<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
POWERHOUSE TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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, par value $.01 per share
Options to purchase Common Stock
(2) Aggregate number of securities to which transaction applies:
10,667,190 shares of Common Stock
1,307,113 Options to purchase Common Stock
(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):
$19.50 per share of Common Stock
Difference between $19.50 and exercise price of option per Option to
purchase Common Stock
(4) Proposed maximum aggregate value of transaction: $221,286,838.00
(5) Total fee paid: $44,258.00
[X] Fee paid previously with preliminary materials: $44,258.00
[ ] 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
[POWERHOUSE LOGO]
115 PERIMETER CENTER PLACE, SUITE 911
ATLANTA, GEORGIA 30346
APRIL 28, 1999
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
Dear Fellow Stockholders:
You are cordially invited to attend a Special Meeting of the stockholders
of Powerhouse Technologies, Inc. ("Powerhouse") to be held on Monday, June 7,
1999 at 11:00 a.m., local time, at the Treasure Island Casino and Hotel, 3300
Las Vegas Boulevard South, 2nd Floor Convention Level, Las Vegas, Nevada 89109.
At this meeting, you will be asked to vote on the acquisition of Powerhouse
by Anchor Gaming ("Anchor") through a merger with a subsidiary of Anchor. In the
merger, holders of Powerhouse common stock will receive $19.50 per share, in
cash.
Your Board of Directors has unanimously approved and adopted a Merger
Agreement with Anchor, and has concluded that the proposed merger is in the best
interests of Powerhouse stockholders. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF AND ADOPT AND APPROVE THE MERGER AGREEMENT.
Whether or not you plan to attend the Special Meeting, I urge you to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the meeting. THE MERGER CANNOT BE COMPLETED UNLESS
POWERHOUSE STOCKHOLDERS ADOPT THE MERGER AGREEMENT.
The proxy statement that accompanies this letter provides you with detailed
information about the proposed merger. I encourage you to read the proxy
statement carefully. You may obtain additional information about Powerhouse or
Anchor from documents filed with the Securities and Exchange Commission. If you
have any questions about Powerhouse, Anchor or the merger, please contact Morrow
& Co., Inc. at 1-800-566-9061.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote for adoption of the Merger Agreement.
Sincerely,
/S/ RICHARD M. HADDRILL
Richard M. Haddrill
President and Chief Executive Officer
<PAGE> 3
[POWERHOUSE LOGO]
115 PERIMETER CENTER PLACE, SUITE 911
ATLANTA, GEORGIA 30346
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 1999
---------------------
To Our Stockholders:
Notice is hereby given that a Special Meeting of stockholders of Powerhouse
Technologies, Inc., a Delaware corporation ("Powerhouse"), will be held on
Monday, June 7, 1999 at 11:00 a.m., local time, at the Treasure Island Casino
and Hotel, 3300 Las Vegas Boulevard South, 2nd Floor Convention Level, Las
Vegas, Nevada 89109, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of March 9, 1999, relating to the merger of a
wholly-owned subsidiary of Anchor Gaming ("Anchor") with and into
Powerhouse (the "Merger Agreement").
2. To transact such other business as may properly come before the
Special Meeting and any adjournments thereof, including adjournments or
postponements of the Special Meeting for the purpose of soliciting
additional proxies to adopt the Merger Agreement.
The Merger Agreement provides that each share of Powerhouse common stock
(other than treasury shares held by Powerhouse, shares held by Anchor and its
subsidiaries or shares with respect to which appraisal rights are perfected
under the Delaware General Corporation Law) will be converted into the right to
receive $19.50 in cash, without interest. A copy of the Merger Agreement is
attached as Annex A to the proxy statement that accompanies this notice. You
should carefully review the Merger Agreement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF AND
ADOPT AND APPROVE THE MERGER AGREEMENT.
Any stockholder who does not wish to accept the merger consideration and
who properly demands appraisal under the Delaware General Corporation Law will
have the right to have the fair value of his or her shares determined by the
Delaware Chancery Court. This appraisal right is subject to a number of
restrictions and technical requirements described in the accompanying proxy
statement. See "Appraisal Rights" on page 37.
The close of business on April 15, 1999 has been fixed as the record date
for the determination of stockholders entitled to notice of and to vote at the
Special Meeting.
The accompanying proxy statement sets forth information relating to
Powerhouse and Anchor, including selected financial information, and describes
the terms and conditions of the Merger Agreement. Other important information is
incorporated into the proxy statement by reference to other documents filed with
the Securities and Exchange Commission. Please review all of these materials
carefully before completing the enclosed proxy card.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD. PLEASE RETURN THE PROXY CARD IN THE
RETURN POSTAGE-PAID ENVELOPE SO THAT WE RECEIVE IT BEFORE JUNE 7, 1999.
<PAGE> 4
If you attend the Special Meeting, you may vote your shares in person,
which will revoke any previously executed proxy. If your shares are held of
record by a broker, bank or other nominee and you wish to vote your shares at
the Special Meeting, you must obtain from the record holder a proxy issued in
your name.
Regardless of how many shares you own, your vote is very important. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors,
/S/ VICKI POLLINGTON
Vicki Pollington
Acting Assistant Secretary
Atlanta, Georgia
April 28, 1999
<PAGE> 5
[POWERHOUSE LOGO]
115 PERIMETER CENTER PLACE, SUITE 911
ATLANTA, GEORGIA 30346
---------------------
PROXY STATEMENT
---------------------
This proxy statement is being furnished to the stockholders of Powerhouse
Technologies, Inc. ("Powerhouse") in connection with the solicitation of proxies
by the Powerhouse Board of Directors for use at a Special Meeting of Powerhouse
stockholders to be held at 11:00 a.m., local time, on Monday, June 7, 1999, at
the Treasure Island Casino and Hotel, 3300 Las Vegas Boulevard South, 2nd Floor
Convention Level, Las Vegas, Nevada 89109, and at any adjournment or
postponement of that meeting (the "Special Meeting").
At the Special Meeting, Powerhouse stockholders will be asked to:
1. consider and vote upon a proposal to adopt the Agreement and Plan
of Merger, dated as of March 9, 1999, relating to the merger of a
wholly-owned subsidiary of Anchor Gaming ("Anchor") with and into
Powerhouse (the "Merger Agreement"); and
2. transact such other business as may properly come before the
Special Meeting, including adjournments or postponements for the purpose of
soliciting additional proxies to adopt the Merger Agreement.
The Merger Agreement provides that each share of Powerhouse common stock
(other than treasury shares held by Powerhouse, shares held by Anchor and its
subsidiaries or shares with respect to which appraisal rights are perfected
under the Delaware General Corporation Law) will be converted into the right to
receive $19.50 in cash, without interest. A copy of the Merger Agreement is
attached as Annex A to this proxy statement. You should carefully review the
Merger Agreement.
