required in connection with the Merger and
the consummation of the transactions contemplated hereby, have been obtained or
made, as applicable, by Silicon or IGT, as the case may be, without the
imposition of any material limitations, prohibitions or requirements of a type
that are not acceptable to IGT in its sole discretion, and are in full force and
effect, other than those Consents and Filings (including Gaming Approvals)
which, if not obtained or made, would not, either have (i) a Material Adverse
Effect on the transactions contemplated hereby, (ii) a Material Adverse Effect
on the Surviving Corporation or IGT after the Effective Time, or (iii) a
Material Adverse Effect on the continuation of the operations and business of
IGT and its subsidiaries by the Surviving Corporation after the consummation of
the transactions contemplated hereby.
(i) The Consulting Agreements entered into with Andrew Pascal,
Paul Mathews and Tom Carlson shall each be in force and effect.
(j) The agreements specified on Schedule 6.2(k) hereto shall
have been modified as set forth on Schedule 6.2(k) hereto.
(k) There shall be no restriction (other than that imposed by
applicable securities laws) on the right of IGT or the Company to dispose of the
shares of WagerWorks retained by the Company.
(l) All outstanding warrants, options, or rights to acquire
equity securities of Silicon shall have been exercised or have been terminated
as of the Closing or be exercisable solely for the amount of Conversion Cash per
share that would have been received had the warrant been exercised prior to the
Closing.
(m) The Cross License Agreement shall have been modified as
set forth on Schedule 6.2(n) hereto.
6.3 Conditions to Obligations of Silicon. The obligations of Silicon to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions, unless waived in writing by Silicon:
(a) Representations and Warranties. The representations and
warranties of IGT and NewCo set forth in this Agreement, will be true and
correct in all respects as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except as otherwise
contemplated by this Agreement, and except where the failure of any
representations and warranties, individually or in the aggregate, would not have
Material Adverse Effect.
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(b) Covenants. Each of IGT and NewCo will have performed or
complied in all material respects with all obligations and covenants required to
be complied with or performed by it under this Agreement at or prior to the
Closing Date.
(c) Closing Certificate. The receipt by Silicon of a
certificate executed by the Chief Executive Officer or President and Chief
Financial Officer of IGT dated the Closing Date, certifying that the conditions
specified in Section 6.3(a) through (c) have been fulfilled.
(d) Consents and Approvals. Silicon shall have received
evidence, in form and substance reasonably satisfactory to it, that all Gaming
Approvals required to be made or obtained by Silicon or IGT from all
Governmental Entities as are required in connection with the Merger and the
consummation of the transactions contemplated hereby, have been obtained or
made, as applicable, by Silicon or IGT, as the case may be, without the
imposition of any material limitations, prohibitions or requirements of a type
that are not acceptable to Silicon in its sole discretion, and are in full force
and effect, other than those Gaming Approvals which, if not obtained or made,
would not, either have (i) a Material Adverse Effect on the transactions
contemplated hereby, (ii) a Material Adverse Effect on the stockholders of
Silicon after the Effective Time.
ARTICLE 7
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger
contemplated by this Agreement abandoned at any time before the Effective Time,
whether before or after approval by the Silicon stockholders as follows:
(a) Mutual Consent. By the mutual consent of the Boards of
Directors of Silicon and IGT.
(b) Material Breach. By the Board of Directors of either
Silicon or IGT if there has been a material breach by the other of any
representation or warranty contained in this Agreement or of any covenant
contained in this Agreement, which in either case cannot be, or has not been,
cured within 10 days after written notice of such breach is given to the party
committing such breach; provided that the right to effect such cure will not
extend beyond the date set forth in Section 7.1(c) below and the party seeking
to terminate may not then be in material breach of any representation, warranty
or covenant contained in this Agreement.
(c) Abandonment. By the Board of Directors of either Silicon
or IGT if the Merger has not occurred by May 30, 2001, unless the failure to
consummate the Merger is attributable to a failure on the part of the party
seeking to terminate this Agreement to perform any material obligation required
under the terms and provisions of this Agreement to be performed by it.
(d) Government Action. By the Board of Directors of either
Silicon or IGT if any Governmental Entity shall have issued a final,
non-appealable order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger.
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(e) Failure to Obtain Required Vote of Silicon Stockholders.
By either Silicon or IGT if the Silicon Special Meeting (including any
adjournments and postponements thereof) shall have been held and completed and
this Agreement shall not have been adopted by the required affirmative vote of
the Silicon stockholders at such meeting; provided, however, that a party shall
not be permitted to terminate this Agreement pursuant to this Section 7.1(e) if
the failure to obtain such stockholder approval is attributable to a failure on
the part of such party to perform any material obligation required under the
terms and provisions of this Agreement to be performed by it at or prior to the
Effective Time.
(f) Board Recommendation. By IGT, if the Board of Directors of
Silicon (i) withdraws or modifies adversely its recommendation of the Merger
following the receipt by Silicon of an Acquisition Proposal, (ii) recommends an
Acquisition Proposal to Silicon stockholders or (iii) fails to call or hold the
Silicon stockholders' meeting by reason of the receipt by Silicon of an
Acquisition Proposal or for any other reason.
(g) Failure of Certain Specified Matters.
(i) by IGT if
(A) any representation made by Silicon in this
Agreement is materially untrue as of the time such
representation is made; provided, that such misrepresentation
or misrepresentations are, with respect to Silicon, reasonably
likely to cause or result in an adverse affect of an amount
greater than $1,000,000; or
(B) at Closing, the total aggregate liabilities
reflected on the Agreed Upon Balance Sheet exceed $45,000,000;
or
(C) at Closing, Silicon does not own the patents or
patent applications listed on Appendix A hereto, or Silicon
has licensed any of such patents or patent applications to a
third party other than IGT or WagerWorks (but, if to
WagerWorks, only to the extent that such licenses have been
represented as exclusive to Internet applications ); or
(D) Silicon fails to make commercially reasonable
efforts to provide IGT with the information or other
assistance reasonably necessary to consummate the transactions
contemplated by this Agreement; or
(E) Silicon fails to take all reasonable actions
within its control necessary to permit the closing of the
Transaction, including if Silicon terminates this Agreement as
a result of receipt of an Acquisition Proposal as described in
Section 5.4 or withdraws its recommendation of the Merger;
(F) On or before May 30, 2001, Silicon has not
completed the WagerWorks Disposition and all other conditions
to Closing identified in Article 6 hereof have been satisfied
provided that such failure did not occur as a result of IGT's
refusal to consent to a sale of WagerWorks being made on the
basis specified in Section 5.10 hereof, including a sale to
one or more existing
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stockholders or lenders of Silicon except that in the event
the disposition is to one or more existing stockholders or
lenders of Silicon then Silicon shall first obtain an opinion
of its financial advisor that the terms of such disposition
are fair from a financial point of view to the stockholders of
Silicon.
(ii) and by Silicon in the event that a Governmental
Entity with responsibility for antitrust matters requests additional
information and, within 30 days thereafter IGT has not responded to
such request or advised Silicon in writing that it is undertaking to
respond to such request provided that, with respect to Silicon's right
to terminate, Silicon is not then in material breach of any
representation, warranty or covenant contained in this Agreement.
(h) Superior Proposal. By Silicon if, prior to approval of the
Merger by its stockholders and as a result of a Superior Proposal, the Board of
Directors of Silicon determines, in good faith, after consultation with legal
counsel and its financial advisor, that the failure to terminate this Agreement
and accept such Superior Proposal would be inconsistent with the proper exercise
of its fiduciary duties; provided, however, that before Silicon may terminate
this Agreement pursuant to this subsection 7.1(h), Silicon shall give notice to
IGT of the proposed termination under this subsection this 7.1(h) and IGT,
within five (5) business days of receipt of such notice, shall have the right,
in its sole discretion, to offer to amend this Agreement to provide for terms
substantially similar to those of the Superior Proposal and Silicon shall
negotiate in good faith with IGT with respect to such proposed amendment;
provided, further, that if IGT and Silicon are unable to reach an agreement with
respect to the IGT's proposed amendment within ten (10) days after such good
faith negotiations have commenced, Silicon may terminate this Agreement pursuant
to this subsection 7.1(h).
7.2 Effect of Termination. Upon termination of this Agreement pursuant
to this Article 7, this Agreement will be void and of no effect, other than the
obligation to repay immediately the Prepayment Amount and to pay the Termination
Fee referred to in Section 7.3, if applicable, and will result in no other
obligation of or liability to any party or their respective directors, officers,
employees, agents or stockholders, unless such termination was the result of an
intentional breach of any representation, warranty or covenant in this Agreement
in which case the party who breached the representation, warranty or covenant
will be liable to the other party for damages.
7.3 Expenses; Termination Fees. Except as set forth in this Section 7.3
or Sections 5.10 and 5.14, all fees and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses, whether or not the Merger is consummated.
(a) If this Agreement is terminated by Silicon pursuant to
Sections 7.1(b) or 7.1(g)(ii), and Silicon is not at such time in material
breach of any representation, warranty or covenant set forth in this Agreement,
IGT shall be obligated to pay Silicon $2,500,000, and Silicon may retain the
Prepayment Amount without any obligation of repayment to IGT.
(b) If this Agreement is terminated by IGT for any of the
reasons set forth in Sections 7.1(b), 7.1(e), 7.1(f), 7.1(h) or clause (F) of
Section 7.1(g)(i), and IGT is not at such
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time in material breach of any representation, warranty or covenant set forth in
this Agreement, Silicon shall be obligated to pay IGT $1,000,000, excluding the
Prepayment Amount, which Prepayment Amount shall also at the same time be
returned to IGT; provided, however, if IGT terminates this Agreement for the
reasons set forth in Section 7.1(b) it only be entitled to the Prepayment Amount
unless with respect to a breach of a representation made by Silicon, such
misrepresentation or misrepresentations are reasonably likely to cause or result
in either (i) an adverse effect on Silicon of an amount greater than $1,000,000
or (ii) a Material Adverse Effect.
(c) If this Agreement is terminated by both Silicon and IGT
pursuant to Section 7.1(a), by either Silicon or IGT pursuant to Section 7.1(c)
or 7.1(d), or by IGT pursuant to clauses (A) through (E) of Section 7.1(g)(i),
and the terminating party is not at such time in material breach of any
representation, warranty or covenant set forth in this Agreement, then Silicon
shall repay the Prepayment Amount to IGT and no further payments shall be made
by either party to the other.
(d) If IGT is obligated to pay the Termination Fee to Silicon,
then Silicon shall, as an inducement to cause IGT to enter into this Agreement
and for no additional consideration, issue to IGT a fully paid up nonexclusive
perpetual worldwide license to Patent Number 6,104,815 ("Method and Apparatus
for Providing Authenticated, Secure On-Line Communication Between Remote
Locations") for use in IGT's traditional casino gaming applications, and IGT
shall issue to Silicon, as an inducement to cause Silicon to enter into this
Agreement and for no additional consideration, a fully paid up nonexclusive
perpetual worldwide license to Patent Number 5,265,874 for use in Silicon's
operations. In such circumstances, the parties hereto agree to negotiate in good
faith to promptly enter into and execute an agreement implementing this
undertaking.
ARTICLE 8
DEFINED TERMS
8.1 Definitions. In addition to the other defined terms used in this
Agreement, the following terms when capitalized have the meanings indicated.
"Acquisition Proposal" has the meaning ascribed to it in Section
5.5(b).
"Adverse Claim" has the meaning ascribed to it in Section 8.102(a) of
the Uniform Commercial Code.
"Affiliate" has the meaning ascribed to it by Rule 12b-2 promulgated
under the Exchange Act.
"Agreed Upon Pre-Closing Balance Sheet" has the meaning ascribed to it
in Section 2.1(c).
"Agreement" means this Agreement and Plan of Merger, including the
exhibits and schedules, as amended or otherwise modified from time to time.
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"Amended Notes" means the $7.5 million aggregate principal amount of
Senior Discount Notes not exchanged for Series D Preferred Stock of Silicon
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 Silicon and BIII Capital Partners, L.P.
"Applicable Law" means any statute, law, rule or any judgment, order,
writ, injunction or decree of any Governmental Entity to which a specified
Person or its property is subject.
"Benefit Arrangement" means any employment, severance or similar
contract, or any other contract, plan, policy or arrangement (whether or not
written) providing for compensation, bonus, profit-sharing, stock option or
other stock related rights or other forms of incentive or deferred compensation,
vacation benefits, insurance coverage (including any self-insured arrangement),
health or medical benefits, disability benefits, severance benefits and
post-employment or retirement benefits (including compensation, pension, health,
medical or life insurance benefits), other than the Employee Plans, that is
maintained, administered or contributed to by the employer and covers any
employee or former employee of any member of the Silicon Group.
"Berg Note" means the promissory note issued by Silicon to Mr. Carl
Berg, in the principal amount of $1,000,000, dated as of July 28, 2000.
"Business Day" means any day (other than Saturday or Sunday) on which
commercial banks in Palo Alto, California are open for business.
"CGCL" means the California General Corporation Law, as in effect on
the Closing Date.
"Closing" means the consummation of the Merger and the other
transactions contemplated by this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock Voting Agreement" has the meaning ascribed to it in the
Recitals.
"Confidentiality Agreement" means the Confidentiality Agreement, dated
as of ______,
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2000, entered into and delivered by IGT to Silicon.
"Consents and Filings" has the meaning ascribed to it in Section
6.2(h).
"Consulting Agreement" has the meaning ascribed to it in the Recitals.
"Conversion Cash" has the meaning ascribed to it in Section 2.1(d).
"Cross-License Agreement" means that certain Cross License Agreement
dated April 4, 2000 by and between Silicon and Wager Works.
"Dissenting Shares" has the meaning ascribed to it in Section 2.6.
"Effective Date" has the meaning ascribed to it in Section 1.2.
"Effective Time" has the meaning ascribed to it in Section 1.2.
"Employee Plan" means a plan or arrangement as defined in Section 3(3)
of ERISA, that (a) is subject to any provision of ERISA, (b) is maintained,
administered or contributed to by any member of the Silicon Group and (c) covers
any employee or former employee of any member of the Silicon Group.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Exchange Warrants" means those certain stock purchase warrants
entitling the holders thereof to purchase an aggregate of up to 41,668,486
shares of Silicon Common Stock, issued pursuant to that certain Warrant
Agreement dated as of June 30, 2000 by and between Silicon and the Warrant Agent
named therein.
"GAAP" means accounting principles generally accepted in the United
States.
"Gaming Approval" has the meaning ascribed to it in Section 5.1(a).
"Gaming Authority" means, collectively, the Mississippi Gaming
Commission, the Nevada Gaming Commission, the Nevada State Gaming Control Board,
the National Indian Gaming Commission and any other tribal or Governmental
Entity that holds regulatory, licensing or permit authority over gaming
activities conducted by Silicon its 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
45
<PAGE> 102
laws and regulations pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over gaming activities conducted by
Silicon or its Subsidiaries within its jurisdiction.
"Governmental Entity" means any court or tribunal of competent
jurisdiction in any jurisdiction or any public, governmental or regulatory body,
agency, department, commission, board, bureau or other authority or
instrumentality, domestic or foreign, including, without limitation, the
National Indian Gaming Commission, or any other tribal or governmental authority
regulating any form of gaming.
"Gross Inventory" means the total amount of inventory reflected on
Silicon's balance sheet as of the Closing Date, determined in accordance with
GAAP applied on a basis consistent with the Pre-Closing Balance Sheet.
"IGT Audited Financial Statements" means the audited balance sheets and
related statements of income, retained earnings and cash flow, and the related
notes thereto of IGT for the years ended December 31, 1997, 1998 and 1999.
"IGT Financial Statements" means the IGT Audited Financial Statements
and the IGT Interim Financial Statements.
"IGT Interim Financial Statements" means the unaudited balance sheet,
and the related unaudited statements of income, retained earnings and cash flows
of IGT for the six-month period ended June 30, 2000.
"IGT Latest Balance Sheet" means the latest balance sheet of IGT
included in the IGT Audited Financial Statements.
"Ineligible Person" has the meaning ascribed to it in Section 5.1(d).
"Internet Gaming" has the meaning ascribed to it in Section 3.25.
"Knowledge" means, when given to qualify or limit a representation or
warranty otherwise made by Silicon or IGT, respectively, the actual knowledge,
after reasonable inquiry, of the officers and directors of Silicon or IGT,
respectively.
"Leases" means any (i) ground lease or (ii) office, warehouse or
facility lease (in each of (i) and (ii), whether or not reduced to writing), to
which Silicon (or any predecessor in interest of Silicon) is subject.
"Letter Agreement" means the letter agreement between IGT and Silicon,
dated as of October 16, 2000.
"License Agreement" has the meaning ascribed to it in Section 3.19(f).
"Liens" means pledges, liens, defects, leases, licenses, equities,
conditional sales contracts, charges, claims, encumbrances, security interests,
easements, restrictions, chattel mortgages, mortgages or deeds of trust, of any
kind or nature whatsoever.
46
<PAGE> 103
"Material Adverse Effect" means, with respect to any Party, any change
in, effect on, or circumstance that, individually or in the aggregate, has had
or would reasonably be likely to have a material and adverse effect on the
operations, business, assets, properties, prospects, results of operations or
financial condition of such party and its Subsidiaries, taken as a whole;
provided, however, that a Material Adverse Effect shall not include (i) any
material adverse effect caused by any change resulting from announcement of the
Merger, (ii) changes in general economic conditions or changes affecting
generally the industries in which such Party operates, (iii) changes in trading
prices for such party's capital stock and (iv) the impact of changes in GAAP.
For the purposes of this Agreement, a termination or the occurrence of any event
which would with or without the passage of time permit a party thereto other
than Silicon to terminate any agreement related to the Media Products or that
certain Cross License Agreement dated April 4, 2000 by and between Silicon and
Wager Works shall be deemed to constitute a "Material Adverse Effect" and a
workforce reduction made by Silicon after the date hereof without the prior
approval of IGT will be deemed to constitute a "Material Adverse Effect".
"Material Contract" means any executory contract, agreement or other
understanding, whether or not reduced to writing, that is not cancelable within
30 days, to which Silicon, its Subsidiaries, or their property is subject, which
provides for future payments to another Person by the relevant entity or
entities of more than $100,000 in the aggregate in any calendar year.
"Nasdaq" means the National Association of Securities Dealers Automated
Quotation System.
"NewCo" shall have the meaning ascribed to it in the heading of this
Agreement.
"New Notes" means the 13% Senior Secured Notes issued by Silicon under
the Securities Purchase Agreement between Silicon and B III Capital Partners LP,
dated as of November 24, 1999.
"NOL" means the net operating loss of Silicon for the period from
November 24, 1999 through the Closing Date, including a write-off of excess and
obsolete inventory (defined as "all inventories in excess of 6 months estimated
spares usage") as of the Closing.
"NOL-Gross Inventory Amount" shall have the meaning ascribed to it in
Section 2.1(c)(iii).
"Original Stock Options" means outstanding options to purchase Silicon
Common Stock identified on Schedule 3.2(e) hereto as "original stock options".
"Pearson Agreement" shall have the meaning ascribed to it in Section
3.4(c).
"Permitted Liens" means (i) Liens securing Silicon's credit facility,
(ii) Liens for Taxes not yet due and payable, and (iii) mechanics liens and
similar Liens incurred in the ordinary course of business that will not, in any
case or in the aggregate, materially detract from the value of the assets
subject thereto or cause a Material Adverse Effect with respect to Silicon.
"Person" means an individual, firm, corporation, general or limited
partnership, limited liability company, limited liability partnership, joint
venture, trust, governmental authority or
47
<PAGE> 104
body, association, unincorporated organization or other entity.
"Pre-Closing Periods" means all Tax periods ending at or before the
Closing Date and, with respect to any Tax period that includes but does not end
at the Closing Date, the portion of such period that ends at and includes the
Closing Date.
"Pre-Closing Balance Sheet" has the meaning ascribed to it in Section
2.1(c).
"Preferred Stock Voting Agreement" has the meaning ascribed to it in
the Recitals.
"Prepayment Amount" has the meaning ascribed to it in Section 2.1(b).