This proxy statement and the accompanying form of proxy are first being
sent to Powerhouse stockholders on or about April 30, 1999. Only Powerhouse
stockholders of record as of the close of business on April 15, 1999 are
entitled to vote at the Special Meeting. Holders of common stock are entitled to
one vote for each share held of record. On April 15, 1999, Powerhouse had
outstanding and entitled to vote at the Special Meeting 10,667,190 shares of
common stock. A majority of the shares of the common stock will constitute a
quorum to transact business at the Special Meeting.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 3
FORWARD-LOOKING STATEMENTS.................................. 11
THE SPECIAL MEETING......................................... 12
General................................................... 12
Date, Time and Place...................................... 12
Purpose of the Special Meeting............................ 12
Record Date and Voting Power.............................. 12
Voting at the Special Meeting............................. 12
Revocability of Proxy..................................... 13
Solicitation of Proxies................................... 13
Independent Accountants................................... 14
BACKGROUND AND REASONS FOR THE MERGER....................... 14
The Companies............................................. 14
Background of the Merger.................................. 14
Recommendation of the Board of Directors and Reasons for
the Merger............................................. 17
LEHMAN BROTHERS FAIRNESS OPINION............................ 18
Valuation Analyses Performed.............................. 19
SUMMARY OF THE MERGER AGREEMENT............................. 22
Structure and Effective Time.............................. 22
Merger Consideration...................................... 22
Payment Procedures........................................ 22
Employee and Director Stock Options....................... 22
Repayment of Indebtedness................................. 22
Representations and Warranties............................ 23
Conduct Prior to the Effective Time....................... 23
Additional Agreements..................................... 24
Conditions to the Merger.................................. 25
Termination of the Merger Agreement....................... 26
Termination Fee........................................... 28
Payment of Fees and Expenses.............................. 28
Amendments and Waivers.................................... 28
Material Adverse Effect................................... 29
Consequences of the Merger................................ 29
Regulatory Approvals...................................... 29
VOTING AGREEMENTS........................................... 31
ANCHOR'S SOURCE OF FUNDS.................................... 32
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 33
Certain Five Percent Beneficial Owners.................... 33
Beneficial Ownership of Directors and Officers............ 34
SELECTED FINANCIAL INFORMATION.............................. 35
MARKET PRICE AND DIVIDEND INFORMATION....................... 36
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
STOCKHOLDERS AND OPTION HOLDERS........................... 36
APPRAISAL RIGHTS............................................ 37
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OTHER MATTERS............................................... 37
WHERE YOU CAN FIND MORE INFORMATION......................... 38
ANNEXED DOCUMENTS........................................... 39
Annex A Merger Agreement
Annex B Opinion of Lehman Brothers Inc.
Annex C Form of Voting Agreement
Annex D Section 262 of the Delaware General Corporation
Law
</TABLE>
ii
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE FOR MY SHARES IN THE MERGER?
A: Holders of Powerhouse common stock will be entitled to receive $19.50 per
share in cash, without interest, in exchange for their shares of common
stock.
Q: WHY IS THE POWERHOUSE BOARD OF DIRECTORS RECOMMENDING THE MERGER AGREEMENT?
A: In the opinion of the Board of Directors, the merger offers you the best
opportunity to realize value from your investment in Powerhouse. The Board of
Directors also believes that the merger consideration is fair to Powerhouse
common stockholders from a financial point of view, and has received a
fairness opinion from Lehman Brothers Inc. ("Lehman Brothers") to that
effect. The merger consideration of $19.50 per share represents a 32% premium
over the closing price of Powerhouse's common stock on the Nasdaq(R) National
Market on the last trading day prior to the announcement of the Merger
Agreement and a 66% premium over the average closing price of the common
stock over the six months before the announcement of the Merger Agreement.
Q: WHEN DO YOU EXPECT THE MERGER WILL BE COMPLETED?
A: We hope to complete the merger promptly after the Powerhouse stockholders
adopt the Merger Agreement at the Special Meeting. The Powerhouse Special
Meeting is scheduled for June 7, 1999. However, the merger may be delayed if
other closing conditions (including certain regulatory approvals) have not
been satisfied by that time.
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A: If you are subject to federal income tax, you may be taxed on your receipt of
the merger consideration to the extent that the amount you receive exceeds
your tax basis in your Powerhouse stock. However, tax matters are
complicated, and tax results may vary among stockholders. We urge you to
contact your own tax advisor to fully understand how the merger will affect
you.
Q: WHAT IS THE REQUIRED VOTE?
A: The affirmative vote of a majority of the shares of common stock is required
to adopt the Merger Agreement. Powerhouse's directors and executive officers
have entered into voting agreements with Anchor pursuant to which they have
agreed to vote all of their shares of common stock (approximately 4.4% of the
outstanding shares) in favor of adoption of the Merger Agreement and against
any other acquisition proposal or agreement that would impede or prevent the
merger. THE POWERHOUSE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
Q: WILL I HAVE APPRAISAL RIGHTS?
A: Any stockholder who does not wish to accept the merger consideration has the
right under Delaware law to have the "fair value" of his or her shares
determined by the Delaware Chancery Court. This "appraisal right" is subject
to a number of restrictions and technical requirements. See "Appraisal
Rights" on page 37.
Q: WHAT DO I NEED TO DO NOW?
A: PLEASE VOTE. You should mail your signed and dated proxy card in the enclosed
envelope as soon as possible so that your shares will be represented at the
Special Meeting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Anchor will send you written instructions
that will tell you how to exchange your stock certificates for the merger
consideration. Hold your certificates until you receive these instructions.
1
<PAGE> 9
Q: HOW DO I VOTE SHARES HELD IN MY BROKER'S NAME?
A: If your broker holds your shares of Powerhouse common stock in his or her
name (or in what is commonly called "street name"), then you should give your
broker written instructions on how to vote. The shares will not be voted if
you do not give these instructions.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time (before your proxy is used) in any
one of the following three ways:
- by filing a written notice of revocation;
- by completing a new, later dated proxy card; or
- by attending the Special Meeting and voting in person.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT THE COMPANIES?
A: Both Powerhouse and Anchor file periodic reports and other information with
the Securities and Exchange Commission. You may read and copy this
information at the Commission's public reference facilities. Please call the
Commission at 1-800-SEC-0330 for information about these facilities. This
information is also available at the Internet site maintained by the
Commission at http://www.sec.gov. For a more detailed description of the
information available, please see page 38.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have questions about Powerhouse, Anchor or the proposed merger, please
call Morrow & Co., Inc. at 1-800-566-9061.
2
<PAGE> 10
SUMMARY
THIS SUMMARY PRIMARILY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU.