"Proceedings" means any suit, action, proceeding, dispute or claim
before or investigation by any Governmental Entity.
"Proxy Statement" means the proxy statement of Silicon for the purpose
of soliciting proxies from the Silicon stockholders to vote in favor of the
adoption of this Agreement at the Silicon Special Meeting, together with any
accompanying letter to stockholders, notice of meeting form of proxy, and any
amendments or supplements of any of these.
"Restructuring Agreement" shall mean that certain Restructuring
Agreement by and between Silicon and BIII Capital Partners, L.P., dated as of
November 24, 1999.
"Retention Agreements" has the meaning assigned to it in Section
5.9(k).
"Returns" means all returns, reports, estimates, declarations and
statements of any nature relating to, or required to be filed in connection
with, any Taxes, including information returns or reports with respect to backup
withholding and other payments to third parties.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
"Series D Certificate of Determination" means the Certificate of
Determination for Silicon's Series D Preferred Stock.
"Series D Preferred Stock" means the Series D Convertible Redeemable
Preferred Stock of Silicon.
"Series E Certificate of Determination" means the Certificate of
Determination for Silicon's Series E Preferred Stock.
"Series E Preferred Stock" means the Series E Convertible Redeemable
Preferred Stock of Silicon.
"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.
48
<PAGE> 105
"Silicon Audited Financial Statements" means the audited consolidated
balance sheets and related consolidated statements of income, retained earnings
and cash flow, and the related notes thereto of Silicon for the years ended
December 31, 1997, 1998 and 1999.
"Silicon Financial Statements" means the Silicon Audited Financial
Statements and the Silicon Interim Financial Statements.
"Silicon Interim Financial Statements" means the unaudited balance
sheet, and the related unaudited statements of income, retained earnings and
cash flows of Silicon for the nine-month period ended September 30, 2000.
"Silicon Latest Balance Sheet" means the latest balance sheet of
Silicon included in the Silicon Interim Financial Statements.
"Silicon Long-Term Debt" means Silicon's long-term debt (excluding
current portions thereof) and any payments on employment contracts and
non-competition agreements to which Silicon (or a predecessor in interest of
Silicon) is a party, including, without limitation, contingent severance
obligations.
"Silicon Stockholders Meeting" means the special meeting of the Silicon
stockholders for the purpose of approving this Agreement.
"Stock Options" means all options to purchase Silicon Common Stock,
including, without limitation, options issued pursuant to The Silicon Gaming,
Inc. 1999 Long Term Compensation Plan, The Silicon Gaming, Inc. Amended and
Restated 1994 Stock Option Plan, and the Silicon Gaming, Inc. 1997 Nonstatutory
Stock Option Plan.
"Stockholders Agreement" has the meaning ascribed to it in Section
6.2(g).
"Subsidiaries" means corporations, partnerships, joint ventures,
associations, trusts, unincorporated organizations, limited liability companies
or other entities, 50% or more of the outstanding voting securities or interests
of which (or the right to select a majority of the Board of Directors or other
governing body), or, if there are no such voting securities or interests, 50% or
more of the equity interests of which, are directly or indirectly owned by
Silicon, provided, that except as expressly identified herein, WagerWorks shall
not be considered a Subsidiary for the purpose of this Agreement.
"Superior Proposal" has the meaning ascribed to it in Section 5.3(c).
"Surviving Corporation" has the meaning ascribed to it in Section 1.2.
"Taxes" means any federal, state, local or other taxes (including,
without limitation, income, alternative minimum, franchise, property, sales,
use, lease, excise, premium, payroll, wage, employment or withholding taxes),
fees, duties, assessments, withholdings or governmental charges of any kind
whatsoever (including interest, penalties and additions to tax).
"Transaction Costs" means, to the extent not included in the
Pre-Closing Balance Sheet or otherwise deducted from the Aggregate Merger
Consideration pursuant to Section 2.1(b), (i)
49
<PAGE> 106
all costs and expenses incurred by Silicon in furtherance of the Merger and any
other transactions contemplated by this Agreement, including, but not limited
to, accounting, legal, investment banker and financial advisor fees, fairness
opinion fees and costs and costs and expense incurred for preparing, filing and
delivering the Proxy Statement and holding the Silicon Stockholder Meeting, (ii)
all costs and expenses incurred by Silicon, including, but not limited to,
accounting, legal, investment banker and financial advisor fees and fairness
opinion fees related to the WagerWorks Disposition, (iii) all amounts paid or
payable under any Retention Agreements, including, but not limited to, amounts
disclosed on Schedule 5.9(h), (iv) one-half of the estimated amount of the costs
of providing the insurance coverage required under Section 5.13(b) hereof, (v)
any costs to obtain the insurance specified in paragraph (b) of Schedule 2 to
the Preferred Stock Voting Agreement, assuming that B III makes an election for
Silicon to obtain such insurance and (vi) the amounts set forth in paragraph (c)
of Schedule 2 to the Preferred Stock Voting Agreement, in the event that B III
elects to increase the maximum indemnification amount set forth therein.
"Voting Agreements" has the meaning ascribed to it in the Recitals.
"WagerWorks" means WagerWorks, Inc., a Delaware corporation.
"WagerWorks Disposition" means the disposition of Silicon's equity
interest in WagerWorks other than the WagerWorks Shares.
"WagerWorks Disposition Date" means the date the shares of WagerWorks
owned by Silicon, other than the WagerWorks Shares, are disposed of.
"WagerWorks Shares" means the shares of common stock of WagerWorks
owned by Silicon after the WagerWorks Disposition, and which, in the aggregate,
equal 4.9% of the equity interest of WagerWorks, on a fully-diluted basis, on
the date of this Agreement.
"WagerWorks Warrant" has the meaning ascribed to it in Section 6.2(e).
ARTICLE 9
MISCELLANEOUS
9.1 Notices. All notices under this Agreement must be in writing and
will be deemed to have been given upon receipt of delivery by: (a) personal
delivery to the designated individual; (b) certified or registered mail, postage
prepaid, return receipt requested; (c) a nationally recognized overnight courier
service (against a receipt therefore); or (d) facsimile transmission with
confirmation of receipt. All such notices must be addressed as follows or to
such other address as to which any party hereto may have notified the other in
writing:
50
<PAGE> 107
If to IGT, to:
International Gaming Technology
9205 Prototype Drive
Reno, Nevada 68511
Attn: Sara Beth Brown and J. Kenneth Creighton
Facsimile transmission no.: (775) 448-0120
With a copy to:
O'Melveny & Myers LLP
114 Pacifica, Suite 100
Irvine, California 92618
Attn: J. Jay Herron
Facsimile transmission no.: (949) 737-2300
If to Silicon, to:
Silicon Gaming, Inc.
3800 West Bayshore Road
Palo Alto, California 95203
Attn: Andrew S. Pascal
Facsimile transmission no.: (650) 842-9001
With a copy to:
Squire, Sanders & Dempsey L.L.P.
40 North Central Ave.,
Suite 2700
Phoenix, AZ 85044
Attn: Joseph M. Crabb
Facsimile transmission no.: (602) 253-8129
9.2 Headings; Gender. When a reference is made in this Agreement to a
section, exhibit or schedule, such reference will be to a section, exhibit or
schedule of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and will
not affect in any way the meaning or interpretation of this Agreement. All
personal pronouns used in this Agreement will include the other genders, whether
used in the masculine, feminine or neuter gender, and the singular will include
the plural and vice versa, whenever and as often as may be appropriate.
9.3 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents, exhibits and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements, and
understandings and communications, both written and oral, among the parties with
respect to the subject matter hereof, including the Letter Agreement, and (b) is
not intended to confer upon any person other than the parties to this Agreement
any rights or remedies under this Agreement.
51
<PAGE> 108
9.4 Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Nevada without regard to any applicable
principles of conflicts of law. Each party to this Agreement hereby irrevocably
(a) submits (to the fullest extent permitted by applicable law) to the
jurisdiction of any Nevada state or federal court sitting in the Nevada, over
any action or proceeding arising out of or relating to this Agreement and (b)
waives, to the fullest extent permitted by law, any objection each may now or
hereafter have, to the laying of venue in any such action or proceeding in any
such court as well as any right each may now or hereafter have, to remove any
such action or proceeding, once commenced, to another court on the grounds of
forum non conveniens or otherwise.
9.5 Assignment. Neither this Agreement nor any of the rights, interests
or obligations under it will be assigned by any of the parties to this Agreement
(whether by operation of law or otherwise) without the prior written consent of
the other parties.
9.6 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by reason of any rule of law or
public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any adverse
manner to any party.
9.7 Counterparts. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original and all of which taken
together will constitute one and the same document.
9.8 Amendment. This Agreement may only be amended by an instrument in
writing signed by each of the parties to this Agreement.
52
<PAGE> 109
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be
signed by their respective duly authorized officers as of the date first above
written.
INTERNATIONAL GAME TECHNOLOGY
By:
---------------------------------------
Name:
Title:
INTERNATIONAL GAME ACQUISITION CORPORATION
By:
---------------------------------------
Name: Sarah Beth Brown
Title: President
SILICON GAMING, INC.
By:
---------------------------------------
Name: Andrew S. Pascal
Title: Chairman of the Board, Chief Executive
Officer and President
53
<PAGE> 110
EXHIBIT A
FORM OF VOTING AGREEMENT
VOTING AGREEMENT
December 19, 2000
International Game Technology
9205 Prototype Drive
Reno, Nevada 68511
Attn: Sarah Beth Brown
Re: Agreement of Principal Stockholder Concerning Transfer and
Voting of Shares of Silicon
I understand that you and Silicon (the "Company"), of which the
undersigned is a significant stockholder, are prepared to enter into an
agreement for the merger of a wholly-owned subsidiary ("Sub") of you with and
into the Company, but that you have conditioned your willingness to proceed with
such agreement (the "Agreement") upon your receipt from me of assurances
satisfactory to you of my support of and commitment to the Merger. I am familiar
with the Agreement and the terms and conditions of the Merger. Terms used but
not otherwise defined herein shall have the same meanings as are given them in
the Agreement. In order to evidence such commitment and to induce you to enter
into the Agreement, I hereby represent and warrant to you and agree with you as
follows:
1. Voting. I will vote or cause to be voted all shares of capital stock
of the Company owned of record or beneficially owned or held in any capacity by
me or under my control, by proxy or otherwise, in favor of the Merger and other
transactions provided for in or contemplated by the Agreement and against any
inconsistent proposals or transactions.
2. Ownership. As of the date hereof, my only ownership of, or interest
in, equity securities of the Company, including proxies granted to me, consists
solely of the interests described in Schedule 1 attached hereto (collectively,
the "Shares").
3. Restriction on Transfer. I will not sell, transfer, pledge or
otherwise dispose of any of the Shares or any interest therein (including the
granting of a proxy to any person) or agree to sell, transfer, pledge or
otherwise dispose of any of the Shares or any interest therein prior to the
Merger, without your express written consent. Any transferee of the Shares must,
as a condition to receipt of such Shares, agree to bound by the terms hereof, in
a form satisfactory to you.
4. Share Legend. If you request, the undersigned shall have the
following legend has been placed on the certificates for the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A VOTING
A-1
<PAGE> 111
AGREEMENT DATED DECEMBER 19, 2000 BETWEEN THE REGISTERED
HOLDER HEREOF AND IGT, A COPY OF WHICH AGREEMENT IS ON FILE AT
THE PRINCIPAL OFFICES OF IGT.
5. Effective Date; Succession; Remedies; Termination. Upon your
acceptance and execution of the Agreement, this letter agreement shall mutually
bind and benefit you and me, any of our heirs, successors and assigns and any of
your successors. You will not assign the benefit of this letter agreement other
than to a wholly owned subsidiary. I agree that in light of the inadequacy of
damages as a remedy, specific performance shall be available to you, in addition
to any other remedies you may have for the violation of this letter agreement.
This letter agreement shall terminate on May 30, 2001, or such later date, if
any, to which IGT and the Company agree to extend the date specified in Section
7.1(c) of the Agreement.
6. Nature of Holdings; Shares. All references herein to our holdings of
the Shares shall be deemed to include Shares held or controlled by the
undersigned, individually, jointly, or in any other capacity, and shall extend
to any securities issued to the undersigned in respect of the Shares.
A-2
<PAGE> 112
[PRINCIPAL STOCKHOLDER]:
By:
-------------------------------
AGREED:
INTERNATIONAL GAME TECHNOLOGY, a Nevada corporation
By:
--------------------------------
Name:
------------------------------
Its:
-------------------------------
A-S-1
<PAGE> 113
SCHEDULE 1
<TABLE>
<CAPTION>
Class Number of Shares Record Owner Beneficial Owner Proxy Holder
<S> <C> <C> <C> <C>
</TABLE>
A-Schedule 1
<PAGE> 114
EXHIBIT B
FORM OF PREFERRED STOCK VOTING AGREEMENT
December 19, 2000
International Game Technology
9205 Prototype Drive
Reno, Nevada 68511
Re: Agreement of B III Capital Partners, L.P., a Delaware limited
partnership ("B III"), Concerning Series D Preferred Stock and
Series E Warrants of Silicon Gaming ("Silicon")
B III understands that you and Silicon (the "Company"), of which the
undersigned is a significant stockholder, are prepared to enter into an
agreement for the merger of a wholly-owned subsidiary ("Sub") of you with and
into the Company in the form attached hereto as Exhibit A (the "Agreement"), but
that you have conditioned your willingness to proceed with such agreement upon
your receipt from B III of assurances satisfactory to you of our support of and
commitment to the Merger. B III is familiar with the Agreement and the terms and
conditions of the Merger. Terms used but not otherwise defined herein shall have
the same meanings as are given them in the Agreement. In order to evidence such
commitment and to induce you to enter into the Agreement, B III hereby represent
and warrant to you and agree with you as follows:
1. Voting.
(a) Subject to the provisions of Section 1(b), B III will vote or cause
to be voted all shares of capital stock of Silicon now or hereafter owned of
record or beneficially owned or held in any capacity by B III or under B III
control, by proxy or otherwise, in favor of the Merger and other transactions
provided for in or contemplated by the Agreement and against any inconsistent
proposals or transactions.
(b) The obligations of B III under this Agreement, including the
obligations to vote for and consent to the Merger and the transactions
contemplated by the Merger Agreement shall be subject to the condition precedent
that Silicon shall have completed the WagerWorks Disposition pursuant to a
transaction or series of transactions acceptable to and approved by B III.
2. Waiver of Redemption Rights. From the date hereof through the
earlier of (a) the Closing Date and (b) the termination of the Agreement, B III
hereby waives its rights, if any, as a holder of Silicon's Series D Preferred
Stock to cause Silicon pursuant to Section 2(c) of that certain Certificate of
Determination of Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions of Series D Preferred Stock of Silicon dated as of November 24,
1999 to redeem such Series D Preferred Stock held by B III or any other
provision thereof or of any other agreement, to cause
B-1
<PAGE> 115
Silicon to redeem shares of Series D Preferred Stock. B III hereby agrees that
upon consummation of the Merger its shares of Series D Preferred Stock will be
converted into a right to receive cash as specified in Section 2.1(d) of the
Agreement and it shall have no other rights with respect to such shares. B III
acknowledges that Silicon may, in its discretion, modify the terms of
outstanding Stock Options (other than an increase in the number of shares of
Silicon Common Stock subject to such Stock Options and other than the terms of
any Original Stock Options) prior to the Closing, including without limitation
modifying or waiving the exercise price thereof, and hereby consents and agrees
thereto and hereby waives any adjustment to the conversion price of shares of
preferred stock or warrants it owns that would be caused by such action.
3. Termination of Warrants. B III hereby agrees that upon the
Closing Date and subject to effectiveness of the Merger and payment of the
Aggregate Merger Consideration, it shall surrender to the surviving corporation
all its right, title and interest in the unexercised warrants issued pursuant to
each of (a) the Amended and Restated Warrant Agreement dated as of July 8, 1998,
by and between Silicon and B III, and (b) the Warrant Agreement dated November
24, 1999, by and between Silicon and B III, except to the extent exercised as a
result of the exercise of Exchange Warrants (collectively, the "Warrant
Agreements") and shall treat such warrants and the Warrant Agreements as having
terminated upon the Effective Time, each having no further legal effect.
4. Ownership. As of the date hereof, B III's only ownership of,
or interest in, equity securities of Silicon, including all warrants and proxies
granted to B III or any other rights to purchase shares of capital stock of
Silicon, consists solely of the interests described in Schedule 1 attached
hereto (collectively, the "Shares").
5. Restriction on Transfer. B III will not sell, transfer, pledge
or otherwise dispose of any of the Shares or any interest therein (including the
granting of a proxy to any person) or agree to sell, transfer, pledge or
otherwise dispose of any of the Shares or any interest therein prior to the
Merger, without your express written consent which consent you may withhold in
your sole and absolute discretion. Any transferee of the Shares must, as a
condition to receipt of such Shares, agree to be bound by the terms hereof, in a
form satisfactory to you. B III shall not convert its shares of Series D
Preferred Stock into shares of Common Stock during the term of this Agreement.
6. Share Legend. If you request, B III shall have the following
legend has been placed on the certificates for the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A PREFERRED STOCK VOTING AGREEMENT
DATED DECEMBER 19, 2000 BETWEEN THE REGISTERED HOLDER HEREOF
AND IGT, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICES OF IGT.
7. Repayment of Debt; General Release. As of the date hereof, the
aggregate
B-2
<PAGE> 116
outstanding principal balance of all amounts owed by Silicon or its Subsidiaries
to B III, including any and all amounts owed to B III pursuant to the Amended
Notes and New Notes, is $11,328,018.67(the "Outstanding Debt"). B III hereby
acknowledges and agrees that, upon the consummation of the Merger and repayment
in full, in cash, of the Outstanding Debt, plus any and all accrued and unpaid
interest and other amounts due thereon (including the premium payable under
Section 6.6(a) of the Securities Purchase Agreement governing the New Notes)
through and including the Effective Time, it shall release Silicon, in the form
of general release reasonably satisfactory to you and B III, subject to the
matters set forth in Schedule 2 attached hereto, from any further liabilities
and obligations of any nature whatsoever relating to Silicon, including, without
limitation obligations under the Amended Notes and New Notes and that certain
Amended and Restated Security Agreement dated November 24, 1999, by and between
B III and Silicon and its Subsidiaries (the "Security Agreement") and shall
treat all B III's contractual rights, including, without limitation, all rights
pursuant to the Amended Notes, New Notes, the Stockholders Agreement, the
Restructuring Agreement by and between Silicon, management stockholders and BIII
dated November 24, 1999, and the Securities Purchase Agreement, dated as of
September 30, 1997, by and between Silicon and B III, as amended, and the
Security Agreement as having terminated upon such repayment to B III, each
having no further legal effect.
8. No Solicitation. From the date hereof until the termination
hereof, B III will not, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Acquisition Proposal or (ii) engage in negotiations or
discussions with, or disclose any nonpublic information relating to Silicon or
any subsidiary of Silicon (other than WagerWorks) to, or otherwise assist,
facilitate or encourage, any person (other than you and Sub) that may be
considering making, or has made, an Acquisition Proposal. B III will notify you
and Sub within 24 hours after receipt by B III of any Acquisition Proposal or
any indication that any such third party is considering making an Acquisition
Proposal or any request for nonpublic information relating to Silicon or any
subsidiary of Silicon (other than WagerWorks) or for access to the properties,
books or records of Silicon or any such subsidiary by any such third party that
may be considering making, or has made, an Acquisition Proposal and will keep
you fully informed of the status and details of any such Acquisition Proposal,
indication or request.
9. Effective Date; Succession; Remedies; Termination. Upon
acceptance and execution of the Agreement, this letter agreement shall mutually
bind and benefit you and B III, any of B III's heirs, successors and assigns and
any of your successors. B III will not assign the benefit of this letter
agreement other than to a wholly owned subsidiary. B III agrees that in light of
the inadequacy of damages as a remedy, specific performance shall be available
to you, in addition to any other remedies you may have for the violation of this
letter agreement. This letter agreement shall terminate on the earliest of (i)
any termination of the Agreement, (ii) the amendment of the Agreement or (iii)
May 30, 2001.