TO UNDERSTAND THE PROPOSED MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF
THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THE ENTIRE PROXY
STATEMENT, THE ANNEXED DOCUMENTS AND THE OTHER AVAILABLE INFORMATION REFERRED TO
IN "WHERE YOU CAN FIND MORE INFORMATION" (PAGE 38). THE MERGER AGREEMENT IS
ATTACHED AS ANNEX A TO THIS PROXY STATEMENT. WE ENCOURAGE YOU TO READ THE MERGER
AGREEMENT, WHICH IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting will be held on Monday, June 7,
1999 at 11:00 a.m., local time at the Treasure Island Casino and Hotel, 3300 Las
Vegas Boulevard South, 2nd Floor Convention Level, Las Vegas, Nevada 89109.
Purpose. Holders of Powerhouse common stock will be asked to consider and
vote upon a proposal to adopt the Merger Agreement. The attorneys-in-fact named
in the accompanying proxy also will have discretionary authority to vote upon
other business, if any, that properly comes before the Special Meeting and any
adjournments of the Special Meeting, including any adjournments or postponements
for the purpose of soliciting additional proxies to adopt the Merger Agreement.
RECORD DATE AND VOTING POWER
You are entitled to vote at the Special Meeting if you owned shares of
Powerhouse common stock at the close of business on April 15, 1999, the record
date for the Special Meeting. You will have one vote at the Special Meeting for
each share of common stock you owned on the record date for each of the matters
to be considered at the Special Meeting. There are 10,667,190 shares of common
stock entitled to be voted at the Special Meeting.
VOTES REQUIRED
The transaction of business at the Special Meeting requires the presence in
person or by proxy of a quorum, which comprises the holders of a majority of the
outstanding shares of common stock entitled to vote at the Special Meeting. If a
quorum is present, adoption of the Merger Agreement requires the affirmative
vote of a majority of the outstanding shares of common stock.
The Powerhouse Board of Directors urges all holders of Powerhouse common
stock to vote "FOR" the adoption of the Merger Agreement.
Share Ownership of Directors and Executive Officers. As of the record
date, the directors and executive officers of Powerhouse (all of whom have
entered into voting agreements with Anchor) owned approximately 4.4% of the
shares of Powerhouse common stock entitled to vote at the Special Meeting. Each
of them has agreed to vote all such shares in favor of adoption of the Merger
Agreement.
Revocability of Proxy. Any stockholder who executes and returns a proxy
may revoke that proxy at any time before it is voted in any one of the following
three ways:
- filing with the corporate secretary of Powerhouse at or before the
Special Meeting a written notice of revocation bearing a later date than
the proxy;
- duly executing a proxy relating to the same shares and delivering it to
the corporate secretary of Powerhouse at or before the Special Meeting;
or
- attending the Special Meeting and voting in person by ballot.
Attendance at the Special Meeting will not, in and of itself, constitute
revocation of a proxy.
3
<PAGE> 11
THE MERGER
Structure. Upon the terms and subject to the conditions of the Merger
Agreement, Anchor Powerhouse Acquisition Corporation, a wholly-owned subsidiary
of Anchor ("Merger Sub"), will be merged with and into Powerhouse, with
Powerhouse surviving as a wholly-owned subsidiary of Anchor.
Effective Time. We presently expect that the merger will become effective
promptly after adoption of the Merger Agreement at the Special Meeting, which is
scheduled to take place on June 7, 1999. However, certain conditions must be
satisfied prior to completing the merger (including receipt of regulatory
approvals). If these conditions are not satisfied in a timely manner, the
closing may be delayed or the Merger Agreement may be terminated. See "Summary
of the Merger Agreement--Termination of the Merger Agreement" on page 26.
Merger Consideration. At the effective time of the merger, each
outstanding share of common stock (other than treasury shares, shares held by
Anchor and its subsidiaries or shares with respect to which appraisal rights are
perfected) will be converted into the right to receive $19.50 in cash without
interest.
Upon completion of the merger, each holder of certificates representing
shares of common stock outstanding immediately prior to the effective time of
the merger, other than such holders who have perfected their appraisal rights,
will be entitled to receive, by surrendering those certificates to the exchange
agent, the merger consideration. The exchange agent will mail a letter of
transmittal with instructions to all record holders of Powerhouse common stock
as of the effective time for use in surrendering their certificates in exchange
for the merger consideration. You should not surrender your certificates until
you have received the letter of transmittal and instructions.
Appraisal Rights. Under Delaware law, Powerhouse stockholders who do not
vote for adoption of the Merger Agreement and who comply with the other
statutory requirements of the Delaware General Corporation Law may elect to
receive, in cash, the judicially determined "fair value" of their shares of
common stock. See "Appraisal Rights" on page 37.
Employee and Director Stock Options. All outstanding Powerhouse stock
options will become vested and fully exercisable at the effective time of the
merger pursuant to their terms. As a result of the merger, each option will be
converted into the right to receive from Powerhouse for each share subject to
the option an amount in cash equal to the excess of $19.50 over the exercise
price per share of the option, without interest, net of withholding taxes.
Our Recommendations to Stockholders and Reasons for the Merger. The
Powerhouse Board of Directors believes that the merger is fair to you and in
your best interests and unanimously recommends that you vote "FOR" adoption of
the Merger Agreement.
The Board of Directors based its determination to approve and adopt the
Merger Agreement on a number of considerations, including the following:
- comparison of historical and prospective market prices of Powerhouse
common stock to the consideration to be received in the merger;
- receipt of a written fairness opinion from Lehman Brothers that, from a
financial point of view, the consideration to be offered to the
Powerhouse stockholders in the merger is fair to such stockholders;
- consideration of the strategic alternatives available to Powerhouse,
including acquisitions by strategic or financial buyers, leveraged
recapitalization, stock repurchases and continued independent operation;
- consideration of the terms of the Merger Agreement, including the
"fiduciary out" provision (subject to the payment of a termination fee)
if an acquisition proposal is received that is superior to the current
proposal by Anchor; and
- the $9.0 million fee payable to Powerhouse if Anchor fails to secure
sufficient funds to satisfy its obligations under the Merger Agreement by
November 30, 1999, provided that Anchor does not have a
4
<PAGE> 12
right to terminate the Merger Agreement (see "Summary of the Merger
Agreement -- Termination of the Merger Agreement" on page 26).
Lehman Brothers Fairness Opinion. Lehman Brothers has delivered its
opinion dated March 9, 1999 to the Powerhouse Board of Directors to the effect
that, as of such date, the merger consideration payable to the holders of
Powerhouse common stock pursuant to the Merger Agreement is fair, from a
financial point of view, to Powerhouse's stockholders. The opinion does not
constitute a recommendation as to how any Powerhouse stockholder should vote
with respect to the adoption of the Merger Agreement. You are urged to read the
Lehman Brothers fairness opinion in its entirety, a copy of which is attached as
Annex B.