10. Nature of Holdings; Shares. All references herein to B III's
holdings of the Shares shall be deemed to include Shares held or controlled by
the undersigned, individually, jointly, or in any other capacity, and shall
extend to any securities issued to the undersigned in respect of the Shares.
B-3
<PAGE> 117
B III CAPITAL PARTNERS, L.P.,
A LIMITED PARTNERSHIP
BY: DDJ CAPITAL III, LLC,
ITS GENERAL PARTNER
BY: DDJ CAPITAL MANAGEMENT, LLC,
ITS MANAGER:
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
AGREED:
INTERNATIONAL GAME TECHNOLOGY, a Nevada corporation
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
AGREED TO AND ACKNOWLEDGED (WITH RESPECT TO SCHEDULE 2
ONLY)
SILICON GAMING, INC., a California corporation
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
B-S-1
<PAGE> 118
SCHEDULE 1
<TABLE>
<CAPTION>
Class Number of Shares Record Owner Beneficial Owner Proxy Holder
<S> <C> <C> <C> <C>
</TABLE>
B-Schedule 1
<PAGE> 119
SCHEDULE 2
TO
PREFERRED STOCK VOTING AGREEMENT
At closing, Section 7.1 of the Restructuring Agreement dated as of
November 24, 1999 by and between Silicon and B III would be amended and restated
to provide the following:
(a) Indemnification obligations would be narrowed to relate solely to
third-party claims.
(b) Silicon and IGT would be obligated to indemnify B III for 50% of all
losses incurred by B III, including the fees of separate counsel for B III, to
be selected by B III at its option. Unless counsel for IGT, Silicon and their
respective directors and officers determines that there is a conflict of
interest, B III would be entitled to elect to be represented by such counsel at
no expense to B III. In the event B III elects to utilize its own counsel for
all or any portion of the defense of any claim, the expenses of such counsel
shall be paid as set forth in the first sentence of this clause (b). In the
alternative, B III shall have the right to require Silicon, by election made by
B III prior to February 22 , 2001, to have B III named as an additional loss
payee on Silicon's current directors and officers insurance policy or obtain
such other insurance coverage acceptable to B III, provided that such additional
coverage can be obtained and that the cost thereof is reasonable.
(c) The indemnification obligations described above would be capped at an
aggregate of $500,000 (i.e., 50% coverage on up to $1,000,000 of losses);
provided that B III may elect to increase prior to February 22, , 2001 such
aggregate to up to $2,500,000 (i.e., 50% coverage on $5,000,000 of losses) and
the Aggregate Merger Consideration would be reduced at the rate of $75,000 for
each $500,000 increase (i.e., 50% coverage on each $1,000,000 of additional
losses).
(d) IGT and Silicon would agree to cooperate with B III in the defense of
any covered third party claim and would provide such documents and other
information reasonably requested by B III or its counsel.
(e) The form of Amended and Restated Indemnification Agreement and Release
would, at Closing, be attached as an Exhibit to the Preferred Stock Voting
Agreement. B III and Silicon agree to act diligently following the execution of
the Merger Agreement to inquire about the availability and costs of insurance.
The February 22, 2001 deadlines set forth in paragraphs (b) and (c) may be
extended if necessary to allow adequate time to complete any inquiry being made
concerning the availability and costs of insurance provided that (i) Silicon and
B III have acted diligently after the date of Merger Agreement to inquire about
the availability and costs of insurance and have undertaken to obtain
underwritten coverage and (ii) in no event may the deadline be extended beyond
April 6, 2001 without the prior written consent of IGT. IGT shall be considered
a third party beneficiary of the undertakings and conditions contained in this
paragraph (e).
B-Schedule 2
<PAGE> 120
EXHIBIT C
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made as of December 19, 2000
by and between International Game Technology, a Nevada corporation (the "IGT"),
and _______________, an individual ("Consultant").
WHEREAS, IGT, a Nevada corporation and a direct wholly owned subsidiary
of IGT ("Sub") and Silicon Gaming, a Nevada corporation ("Silicon"), have
entered into an Agreement and Plan of Merger, dated December 19, 2000, pursuant
to which Silicon will merge with and into Sub, with Sub being the surviving
corporation (the "Merger"); and
WHEREAS, upon consummation of the Merger and Consultant's concurrent
resignation from Silicon, IGT wishes to retain Consultant to act as a consultant
to IGT under the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
(a) "Company's Business" means (i) the development,
manufacturing, marketing and distribution of gaming products, (ii) the
development, marketing and operation of wide-area progressive systems, and (iii)
the business of Silicon as conducted by Silicon immediately prior to
consummation of the Merger.
(b) "Confidential Information" means information that would
constitute a trade secret under the Uniform Trade Secrets Act or that otherwise
is not in the public realm and that is developed, owned or obtained by IGT,
including, without limitation, information developed by Consultant in the course
of performing the Consulting Services, IGT's technical information, marketing
and financial information, customer information and sales information.
(c) "Person" means an individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including, without limitation, a government or political subdivision or an
agency or instrumentality of a government or political subdivision.
(d) "Work Product" means: (i) any and all discoveries,
inventions and know how, including, without limitation, any and all test data,
findings, designs, machines, devices, apparatus, compositions, methods or
processes, and/or any improvements of the foregoing, made, conceived, discovered
or developed by Consultant, whether alone or in conjunction with others, which
arise in any way from, during or as a result of the performance of the
Consulting Services, or that are derived from, are based upon or utilize in any
way any proprietary information, data, materials or products belonging to IGT,
whether during or after the Term (as
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defined below); and (ii) all documents, reports or materials of any kind
prepared by Consultant in performing the Consulting Services.
2. Retention and Compensation.
(a) Consulting Services. IGT retains Consultant for the
purpose of assisting IGT with the transition associated with the change in
ownership of Silicon that will occur as a result of the Merger. Consultant
agrees to make himself reasonably available to assist IGT in such transition and
the transfer of knowledge relating to Silicon and its subsidiaries provided that
nothing in this Agreement shall obligate the Consultant to provide more than 100
aggregate hours of service to IGT during the Term of this Agreement or, after
the third month following the date of this Agreement, to compromise or result in
the breach of Consultant's duties to his employer.
(b) Compensation and Expenses. During the Term (which is
defined below), IGT shall pay the Consultant six payments of $4,166.67, payable
monthly in advance during the first three months and at the end of each month
during the last three months, subject to applicable withholding taxes.
(c) Benefits and Perquisites. During the Term, IGT shall
reimburse Consultant for his reasonable and documented out of pocket expenses
for travel, telephone and any related incidentals. Except as provided in this
Section 2, Consultant shall not be entitled to any other benefits or
perquisites.
3. Confidentiality. Consultant shall keep in strict confidence,
and will not, directly or indirectly, at any time, during and after the Term,
disclose, furnish, disseminate, make available or, except in the course or
performing his duties as a Consultant under this Agreement, use any Confidential
Information, without limitation as to when or how Consultant may have acquired
such information.
4. Nonsolicitation. Consultant shall not, directly or indirectly,
at any time during the Term solicit or induce or attempt to solicit or induce
any employee, representative, agent or consultant of IGT, Silicon or Sub to
terminate his, her or its employment, representation or other association with
IGT, Silicon or Sub.
5. Assignment. All Work Product is deemed a "work for hire" in
accordance with the U.S. Copyright Act and is owned exclusively by IGT. If, and
to the extent, any of the Work Product is not considered a "work for hire,"
Consultant shall, without further compensation, assign to IGT, and does hereby
assign to IGT, Consultant's entire right, title and interest in and to all Work
Product. At IGT's expense and at IGT's request, Consultant shall provide
reasonable assistance and cooperation, including, without limitation, the
execution of documents in order to obtain, enforce and/or maintain IGT's
proprietary rights in the Work Product throughout the world. Consultant appoints
IGT as its agent and grants IGT a power of attorney for the limited purpose of
executing all such documents.
6. Publication. Consultant shall not publish or submit for
publication, or otherwise disclose to any Person other than IGT, any data or
results from Consultant's work on behalf of IGT without the prior written
consent of IGT.
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7. Term and Termination.
(a) Term. The term of this Agreement commences on the
effective date of the Merger and continues for six months (the "Term") unless
earlier terminated pursuant to Section 7(b).
(b) Termination. This Agreement will terminate upon
Consultant's death or permanent disability or, beginning three months after the
effective date of the Merger, the inability of Consultant to perform without
comprising or breaching Consultant's duties to his employer.
(c) Effect of Termination; Effective Time. Upon termination or
expiration of this Agreement: (i) IGT promptly shall pay to Consultant all
amounts due and owing subject to applicable withholding taxes; and (ii)
Consultant promptly shall return, in good condition, all property of IGT,
including, without limitation, all copies of the Confidential Information. The
term of this Agreement shall commence concurrent with the closing of the Merger
and the concurrent resignation of Consultant as an employee of Silicon.
(d) Survival. The obligations of IGT and Consultant set forth
in this Agreement that by their terms extend beyond or survive the termination
or expiration of this Agreement will not be affected or diminished in any way by
the termination or expiration of this Agreement.
8. General.
(a) No License. This Agreement may not be construed to grant
and does not grant to Consultant any right or license with respect to any
know-how, Confidential Information, trademarks or other proprietary right of IGT
(apart from the right to make necessary use of the same in rendering Consulting
Services under this Agreement).
(b) Gaming Regulatory Authority Approvals. IGT and Consultant
agree that performance of this Agreement is contingent upon obtaining any
necessary initial and continuing approvals or licenses from any gaming
regulatory authorities having jurisdiction over the parties hereto or the
subject matter of this Agreement. If any approval or license is denied,
suspended or revoked, this Agreement shall terminate immediately; provided,
however, that if the denial, suspension or revocation affects only part
performance of this Agreement, the parties hereto may by mutual agreement
continue to perform under this Agreement to the extent it is not affected by any
denial, suspension or revocation. Neither party shall be liable to the other for
any damages, fees, costs or expenses arising from any failure to perform this
Agreement as a result of any applicable gaming regulatory agency having taken
any of the above-mentioned actions.