Interests of Certain Persons in the Merger and Possible Conflicts of
Interest. In considering the recommendation of the Powerhouse Board of
Directors that the Merger Agreement be adopted, Powerhouse stockholders should
be aware that a number of Powerhouse officers and directors have interests in
the merger that are or may be different from other Powerhouse stockholders.
All outstanding Powerhouse stock options will become vested and fully
exercisable at the effective time of the merger pursuant to their terms. As a
result of the merger, each option will be converted into the right to receive
from Powerhouse for each share subject to the option an amount in cash equal to
the excess of $19.50 over the exercise price per share of the option, without
interest, net of withholding taxes. The Powerhouse directors and executive
officers hold options to acquire an aggregate of 637,800 shares of Powerhouse
common stock, of which options to acquire an aggregate of 573,798 shares of
Powerhouse common stock are currently vested and exercisable and options to
acquire an aggregate of 64,002 shares of Powerhouse common stock will become
vested and exercisable as a result of the merger. The weighted average exercise
price of the 64,002 options held by Powerhouse directors and executive officers
that vest and become exercisable as a result of the merger is $10.89 per share.
In addition, completion of the merger will constitute a change of control
of Powerhouse under the employment agreements of certain Powerhouse executive
officers, triggering certain rights of those officers, including the right to
receive certain payments if their employment is terminated and the elimination
of the restrictions on restricted stock awards. Specifically, Mr. Haddrill's
employment agreement provides that he will receive a payment of a minimum of
$1.8 million under certain circumstances if his employment is terminated after a
change of control of Powerhouse, his employee benefits will continue until
January 1, 2003 and the restrictions on 85,000 shares of Powerhouse common stock
held by Mr. Haddrill will immediately lapse. None of Mr. Haddrill's options to
acquire Powerhouse common stock vests upon the merger because all such options
are already vested and exercisable.
Other of Powerhouse's executive officers have employment agreements that
provide that they will be entitled to receive certain payments if their
employment is terminated following the merger. These payments aggregate
approximately $1.1 million.
Patricia W. Becker, Richard R. Burt, Susan J. Carstensen, James J. Davey,
Michael L. Eide, Richard M. Haddrill, John R. Hardesty, Alan Rassaby and
Christer Roman have entered into voting agreements with Anchor that, among other
things, require them to vote their shares of Powerhouse common stock
(constituting approximately 4.4% of the total outstanding shares) in favor of
the adoption of the Merger Agreement.
In addition, Mr. Burt and Mr. Haddrill are expected to be elected to serve
as directors of Anchor and to serve as consultants to Anchor. Pursuant to a
consulting agreement with Anchor, Mr. Haddrill will provide consulting services
to Anchor for two years following the merger. In exchange for those services,
Mr. Haddrill will receive $150,000 per month for the first six months of the
consulting agreement, during which Mr. Haddrill will provide consulting services
on a full-time basis, and $23,000 per month for the remaining 18 months of the
consulting agreement, during which Mr. Haddrill will provide consulting services
on a limited basis. The consulting agreement also provides that Mr. Haddrill
will not compete with Anchor for a period of two years following the merger,
will serve as a member of the Board of Directors and will receive $450,000 in
exchange therefor. The terms of the consulting agreement with Mr. Burt have not
yet been finalized. Mr. Burt will be entitled to receive compensation for his
services as director of Anchor on the same basis as Anchor's other outside
directors.
5
<PAGE> 13
Conditions to the Merger. Powerhouse and Anchor will not complete the
merger unless a number of conditions are satisfied. Each party has the right to
waive the conditions to its obligations to close the merger. The conditions to
both parties' obligations include:
- the approval of the Merger Agreement by Powerhouse's stockholders;
- the absence of any law, regulation or order making the merger illegal or
prohibiting the merger;
- the termination or expiration of all waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act");
- the representations and warranties of the other party must be true as of
the date of the Merger Agreement and must be true in all material
respects at the effective time; and
- the other party must have performed its obligations under the Merger
Agreement in all material respects.
In addition, the obligations of Anchor under the Merger Agreement are
subject to the following conditions:
- the representations and warranties of Powerhouse must have been true as
of the date of the Merger Agreement and must be true in all material
respects as if made as of the effective time of the merger;
- Powerhouse must have performed in all material respects its obligations
under the Merger Agreement;
- the Powerhouse directors and executive officers must have performed all
of their obligations under their agreements to vote in favor of the
merger;
- Anchor must have received a "comfort" letter from KPMG LLP, Powerhouse's
independent accountants;
- Anchor must have received a legal opinion from Rogers & Hardin LLP,
Powerhouse's counsel;
- Anchor must have received all consents and approvals (including the
gaming approvals) (see "Summary of the Merger Agreement -- Regulatory
Approvals" on page 29) from all governmental entities that are required
to be obtained before consummation of the merger other than such consents
and approvals (1) that, if not obtained, could not reasonably be expected
to have a material adverse effect on Anchor or Powerhouse; (2) from
identified jurisdictions (see "Summary of the Merger
Agreement -- Regulatory Approvals" on page 29); or (3) the failure of
which to receive is primarily the result of regulatory concerns regarding
Anchor or it affiliates or as a result of breach by them of their
obligation to use their commercially reasonable best efforts to seek such
consents and approvals;
- Anchor must have received all consents or approvals required under the
terms of any of Powerhouse's material contracts other than such consents
and approvals that, if not obtained, could not reasonably be expected to
have a material adverse effect on Anchor or Powerhouse;
- Powerhouse must deliver to Anchor certain closing certificates; and
- no event can have occurred since March 9, 1999 that would constitute a
material adverse effect on Powerhouse (see "Summary of the Merger
Agreement -- Material Adverse Effect" on page 29).
Regulatory Approvals. The completion of the merger is conditioned upon
receipt of certain regulatory approvals, including the expiration or termination
of all applicable waiting periods under the HSR Act.
HSR Approval. On April 2, 1999, Powerhouse and Anchor each filed under the
HSR Act a premerger notification and report form with the Department of Justice
and the Federal Trade Commission in respect of the merger. The waiting period
will expire at 11:59 p.m. on May 2, 1999, unless extended by a request for
additional information or documentary material or unless early termination of
the waiting period is granted.
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Gaming Approvals. Under the Merger Agreement, the merger cannot be
completed until Anchor has received evidence that any governmental gaming
regulator whose consent or approval is required before the merger can be
consummated has given that consent or approval. This condition does not apply to
consents and approvals:
- that, if not obtained, could not reasonably be expected to have a
material adverse effect on Powerhouse or Anchor;
- that may be required from the gaming regulators in four selected
jurisdictions; or
- the failure of which to receive is primarily the result of regulatory
concerns regarding Anchor or its affiliates or as a result of breach by
them of their obligation to use their commercially reasonable best
efforts to seek such consents and approvals.