(c) Lack of Agency. Neither party will be responsible, either
directly or indirectly, for any liability of the other party. Neither party is
deemed an agent of the other party and no actions of either party will be
inferred to create an agency relationship by third parties. Consultant shall not
have the authority to bind or obligate IGT in any way and Consultant does not
represent that he has such authority.
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(d) Severability. Should any provisions of this Agreement be
held illegal, invalid or unenforceable by any court or regulatory agency of
competent jurisdiction, such provision is to be modified by such court or
regulatory agency in compliance with the law and, as modified, enforced. All
other terms and conditions of this Agreement will remain in full force and
effect and are to be construed in accordance with the modified provision as if
such illegal, invalid or unenforceable provision had not been contained in this
Agreement.
(e) Applicable Law. This Agreement and all disputes arising
under it are governed by the laws of the State of Nevada. Each party submits to
the jurisdiction of the federal and state courts located within the State of
Nevada.
(f) No Waiver. None of the terms of this Agreement is deemed
waived or amended by either party unless such a waiver or amendment specifically
references this Agreement and is in writing signed by an authorized
representative of the party to be bound. Any such signed waiver is effective
only in the specific instance and for the specific purpose for which it was made
or given.
(g) Assignment. This Agreement is binding upon and inures to
the benefit of the heirs, successors, representatives and assigns of each party,
but Consultant may not assign or delegate this Agreement without the prior
written consent of IGT.
(h) Headings. The headings in this Agreement are inserted for
convenience only and do not affect the meaning of this Agreement.
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which is an original, and all of which are one and the
same instrument.
(j) Third Parties. Nothing expressed or implied in this
Agreement is intended, or may be construed, to confer upon or give any Person
other than IGT and Consultant any rights or remedies under, or by reason of,
this Agreement.
(k) Notices. All notices and other communications required or
permitted under this Agreement must be in writing and are duly given if
delivered personally, telecopied (which is confirmed) or sent by a nationally
recognized overnight courier service (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as is
specified by like notice):
(i) If to IGT:
International Gaming Technology
9205 Prototype Drive
Reno, Nevada 68511
Attn: Sara Beth Brown and J. Kenneth Creighton
Facsimile transmission no.: (775) 448-0120
(ii) If to Consultant:
(l) Amendment. This Agreement may be amended only by a writing
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executed by the parties to this Agreement.
(m) Entire Agreement. This Agreement is the entire
understanding and agreement between the parties relating to this subject matter
and supersedes all prior contracts, agreements, arrangements, communications,
discussions, representations and warranties, whether oral or written, between
the parties relating to this subject matter.
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<PAGE> 125
IN WITNESS WHEREOF, IGT and Consultant have executed this Agreement as
of the date and year first above written.
INTERNATIONAL GAME TECHNOLOGY,
a Nevada Corporation
By:
---------------------------------------
Name:
Title:
------------------------------------------
By:
---------------------------------------
C-S-1
<PAGE> 126
EXHIBIT D
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made as of December 19, 2000
by and between International Game Technology, a Nevada corporation (the "IGT"),
and Tom Carlson, an individual ("Consultant").
WHEREAS, IGT, a Nevada corporation and a direct wholly owned subsidiary
of IGT ("Sub") and Silicon Gaming, a Nevada corporation ("Silicon"), have
entered into an Agreement and Plan of Merger, dated December 19, 2000, pursuant
to which Silicon will merge with and into Sub, with Sub being the surviving
corporation (the "Merger"); and
WHEREAS, upon consummation of the Merger and Consultant's concurrent
resignation from Silicon, IGT wishes to retain Consultant to act as a consultant
to IGT under the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions.
(a) "Company's Business" means (i) the development,
manufacturing, marketing and distribution of gaming products, (ii) the
development, marketing and operation of wide-area progressive systems, and (iii)
the business of Silicon as conducted by Silicon immediately prior to
consummation of the Merger.
(b) "Confidential Information" means information that would
constitute a trade secret under the Uniform Trade Secrets Act or that otherwise
is not in the public realm and that is developed, owned or obtained by IGT,
including, without limitation, information developed by Consultant in the course
of performing the Consulting Services, IGT's technical information, marketing
and financial information, customer information and sales information.
(c) "Person" means an individual, corporation, partnership,
limited liability company, association, trust or other entity or organization,
including, without limitation, a government or political subdivision or an
agency or instrumentality of a government or political subdivision.
(d) "Work Product" means: (i) any and all discoveries,
inventions and know how, including, without limitation, any and all test data,
findings, designs, machines, devices, apparatus, compositions, methods or
processes, and/or any improvements of the foregoing, made, conceived, discovered
or developed by Consultant, whether alone or in conjunction with others, which
arise in any way from, during or as a result of the performance of the
Consulting Services, or that are derived from, are based upon or utilize in any
way any proprietary information, data, materials or products belonging to IGT,
whether during or after the Term (as
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defined below); and (ii) all documents, reports or materials of any kind
prepared by Consultant in performing the Consulting Services.
2. Retention and Compensation.
(a) Consulting Services. IGT retains Consultant for the
purpose of assisting IGT with the transition associated with the change in
ownership of Silicon that will occur as a result of the Merger. Consultant
agrees to make himself reasonably available to assist IGT in the such transition
and the transfer of knowledge relating to Silicon and its subsidiaries provided
that nothing in this Agreement shall obligate the Consultant to provide more
than 60 aggregate hours of service to IGT during the Term of this Agreement, or,
after the third month following the date of this Agreement, to compromise or
result in the breach of Consultant's duties to his employer.
(b) Compensation and Expenses. During the Term (which is
defined below), IGT shall pay the Consultant six payments of $2,500, payable
monthly in advance during the first three months and at the end of each month
during the last three months, subject to applicable withholding taxes.
(c) Benefits and Perquisites. During the Term, IGT shall
reimburse Consultant for his reasonable and documented out of pocket expenses
for travel, telephone and any related incidentals. Except as provided in this
Section 2, Consultant shall not be entitled to any other benefits or
perquisites.
3. Confidentiality. Consultant shall keep in strict confidence,
and will not, directly or indirectly, at any time, during and after the Term,
disclose, furnish, disseminate, make available or, except in the course or
performing his duties as a Consultant under this Agreement, use any Confidential
Information, without limitation as to when or how Consultant may have acquired
such information.
4. Nonsolicitation. Consultant shall not, directly or indirectly,
at any time during the Term solicit or induce or attempt to solicit or induce
any employee, representative, agent or consultant of IGT, Silicon or Sub to
terminate his, her or its employment, representation or other association with
IGT, Silicon or Sub.
5. Assignment. All Work Product is deemed a "work for hire" in
accordance with the U.S. Copyright Act and is owned exclusively by IGT. If, and
to the extent, any of the Work Product is not considered a "work for hire,"
Consultant shall, without further compensation, assign to IGT, and does hereby
assign to IGT, Consultant's entire right, title and interest in and to all Work
Product. At IGT's expense and at IGT's request, Consultant shall provide
reasonable assistance and cooperation, including, without limitation, the
execution of documents in order to obtain, enforce and/or maintain IGT's
proprietary rights in the Work Product throughout the world. Consultant appoints
IGT as its agent and grants IGT a power of attorney for the limited purpose of
executing all such documents.
6. Publication. Consultant shall not publish or submit for
publication, or otherwise disclose to any Person other than IGT, any data or
results from Consultant's work on behalf of IGT without the prior written
consent of IGT.
D-2
<PAGE> 128
7. Term and Termination.
(a) Term. The term of this Agreement commences on the
effective date of the Merger and continues for six months (the "Term") unless
earlier terminated pursuant to Section 7(b).
(b) Termination. This Agreement will terminate upon
Consultant's death or permanent disability or, beginning three months after the
effective date of the Merger, the inability of Consultant to perform without
comprising or breaching Consultant's duties to his employer.
(c) Effect of Termination; Effective Time. Upon termination or
expiration of this Agreement: (i) IGT promptly shall pay to Consultant all
amounts due and owing subject to applicable withholding taxes; and (ii)
Consultant promptly shall return, in good condition, all property of IGT,
including, without limitation, all copies of the Confidential Information. The
term of this Agreement shall commence concurrent with the closing of the Merger
and the concurrent resignation of Consultant as an employee of Silicon.
(d) Survival. The obligations of IGT and Consultant set forth
in this Agreement that by their terms extend beyond or survive the termination
or expiration of this Agreement will not be affected or diminished in any way by
the termination or expiration of this Agreement.
8. General.
(a) No License. This Agreement may not be construed to grant
and does not grant to Consultant any right or license with respect to any
know-how, Confidential Information, trademarks or other proprietary right of IGT
(apart from the right to make necessary use of the same in rendering Consulting
Services under this Agreement).
(b) Gaming Regulatory Authority Approvals. IGT and Consultant
agree that performance of this Agreement is contingent upon obtaining any
necessary initial and continuing approvals or licenses from any gaming
regulatory authorities having jurisdiction over the parties hereto or the
subject matter of this Agreement. If any approval or license is denied,
suspended or revoked, this Agreement shall terminate immediately; provided,
however, that if the denial, suspension or revocation affects only part
performance of this Agreement, the parties hereto may by mutual agreement
continue to perform under this Agreement to the extent it is not affected by any
denial, suspension or revocation. Neither party shall be liable to the other for
any damages, fees, costs or expenses arising from any failure to perform this
Agreement as a result of any applicable gaming regulatory agency having taken
any of the above-mentioned actions.
(c) Lack of Agency. Neither party will be responsible, either
directly or indirectly, for any liability of the other party. Neither party is
deemed an agent of the other party and no actions of either party will be
inferred to create an agency relationship by third parties. Consultant shall not
have the authority to bind or obligate IGT in any way and Consultant does not
represent that he has such authority.
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<PAGE> 129
(d) Severability. Should any provisions of this Agreement be
held illegal, invalid or unenforceable by any court or regulatory agency of
competent jurisdiction, such provision is to be modified by such court or
regulatory agency in compliance with the law and, as modified, enforced. All
other terms and conditions of this Agreement will remain in full force and
effect and are to be construed in accordance with the modified provision as if
such illegal, invalid or unenforceable provision had not been contained in this
Agreement.
(e) Applicable Law. This Agreement and all disputes arising
under it are governed by the laws of the State of Nevada. Each party submits to
the jurisdiction of the federal and state courts located within the State of
Nevada.