Powerhouse believes it will be necessary to obtain the following consents
and approvals before consummation of the merger:
- Nevada. Under Nevada law, changes in control of Powerhouse through
merger, consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby such
person obtains control, may not occur without the prior approval of the
Nevada Gaming Commission. Entities seeking to acquire control of a
registered, publicly traded gaming corporation, such as Powerhouse, must
satisfy the Nevada State Gaming Control Board and the Nevada Gaming
Commission of a variety of stringent standards before assuming control.
The Nevada Gaming Commission may also require controlling stockholders,
executive officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control,
to be investigated and licensed or found suitable as part of the approval
process relating to the transaction. The merger requires the prior
approval of the Nevada Gaming Commission upon the recommendation of the
Nevada State Gaming Control Board. Anchor and Powerhouse filed the
necessary applications with the Nevada Gaming Control Board on March 25,
1999, for approval of Anchor's acquisition of control of Powerhouse.
- New Mexico. The New Mexico Racing Commission has notified Powerhouse and
Anchor that the acquisition by Anchor of 10% or more of Powerhouse's
common stock (which would happen as a result of the merger) must be
approved by the New Mexico Racing Commission. Anchor and Powerhouse
initiated the approval process with the New Mexico Racing Commission on
March 23, 1999.
- Mississippi. Under Mississippi law, changes in control of registered,
publicly traded gaming corporations, such as Powerhouse, through merger,
consolidation, stock or asset acquisitions, management or consulting
agreements or any arrangement or action resulting in control by a person
may not occur without the prior approval of the Mississippi Gaming
Commission. The merger requires the prior approval of the Mississippi
Gaming Commission. Anchor and Powerhouse filed the necessary applications
with the Mississippi Gaming commission on April 7, 1999 for approval of
Anchor's acquisition of control of Powerhouse pursuant to the Merger.
- Montana. Under Montana law governing Powerhouse's ownership of its
licensed gaming subsidiaries engaged in the manufacturing, distributing
and route operations businesses, Anchor may not become the registered
owner of more than 5% of the Powerhouse common stock without the prior
approval of the Gambling Control Division of the Montana Department of
Justice. The necessary applications were filed with the Division on April
1, 1999.
There may be other jurisdictions that assert that their prior consent or
approval is required before the merger can be consummated, and Powerhouse gives
no assurance that the above list of jurisdictions is comprehensive. While
Powerhouse and Anchor do not know of any reason why they should not obtain the
regulatory approvals needed in a timely manner, there is no certainty as to
when, or if, such approvals will be given or obtained.
In addition to those jurisdictions in which the consent or approval of a
governmental gaming regulator is required before consummation of the merger,
most jurisdictions in which Powerhouse operates will require
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<PAGE> 15
that applications for approval of directors, officers and key employees of
Anchor be filed either before, or within a fixed period after the merger has
occurred.
Approvals under Material Contracts. Under the Merger Agreement, Anchor
must have received evidence that all consents or approvals required under any of
Powerhouse's material contracts have been obtained, other than consents and
approvals that, if not obtained, could not reasonably be expected to have a
material adverse effect on either Powerhouse or Anchor.
Powerhouse has provided information about the merger and about Anchor to
all parties to its material contracts. Powerhouse has also provided Anchor with
a list of contracts that Powerhouse regards as material. Powerhouse is unable to
predict whether a party to a material contract may regard the merger with Anchor
as contrary to the party's interests.
No Solicitation. Powerhouse has agreed not to initiate or, subject to
certain exceptions, engage in any discussions with another party regarding a
business combination with another party while the merger is pending. However,
Powerhouse may engage in such discussions if it determines in good faith that
they would result in a proposal that is superior to the Merger Agreement with
Anchor and the failure to do so would be inconsistent with its fiduciary duties.
The Powerhouse Board of Directors may also withdraw or modify its recommendation
in favor of the merger and may recommend or enter into an agreement with respect
to a superior proposal provided that Powerhouse pay to Anchor the termination
fee described below.
Termination of the Merger Agreement. The Merger Agreement may be
terminated and the merger may be abandoned at any time prior to the effective
time (notwithstanding approval of the merger by Powerhouse's stockholders) as
follows:
- by the mutual written consent of Anchor, Merger Sub and Powerhouse;
- by Anchor and Merger Sub, on the one hand, or Powerhouse, on the other
hand, if any court of competent jurisdiction or other governmental body
has issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the merger and
such order, decree, ruling or other action is or has become
nonappealable; or
- by either Anchor or Powerhouse (provided that the terminating party is
not in material breach of any of its representations, warranties, or
obligations under the Merger Agreement), if the approval of the
Powerhouse stockholders required for the consummation of the merger shall
not have been obtained by reason of the failure to obtain the required
vote at the Special Meeting;
- by Powerhouse if:
- a person or group has made a bona fide offer (1) that the Powerhouse
Board of Directors by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties, after
consultation with its legal and financial advisors, would result in a
superior proposal; and (2) as a result of which the Powerhouse Board
of Directors determines that it would be inconsistent with its
fiduciary duties under applicable law not to terminate the Merger
Agreement, provided that Powerhouse pay to Anchor the $9.0 million
termination fee (if it enters into an agreement with the other person
within 270 days of termination of the Merger Agreement) and reimburse
Anchor for its out-of-pocket expenses up to $2.5 million (see
"Termination Fee" below).
- there has been a breach (which breach is not cured or not capable of
being cured prior to 10 days following notice to Anchor of such
breach) of any representation or warranty on the part of Anchor or
Merger Sub that materially adversely affects (or materially delays)
the consummation of the merger;
- the merger has not occurred by September 30, 1999, unless (1) the
failure to consummate the merger is the result of a breach of covenant
in the Merger Agreement or a material breach of any representation or
warranty set forth in the Merger Agreement by Powerhouse (in which
case such date will be extended by the number of days attributable to
such breach) or (2) the failure to consummate the merger is the result
of the failure to be fulfilled of the condition to receive certain
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<PAGE> 16
required consents and approvals from government authorities, in which
case such date will be October 31, 1999, provided that Anchor must
have diligently pursued fulfillment of such condition prior to
September 30, 1999; or
- if the merger is not effected (provided that Anchor does not have the
right to terminate the Merger Agreement, as described below) because
Anchor has failed to secure sufficient funds to satisfy its
obligations under the Merger Agreement on or before November 30, 1999
(and all other conditions to the obligations of Powerhouse to
consummate the merger have been fulfilled or waived by such date) (see
"Termination Fee" below for a description of the fee payable to
Powerhouse for termination of the Merger Agreement pursuant to this
provision).
- by Anchor if:
- there has been a breach (which breach is not cured or not capable of
being cured prior to 10 days following notice to Powerhouse by Anchor
of such breach) of any representation or warranty on the part of
Powerhouse having a material adverse effect on Powerhouse or
materially adversely affecting the ability of Anchor or Merger Sub to
consummate the merger (including the ability to secure the financing
necessary to satisfy its obligations under the Merger Agreement);
- there has been a breach (which breach is not cured or not capable of
being cured prior to 10 days following notice to Powerhouse by Anchor
of such breach) of any covenant or agreement on the part of Powerhouse
resulting in a material adverse effect on Powerhouse or materially
adversely affecting or delaying the ability of Anchor or Merger Sub to
consummate the merger (including the ability to secure the financing
necessary to satisfy its obligations under the Merger Agreement);
- Powerhouse breaches its agreement not to solicit or facilitate the
initiation of any inquiry or proposal regarding an acquisition
proposal, except to the extent permitted under the Merger Agreement
(in which event Powerhouse may be obligated to pay to Anchor the fee
described under "Termination Fee" below);
- Powerhouse enters into an agreement, letter of intent or arrangement
with respect to an acquisition proposal (in which event Powerhouse may
be obligated to pay to Anchor the fee described under "Termination
Fee" below);
- the Powerhouse Board of Directors has withdrawn or modified in a
manner adverse to Anchor or Merger Sub its approval or recommendation
of the Merger Agreement, or the merger or has recommended another
transaction, or has adopted any resolution to effect any of the
foregoing;
- the First District Court of Appeal of the State of Florida in the
matter of GTech Corporation v. State of Florida Department of Lottery
and Automated Wagering International, Inc., Case No. 98-1155 (Fla. 1st
DCA), on or before July 15, 1999 shall have reversed or rendered an
adverse decision with respect to the Final Order entered by the State
of Florida Department of Lottery on March 23, 1998; provided, however,
that if such Court shall have so reversed or rendered an adverse
decision with respect to such Final Order on or before such date, then
Anchor and Powerhouse have agreed to negotiate in good faith for a
period of two weeks from the date of such reversal or adverse
determination to reach a mutually satisfactory amendment to the Merger
Agreement to eliminate any adverse effect to the Anchor or Merger Sub
that could result from such reversal or adverse determination before
Anchor will be entitled to exercise its right of termination under
this section of the Merger Agreement; or
- the merger has not occurred by November 30, 1999, unless the failure
to consummate the merger is the result of a breach of covenant set
forth in the Merger Agreement or a material breach of any
representation or warranty set forth in the Merger Agreement by Anchor
(in which case such date will be extended by the number of days
attributable to such breach).
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<PAGE> 17
Termination Fee. Anchor is entitled to a termination fee of $9.0 million
plus up to $2.5 million of out-of-pocket expenses actually incurred in
connection with the transactions contemplated by the Merger Agreement if, within
270 days of the termination of the Merger Agreement, Powerhouse enters into an
agreement with respect to an acquisition proposal or a third party acquisition
of Powerhouse occurs and:
- Powerhouse terminates the Merger Agreement because the Powerhouse Board
of Directors has determined that an offer made by a third party would be
a superior proposal and the failure to terminate the Merger Agreement in
light of such offer would be inconsistent with the fiduciary duties of
the Powerhouse Board of Directors to enter into a definitive agreement or
agreement in principle with another party with respect to a superior
proposal; or
- Anchor terminates the Merger Agreement because Powerhouse breaches its
agreement not to solicit other acquisition proposals or enters into an
agreement with respect to a competing acquisition proposal from a third
party.
Powerhouse is entitled to a termination fee of $9.0 million plus up to $2.5
million of expenses actually incurred in connection with the transaction
contemplated by the Merger Agreement if Powerhouse terminates the Merger
Agreement as a result of Anchor's failure to secure sufficient funds to satisfy
its obligations under the Merger Agreement by November 30, 1999, provided that
Anchor does not have a right to terminate the Merger Agreement.
VOTING AGREEMENTS
Powerhouse's directors and executive officers (Madams Becker and Carstensen
and Messrs. Burt, Davey, Eide, Haddrill, Hardesty, Rassaby and Roman), who as of
the date of this proxy statement collectively held 465,068 shares of Powerhouse
common stock (or approximately 4.4% of the total outstanding shares), have
agreed to vote all of their shares of common stock in favor of adoption of the
Merger Agreement and against any competing transaction.
FEDERAL INCOME TAX CONSEQUENCES
You may be taxed on your receipt of the merger consideration (including
through any exercise of appraisal rights) to the extent that the amount you
receive exceeds your tax basis in your Powerhouse common stock. Because
determining the tax consequences of the merger can be complicated, you should
consult your own tax adviser in order to understand fully how the merger will
affect you.
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FORWARD-LOOKING STATEMENTS
Some statements contained or incorporated by reference in this proxy
statement regarding future financial performance and results and other
statements that are not historical facts are forward-looking statements (as that
term is defined in Section 27A of the Securities Act and in Section 21E of the
Exchange Act). The words "expect," "project," "estimate," "predict,"
"anticipate," "believes" and similar expressions are also intended to identify
forward-looking statements. Such statements are subject to numerous risks,
uncertainties and assumptions, including, but not limited to:
- changes in general economic conditions in the United States and other
markets for Powerhouse's products and services;
- changes in laws and regulations to which Powerhouse is subject;
- Powerhouse's ability to develop expanded markets and products offerings
as well as maintain existing markets;
- ability to obtain the regulatory approvals necessary to consummate the
merger;
- competitive pricing pressures;
- cost of materials and labor; and
- other risks and uncertainties contained in or incorporated by reference
in this proxy statement.
For these and other forward-looking statements, Powerhouse claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995. Powerhouse does not undertake
any obligation to publicly release the results of any revisions to such
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to holders of Powerhouse common
stock in connection with the solicitation of proxies by the Powerhouse Board of
Directors for use at the Special Meeting. Each copy of this proxy statement
mailed to Powerhouse stockholders is accompanied by a form of proxy for use at
the Special Meeting.
The Powerhouse Board of Directors, based upon the factors described
elsewhere in this proxy statement and the annexed documents (including the
fairness opinion of Lehman Brothers), has concluded that the merger is fair to
and in the best interests of Powerhouse stockholders and has approved and
adopted the Merger Agreement. THE POWERHOUSE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT POWERHOUSE STOCKHOLDERS VOTE "FOR" THE ADOPTION OF THE MERGER
AGREEMENT AT THE SPECIAL MEETING. See "Background and Reasons for the
Merger -- Recommendation of the Board of Directors and Reasons for the Merger,"
"Lehman Brothers Fairness Opinion" and "Interests of Certain Persons in the
Merger."