(f) No Waiver. None of the terms of this Agreement is deemed
waived or amended by either party unless such a waiver or amendment specifically
references this Agreement and is in writing signed by an authorized
representative of the party to be bound. Any such signed waiver is effective
only in the specific instance and for the specific purpose for which it was made
or given.
(g) Assignment. This Agreement is binding upon and inures to
the benefit of the heirs, successors, representatives and assigns of each party,
but Consultant may not assign or delegate this Agreement without the prior
written consent of IGT.
(h) Headings. The headings in this Agreement are inserted for
convenience only and do not affect the meaning of this Agreement.
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which is an original, and all of which are one and the
same instrument.
(j) Third Parties. Nothing expressed or implied in this
Agreement is intended, or may be construed, to confer upon or give any Person
other than IGT and Consultant any rights or remedies under, or by reason of,
this Agreement.
(k) Notices. All notices and other communications required or
permitted under this Agreement must be in writing and are duly given if
delivered personally, telecopied (which is confirmed) or sent by a nationally
recognized overnight courier service (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as is
specified by like notice):
(i) If to IGT:
International Gaming Technology
9205 Prototype Drive
Reno, Nevada 68511
Attn: Sara Beth Brown and J. Kenneth Creighton
Facsimile transmission no.: (775) 448-0120
(ii) If to Consultant:
(l) Amendment. This Agreement may be amended only by a writing
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<PAGE> 130
executed by the parties to this Agreement.
(m) Entire Agreement. This Agreement is the entire
understanding and agreement between the parties relating to this subject matter
and supersedes all prior contracts, agreements, arrangements, communications,
discussions, representations and warranties, whether oral or written, between
the parties relating to this subject matter.
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<PAGE> 131
IN WITNESS WHEREOF, IGT and Consultant have executed this Agreement as
of the date and year first above written.
INTERNATIONAL GAME TECHNOLOGY,
a Nevada Corporation
By:
--------------------------------------
Name:
Title:
TOM CARLSON
By:
--------------------------------------
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EXHIBIT E
AGREEMENT OF MERGER
MERGING
INTERNATIONAL GAME ACQUISITION CORPORATION
WITH AND INTO
SILICON GAMING, INC.
Pursuant to Section 1103 of the California General Corporation Law
("CGCL"), Silicon Gaming, Inc., a California corporation, hereby submits the
following agreement of merger ("Agreement of Merger") and applicable officers'
certificates, whereby International Game Acquisition Corporation, a California
corporation, will merge with and into Silicon Gaming, Inc. (the "Merger").
1. Constituent Corporations. The names and places of
incorporation of the constituent corporations planning to merge pursuant to this
Agreement of Merger are as follows:
(a) Silicon Gaming, Inc., a California corporation
("Silicon");
(b) International Game Acquisition Corporation, a California
corporation ("NewCo").
2. Surviving Corporation. Silicon shall be the surviving
corporation of the Merger (Silicon is hereinafter referred to as the "Surviving
Corporation"). The separate existence of NewCo shall cease upon the effective
date of the Merger, ____________, 2001 (the "Effective Date"), at 12:01 a.m.
Pacific Standard Time (the "Effective Time"), in accordance with the provisions
of the CGCL.
3. Articles of Incorporation. The Articles of Incorporation of
Silicon, as amended and restated and filed with the Articles of Merger with the
Secretary of State of the State of California, shall be the Articles of
Incorporation of the Surviving Corporation thereafter unless and until amended
in accordance with the terms of the Articles of Incorporation and as provided by
law.
4. Boards of Directors' Approval. The Boards of Directors of
Silicon and NewCo, respectively, have approved the terms of this Agreement of
Merger.
5. Shareholders' Approval. The shareholders of Silicon and NewCo,
respectively have approved the terms of this Agreement of Merger.
6. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any further action on the part of NewCo, Silicon or the
stockholders of such entities:
(a) Capital Stock of NewCo. Each issued and outstanding share
of capital stock of NewCo will be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
<PAGE> 133
(b) Merger Consideration. The consideration to be paid by IGT
for 100% of the equity interests in Silicon shall be $45,000,000 (the "Aggregate
Merger Consideration"), of which $2,500,000 (the "Prepayment Amount") was
previously paid to Silicon on October 17, 2000 upon execution of that certain
letter agreement (the "Letter Agreement") regarding the transaction, and of
which the remaining $42,500,000, subject to the following adjustments, will be
paid at the Effective Time:
(i) The Aggregate Merger Consideration will be
increased, on a dollar for dollar basis, in an amount equal to
the aggregate of the following items, to the extent such items
are reflected as current assets on the Agreed Upon Pre-Closing
Balance Sheet:
(A) accounts receivables (net of any
allowance for doubtful accounts); plus
(B) cash on hand; plus
(C) prepaid expenses.
(ii) The Aggregate Merger Consideration will be
decreased, on a dollar for dollar basis, in an amount equal to
the aggregate of the following:
(A) all obligations and liabilities of
Silicon, including Transaction Costs incurred but not
yet paid by Silicon, that would remain outstanding
after the Closing as set forth on the Agreed Upon
Pre-Closing Balance Sheet, provided that any
liabilities or obligations (including, without
limitation, estimates of warranty costs, the
estimated costs of settling or resolving any pending
or threatened litigation (other than the Drews
Distributing litigation identified on Schedule 3.10
to the Agreement) and, if applicable, the amount of
accounting fees payable by Silicon under Section 6(c)
hereof) not reflected on the Agreed Upon Pre-Closing
Balance Sheet shall nevertheless be valued by mutual
agreement between Silicon and IGT and such amounts
shall be treated as reductions in the Aggregate
Merger Consideration; and
(B) obligations and liabilities of
Silicon retired by IGT prior to or as a condition of
the Closing (to the extent not included in Section
6(b)(ii)(A) above) including, without limitation,
indebtedness owned to B III under the Amended Notes,
the New Notes and indebtedness under the Berg Note,
each of which shall be paid in full, in cash, at the
Closing.
(iii) The Aggregate Merger Consideration will be
adjusted if the aggregate dollar amount of NOL plus Gross
Inventory (the "NOL-Gross Inventory Amount") as set forth on
the Agreed Upon Pre-Closing Balance Sheet is less than
$10,000,000 or greater than $13,000,000, as follows:
(A) If the NOL-Gross Inventory Amount
is more than $13,000,000, the Aggregate Merger
Consideration will be increased by the
<PAGE> 134
present value of the tax benefit created by the
amount of NOL-Gross Inventory Amount in excess of
$13,000,000 using a 37% tax-rate and a 9.75% discount
rate; and
(B) If the NOL-Gross Inventory Amount
is less than $10,000,000, the Aggregate Merger
Consideration will be decreased by the present value
of the tax benefit lost by the amount of NOL-Gross
Inventory Amount less than $10,000,000 using a 37%
tax-rate and a 9.75% discount rate.
(c) Conversion of Silicon Capital Stock; Conversion Cash.
Subject to Section 6(b) of this Agreement of Merger, each share of Silicon
Common Stock issued and outstanding immediately prior to the Effective Time will
be converted into the right to receive cash in an amount equal to the quotient
of the Aggregate Merger Consideration (as adjusted pursuant to Section 6(b)
hereof) minus the Prepayment Amount to the extent not previously reflected on an
adjustment to the Aggregate Merger Consideration pursuant to Section 6(b)
hereof), divided by the total number of shares of Silicon Common Stock issued
and outstanding at the Effective Time (assuming for such purposes that each
outstanding share of Series D Preferred Stock shall have been converted into
4,384.53149701 shares of Silicon Common Stock, all then outstanding Stock
Options (excluding the Original Stock Options) have been accelerated and
exercised in full, each outstanding share of Series E Preferred Stock shall have
been converted into 1,000 shares of Silicon Common Stock and any shares issuable
as the result of the exercise prior to the closing of any Exchange Warrants or
any other outstanding warrants are issued and outstanding rounded to the nearest
hundredth of a whole cent (the "Conversion Cash), and each share of Series D
Preferred Stock issued and outstanding immediately prior to the Effective Time
will be converted into the right to receive cash in an amount equal to the
product of 4,384.53149701 multiplied by an amount equal to the Conversion Cash
and each share of Series E Preferred Stock issued and outstanding immediately
prior to the Effective Time will be converted into the right to receive cash in
an amount equal to the product of 1,000 multiplied by an amount equal to the
Conversion Cash.
(d) Definitions. In addition to the other defined terms used
in this Agreement, the following terms when capitalized have the meanings
indicated.
"Agreed Upon Pre-closing Balance Sheet" means (1) the Pre-Closing
Balance Sheet if, within three Business Days following delivery of the
Pre-Closing Balance Sheet to International Game Technology, a Nevada corporation
("IGT"), IGT has not given notice to Silicon of objections to the Pre-Closing
Balance Sheet, or (2) the Pre-Closing Balance Sheet as amended after any
objections by IGT have been resolved either by the parties or by a "Big 5"
accounting firm selected by mutual agreement of IGT and Silicon.
"Amended Notes" means the $7.5 million aggregate principal amount of
Senior Discount Notes not exchanged for Series D Preferred Stock of Silicon
under the Restructuring Agreement and certain terms and provisions of which were
amended pursuant to Amendment No. 2 to the Securities Purchase Agreement."
<PAGE> 135
"Berg Note" means the promissory note issued by Silicon to Mr. Carl
Berg, in the principal amount of $1,000,000, dated as of July 28, 2000.
"Gross Inventory" means the total amount of inventory reflected on
Silicon's balance sheet as of the Closing Date, determined in accordance with
accounting principles generally accepted in the United States, applied on a
basis consistent with the Pre-Closing Balance Sheet.
"New Notes" means the 13% Senior Secured Notes issued by Silicon under
the Securities Purchase Agreement between Silicon and B III Capital Partners LP,
dated as of November 24, 1999.
"NOL" means the net operating loss carry forwards, including a
write-off of excess and obsolete inventory (defined as "all inventories in
excess of 6 months estimated spares usage") as of the closing.