HOLDERS OF SHARES OF POWERHOUSE COMMON STOCK ARE REQUESTED TO COMPLETE,
SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO POWERHOUSE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
DATE, TIME AND PLACE
The Special Meeting is scheduled to be held on June 7, 1999, at 11:00 a.m.,
local time, at the Treasure Island Casino and Hotel, 3300 Las Vegas Boulevard
South, 2nd Floor Convention Level, Las Vegas, Nevada 89109.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, Powerhouse stockholders will be asked:
- to consider and vote upon a proposal to adopt the Merger Agreement; and
- to transact such other business as may properly come before the Special
Meeting and any adjournment thereof, including adjournments or
postponements of the Special Meeting for the purpose of soliciting
additional proxies to adopt the Merger Agreement.
RECORD DATE AND VOTING POWER
Only holders of record of shares of Powerhouse common stock at the close of
business on April 15, 1999, the record date for the Special Meeting, are
entitled to vote at the Special Meeting. Stockholders entitled to vote will have
one vote at the Special Meeting for each share of common stock owned on the
record date for each of the matters to be considered at the Special Meeting.
There are 10,667,190 shares of common stock entitled to be voted at the Special
Meeting.
VOTING AT THE SPECIAL MEETING
The transaction of business at the Special Meeting requires the presence in
person or by proxy of the holders of a majority of the outstanding shares of
common stock entitled to vote at the Special Meeting. The presence of a
sufficient number of shares is known as a quorum.
If a quorum is present, adoption of the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of common stock. Votes
may be cast for or against the proposal, or stockholders may abstain from
voting.
As part of the transaction, Powerhouse's directors and executive officers
have agreed to vote all of their shares (465,068 shares, or approximately 4.4%
of the outstanding shares of Powerhouse common stock) in favor of adoption of
the Merger Agreement and against any competing proposal.
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Abstentions and broker non-votes will be counted for purposes of
determining the presence or absence of a quorum at the Special Meeting. An
abstention with respect to the adoption of the Merger Agreement will have the
effect of a vote against the proposal. A "broker non-vote" will occur when a
broker holding shares of Powerhouse common stock in "street name" (i.e., as
nominee for the beneficial owner) returns an executed proxy (or voting
directions) indicating that the broker does not have discretionary authority to
vote on a proposal. Under Delaware law, a broker non-vote is counted as present
for quorum purposes but is not considered to be entitled to vote on the
specified matter. Therefore, because the adoption of the Merger Agreement
requires the affirmative vote of a specified minimum percentage of all of the
outstanding shares of Powerhouse common stock, rather than the vote of a
specified percentage of the shares present at the meeting and entitled to vote,
broker non-votes will have the effect of votes against the adoption of the
Merger Agreement. Powerhouse stockholders who vote for adoption of the Merger
Agreement are not eligible to exercise appraisal rights under Delaware law. See
"Appraisal Rights."
A proxy will be voted as specified by the Powerhouse stockholder granting
the proxy. If a Powerhouse stockholder does not return a signed proxy, the
stockholder's shares will not be voted unless the stockholder votes in person at
the Special Meeting. Returning a signed proxy will not affect a stockholder's
right to attend the Special Meeting and vote in person. Powerhouse stockholders
are urged to mark the appropriate box on the form of proxy enclosed with this
proxy statement to indicate how their shares are to be voted. If a Powerhouse
stockholder returns a signed proxy, but does not indicate how the shares are to
be voted, all the shares represented by the proxy will be voted "FOR" the
adoption of the proposal. The proxy also confers discretionary authority on the
attorneys-in-fact named in the proxy to vote the shares of common stock
represented by the proxy on any other matter that may properly arise at the
Special Meeting. Such matters may include consideration of a motion to adjourn
or postpone the Special Meeting to another time and/or place for the purpose of
soliciting additional proxies to adopt the Merger Agreement.
As of the date of this proxy statement, the Powerhouse Board of Directors
does not know of any other matters to be presented for action by Powerhouse
stockholders at the Special Meeting. If, however, other matters not now known
are properly brought before the Special Meeting, the attorneys-in-fact named in
the accompanying proxy will vote the proxies upon such matters according to
their discretion and best judgment.
REVOCABILITY OF PROXY
Any Powerhouse stockholder who executes and returns a proxy may revoke the
proxy at any time before it is voted in any one of the following three ways:
- filing a written notice of revocation bearing a later date than the proxy
with the corporate secretary of Powerhouse at or before the Special
Meeting;
- duly executing a proxy relating to the same shares of Powerhouse common
stock bearing a later date than the proxy and delivering it to the
corporate secretary of Powerhouse at or before the Special Meeting; or
- attending the Special Meeting and voting in person by ballot.
Attendance at the Special Meeting will not, in and of itself, constitute
revocation of a proxy.
SOLICITATION OF PROXIES
Pursuant to the Merger Agreement, the entire cost of Powerhouse's
solicitation of proxies will be borne by Powerhouse. In addition to
solicitations by mail, solicitations may also be made by personal interview,
facsimile transmission, telegram and telephone. Powerhouse has retained Morrow &
Co., Inc., a proxy solicitation firm, for assistance in connection with the
Special Meeting at an estimated expense of approximately $6,500 plus reasonable
out-of-pocket expenses. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy materials
to their principals, and Powerhouse will reimburse them for their customary
expenses in so doing.
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INDEPENDENT ACCOUNTANTS
We anticipate that a representative from KPMG LLP, Powerhouse's independent
accountants, will be present at the Special Meeting and will be available to
respond to appropriate questions.
BACKGROUND AND REASONS FOR THE MERGER
THE COMPANIES
Powerhouse. Powerhouse is a diversified gaming company offering a broad
selection of products and services to a variety of customers, including domestic
and international lottery agencies, casino gaming companies, racetracks and
route operators. Powerhouse is the leading worldwide developer and supplier of
video lottery gaming machines and system software and one of the leading
developers and suppliers of equipment, software systems and related services for
on-line lotteries and pari-mutuel systems. In addition, Powerhouse owns and
operates Sunland Park racetrack in New Mexico and operates a casino at such
facility with 300 gaming machines.
Powerhouse's subsidiary, Automated Wagering International, Inc. ("AWI"), is
the second largest supplier of on-line lottery services and equipment in the
United States. AWI designs, manufactures, assembles, installs, operates and
maintains on-line, computer-based networks for seven state lotteries in the
United States.
Through its subsidiary, VLC, Inc. ("VLC"), Powerhouse is the leading
supplier of video lottery gaming machines and central computer systems with a
worldwide market share of approximately 40% for video lottery gaming machines in
the markets in which it participates and approximately 57% for central control
systems.