"Original Stock Options" means options to purchase Silicon Common Stock
issued pursuant to The Silicon Gaming, Inc. Amended and Restated 1994 Stock
Option Plan, and the Silicon Gaming, Inc. 1997 Nonstatutory Stock Option Plan
and identified on Schedule 3.2(e) hereto as "original stock options".
"Pre-Closing Balance Sheet" means an estimated closing Silicon balance
sheet provided to IGT by Silicon at least seven business days prior to closing.
"Stock Options" means options to purchase Silicon Common Stock issued
pursuant to The Silicon Gaming, Inc. 1999 Long Term Compensation Plan, The
Silicon Gaming, Inc. Amended and Restated 1994 Stock Option Plan, and the
Silicon Gaming, Inc. 1997 Nonstatutory Stock Option Plan.
"Transaction Costs" means all costs and expenses incurred by Silicon in
furtherance of the Merger and any other transactions contemplated by this
Agreement, including, but not limited to, accounting, legal, and fairness
opinion fees and costs as well as costs and expense incurred for preparing,
filing and delivering the Proxy Statement and holding the Silicon Stockholder
Meeting.
7. Further Assurances. NewCo shall, from time to time, take all
such actions, and execute and deliver, or cause to be executed and delivered,
all such instruments and documents, as may be deemed necessary or advisable to
carry out the intent and purpose of the Merger.
8. Counterparts. This Agreement of Merger may be executed in two
counterparts, both of which shall be deemed an original and both of which shall
constitute but one and the same instrument.
[Signature page follows]
<PAGE> 136
IN WITNESS WHEREOF, the duly authorized, undersigned officers execute
the Agreement of Merger on behalf of their respective corporations on this _____
day of __________, 2001.
SILICON GAMING, INC.
By:
-------------------------------------
Name: Andrew S. Pascal
Its: Chairman of the Board, President
and Chief Executive Officer
By:
-------------------------------------
Name:
Its: Secretary
INTERNATIONAL GAME ACQUISITION CORPORATION
By:
-------------------------------------
Name: Sarah Beth Brown
Its: President
By:
-------------------------------------
Name: Sarah Beth Brown
Its: Secretary
<PAGE> 137
ANNEX B
FAIRNESS OPINION
[LETTERHEAD OF US BANCORP LIBRA]
December 7, 2000
The Board of Directors
Silicon Gaming, Inc.
2800 West Bayshore Road
Palo Alto, CA 94303
Dear Members of the Board:
We understand that Silicon Gaming Inc., a California corporation ("SGIC" or the
"Company"), is considering a transaction (the "Transaction") in which the
Company will be merged with and into a newly formed wholly-owned subsidiary of
International Game Technology, a Nevada corporation ("IGT"), with the Company as
the surviving corporation.
The proposed Agreement and Plan of Merger between IGT and the Company, as
provided to us by the Company (the "Merger Agreement") provides, among other
things, that IGT will pay $45,000,000 in cash as aggregate merger consideration
(the "Merger Consideration"), subject to adjustment as set forth in the Merger
Agreement. The terms and conditions of the Transaction are more fully set forth
in the Merger Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, to the Company's equity holders of the proposed merger consideration.
In the ordinary course of business, U.S. Bancorp Libra, its successors and
affiliates may trade securities of the Company or IGT for their own accounts or
for their customers and accordingly, may at any time hold a long or short
position in such securities. We have been engaged to deliver our opinion by the
Board of Directors of the Company for a fee of $100,000, irrespective of whether
or not the Transaction is consummated.
Our opinion does not address the Company's underlying business decision to
effect the Transaction or constitute a recommendation to any equity holder of
the Company as to how such equity holder should vote with respect to the
Transaction.
In rendering this opinion, we have assumed, with your consent, that the final
executed form of the Merger Agreement will not differ in any material respect
from the draft provided to us for our review and that IGT and the Company will
comply with all material terms of the Merger Agreement. You have not authorized
us to, and we have not, solicited indications of interest in a business
combination with the Company from any party; Our opinion does not address the
relative merits of the Transaction contemplated pursuant to the Merger Agreement
as compared to any alternative business transaction that might be available to
the Company.
In arriving at our opinion, we have, among other things: (i) reviewed certain
publicly available business and historical financial information relating to the
Company, (ii) reviewed certain internal financial information and other data
relating to the business and financial prospects of the Company, including
estimates and financial forecasts prepared by management of the Company, that
were provided to us by
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the Company and not publicly available, (iii) discussed the proposed transaction
with the Company's largest equity holder, (iv) discussed the sale process with
the Company's management, (v) conducted discussions with members of the
Company's senior management regarding the information and other data relating to
the business and financial prospects of the Company, (vi) reviewed publicly
available financial and stock market data with respect to certain other
companies in lines of business we believe to be generally comparable to those of
the Company, (vii) compared the financial terms of the Transaction with the
publicly available information with respect to the financial terms of certain
other transactions that we believe to be generally relevant, (viii) reviewed the
Merger Agreement, and (ix) conducted such other financial studies, analyses, and
investigations, and considered such other information as we deemed necessary or
appropriate;
In connection with our review, at your direction, we have not assumed any
responsibility for independent verification for any of the information reviewed
by us for the purpose of this opinion and have, at your direction, relied on its
being complete and accurate in all material respects. In addition, we have not
made or been provided with any independent evaluation or appraisal of any of the
assets or liabilities (contingent or otherwise) of the Company, nor have we made
any detailed physical inspection of the properties or assets of the Company.
With respect to the financial forecasts and estimates referred to above, we have
assumed, at your direction, that they have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the Company's
management as to the future performance of the Company.
Our opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. Our opinion does not address the Company's underlying business
decision to effect the Transaction or the strategic and operational benefits of
the Transaction. Our opinion is directed only to the fairness, from a financial
point of view to the Company's equity holders of the proposed Merger
Consideration and does not constitute a recommendation to any Company equity
holder as to how such holder should vote with respect to the Transaction.
In rendering our opinion, we have also assumed that obtaining the necessary
regulatory and governmental approvals for the proposed Transaction will not
significantly delay consummation of the Transaction, and that, in the course of
obtaining such approvals, no requirement or restriction will be imposed that
will have a material adverse effect on the proposed Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof the Merger Consideration, subject to the adjustments set forth in the
Merger Agreement, is fair to the Company's equity holders taken as a whole from
a financial point of view.
Our opinion expressed herein is provided solely for the use of the Company's
Board of Directors in evaluating the Transaction and is not on behalf of, and is
not intended to confer rights or remedies upon any person other than the
Company's Board of Directors (including, without limitation, any equity holder).
Our opinion may not be published or otherwise issued or referred to, nor shall
any public reference to U.S. Bancorp Libra be made without our prior written
consent; provided, however, that this
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opinion may be included in its entirety and referred to in any prospectus or
proxy statement distributed to the Company's equity holders in connection with
the Transaction so long as each inclusion and reference is in form and substance
satisfactory to U.S. Bancorp Libra.
Very truly yours,
U.S. Bancorp Libra
By: /s/ Gregory Bousquette
Managing Director
3
<PAGE> 140
ANNEX C
DISSENTER'S RIGHTS
CALIFORNIA CODES
CORPORATIONS CODE
SECTION 1300-1312
1300. (a) If the approval of the outstanding shares (Section 152)of a
corporation is required for a reorganization under subdivisions(a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form merger
either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the National Market System of the NASDAQ Stock Market, and the notice
of meeting of shareholders to act upon the reorganization summarizes this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or regulation;
and provided, further, that this provision does not apply to any class of shares
described in subparagraph (A)or (B) if demands for payment are filed with
respect to 5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1)
(without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a
short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase
at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
1301. (a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a
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statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares. 1303. (a) If the corporation
and the shareholder agree that the shares are dissenting shares and agree upon
the price of the shares, the dissenting shareholder is entitled to the agreed
price with interest thereon at the legal rate on judgments from the date of the
agreement. Any agreements fixing the fair market value of any dissenting shares
as between the corporation and the holders thereof shall be filed with the
secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
1304. (a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
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fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. (a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
1307. Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
1308. Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or
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determined. A dissenting shareholder may not withdraw a demand for payment
unless the corporation consents thereto.
1309. Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
1311. This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
1312. (a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will
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adequately protect the complaining shareholder or the class of shareholders of
which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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PROXY
SILICON GAMING, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS, _____________, 2001
KNOW ALL MEN BY THESE PRESENTS that the undersigned, stockholder(s) of
SILICON GAMING, INC., do(es) hereby appoint Andrew S. Pascal and Paul Mathews,
and each of them, proxies, each with full power of substitution, for and in the
name and stead of the undersigned at the Special Meeting of Stockholders of
SILICON GAMING, INC., to be held on ______________, 2001, and at any and all
adjournments thereof, to vote all shares of capital stock held by the
undersigned, with all powers that the undersigned would possess if personally
present, on each of the matters referred to herein.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTLY BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER. IT WILL ALSO
BE VOTED IN THE DISCRETION OF THE PROXYHOLDERS ON ANY OTHER MATTER OF BUSINESS
PROPERLY COMING BEFORE THE MEETING.
_________________, 2001
Dear Stockholder,
You are cordially invited to attend the Special Meeting of Stockholders to be
held at 9:00 a.m. on ______________, 2001 at Silicon's principal executive
offices which are located at 2800 W. Bayshore Road, Palo Alto, California 94303.
Detailed information as to the business to be transacted at the meeting is
contained in the accompanying Notice of Special Meeting and Proxy Statement.
Regardless of whether you plan to attend the meeting, it is important that your
shares be voted. Accordingly, we ask that you sign and return your proxy as soon
as possible in the envelope provided.
Sincerely,
Andrew S. Pascal
Secretary
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
This proxy revokes any and all other proxies heretofore given by the
undersigned.
1. To approve the Agreement and Plan of Merger among Silicon,
International Game Technology and International Game Acquisition Corporation.
[__] FOR [__] AGAINST [__] ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [__]
<PAGE> 146
PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN PROXY IN THE ENVELOPE PROVIDED.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, guardian or in a fiduciary capacity, please give full title as such. If
a corporation, please sign in full corporate name by President or authorized
person. If a partnership, please sign in partnership's name by authorized
person.
Signature: Date
-------------------------------------------- --------------------
Signature: Date
-------------------------------------------- --------------------