Powerhouse, through its subsidiary, United Wagering Systems, Inc. ("UWS" or
"United Tote"), is a leading provider of wagering systems, terminals and service
to over 120 of approximately 350 pari-mutuel facilities in North America.
Pari-mutuel systems control the acceptance of wagers, calculate odds and payout,
cash winning tickets and perform assorted management, accounting and reporting
functions. Each system consists of central processing computers and peripherals,
betting terminals, proprietary software, tote boards and other displays.
Powerhouse's principal executive offices are located at 115 Perimeter
Center Place, Suite 911, Atlanta, Georgia 30346 and 2311 South Seventh Avenue,
Bozeman, Montana 59715. Its telephone numbers at those addresses are (770)
481-1800 and (406) 585-6600, respectively.
Anchor. Anchor is a diversified gaming company that seeks to capitalize on
its experience as an operator and developer of gaming machines and casinos by
developing gaming oriented businesses. Anchor develops and distributes unique
proprietary games, operates two casinos in Colorado, including one of the
state's most profitable casinos, and operates one of the largest and one of the
most profitable gaming machine routes in Nevada.
Anchor's principal executive offices are located at 815 Pilot Road, Suite
G, Las Vegas, Nevada 89119. Its telephone number at that address is (702)
896-7568.
Merger Sub. Anchor Powerhouse Acquisition Corporation is a wholly-owned
subsidiary of Anchor formed by Anchor to effect the merger with Powerhouse.
Merger Sub has had no prior business, and upon consummation of the merger, its
separate corporate existence will cease.
BACKGROUND OF THE MERGER
In the 12 months preceding the signing of the Merger Agreement, Powerhouse
had engaged in preliminary conversations with several entities interested in
forming a strategic alliance with Powerhouse or engaging in some other type of
business combination.
Mr. Haddrill, Powerhouse's Chief Executive Officer, contacted Mr. Michael
Rumbolz, Anchor's Chief Executive Officer, in early January 1999 to schedule a
meeting to discuss possible synergies between the two
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<PAGE> 22
companies. At that meeting on January 13, 1999, Messrs. Haddrill and Rumbolz
discussed a number of possible strategic initiatives between the two companies,
including the merger of the two companies. The parties agreed to consider their
positions and contact each other upon further reflection.
In anticipation of further discussions, Powerhouse and Anchor signed a
mutual confidentiality and non-disclosure agreement on January 20, 1999.
Approximately two weeks later, Mr. Rumbolz contacted Mr. Haddrill and
advised him that Anchor was interested in acquiring Powerhouse. They agreed to
meet on February 11, 1999 in Las Vegas, Nevada to further their discussions.
Present at that meeting were Stanley Fulton, Anchor's Chairman of the Board and
its largest shareholder, and Messrs. Haddrill and Rumbolz. At that meeting,
Anchor noted that it had considered, but eliminated, the possibility of a
stock-for-stock merger because it would cause an unacceptable dilution of
Anchor's shareholders' interests. Anchor indicated its interest in making an all
cash offer for the outstanding shares of Powerhouse common stock. The
approximate prices per share that were discussed ranged from $16.00 to $22.00,
subject to Anchor completing its due diligence investigation of Powerhouse and
further discussions.
Anchor began to conduct its preliminary due diligence investigation on
February 18 and 19, 1999, with representatives of Anchor and Merrill Lynch &
Co., ("Merrill Lynch"), Anchor's financial advisors, meeting with senior
executives of Powerhouse's operating and finance divisions. Powerhouse had
contacted Lehman Brothers regarding representing the company on February 12,
1999 and representatives were present during the due diligence. Immediately
prior thereto, Anchor signed an amendment to the confidentiality and non-
disclosure agreement that prohibited it, for a period of 18 months, from
entering into any strategic relationship with identified competitors of AWI.
Between February 11 and February 23, 1999, Mr. Haddrill had several
telephone discussions with Messrs. Fulton and Rumbolz to discuss various issues
associated with Powerhouse's business and the timing and licensing implications
of a merger with Anchor.
On February 22, 1999, Powerhouse engaged Lehman Brothers to act as
Powerhouse's financial advisor in connection with the proposed merger with
Anchor.
The Powerhouse Board of Directors met by telephone on February 26, 1999 to
discuss the possible merger with Anchor. Prior to that time, Mr. Haddrill had
contacted each board member and advised them of the background and progress of
the discussions with Anchor regarding a possible transaction with Powerhouse.
Also present at this telephonic meeting were Alan Rassaby, Powerhouse's Senior
Vice President of Legal and Administration; Susan Carstensen, Powerhouse's Chief
Financial Officer; representatives of Lehman Brothers; and representatives of
Rogers & Hardin, LLP, counsel to Powerhouse.
During the February 26, 1999 meeting:
- Counsel to Powerhouse reviewed with the Board of Directors its
responsibilities and fiduciary duties in connection with considering and
approving a transaction involving the company;
- Lehman Brothers advised the Board of Directors that based on Lehman
Brothers' preliminary valuation analysis, the range of values being
discussed by Powerhouse management and Anchor management was fair, from a
financial point of view, to Powerhouse's stockholders;
- Considerable discussion was had regarding other potential transactions;
and
- The directors reviewed the terms of other recently proposed strategic
transactions that had been proposed by other persons, noting that none of
those transactions resulted in serious negotiations with Powerhouse.
On February 28, 1999, Mr. Haddrill, Ms. Carstensen and representatives of
Lehman Brothers met again in Las Vegas with Mr. Fulton, Mr. Rumbolz,
representatives of Merrill Lynch and Mr. Glen Hettinger, a partner of Hughes &
Luce, L.L.P., counsel to Anchor, and a member of the Anchor Board of Directors.
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After lengthy negotiations, Mr. Haddrill stated, subject to further input
from the Powerhouse Board of Directors, that he would be prepared to recommend
to the Powerhouse Board of Directors that it accept, and recommend to the
Powerhouse stockholders, a purchase price of $19.50 per share of Powerhouse
common stock provided that certain other terms of the proposed Merger Agreement
were satisfactory to Powerhouse, including the amount of the break up fee and
the terms and conditions of its payment, and the restrictions on Powerhouse's
right to solicit other offers.
The Powerhouse Board of Directors met by telephone on March 2, 1999,
together with its counsel and financial advisors and Mr. Rassaby and Ms.
Carstensen, to review the status of the negotiations with Anchor. During this
telephonic meeting, Mr. Haddrill reviewed in detail his March 1 discussions with
Anchor, indicating his preliminary support for the proposal discussed at that
meeting. Representatives of Lehman Brothers then reviewed with the Board of
Directors the price per share tentatively offered by Anchor in light of Lehman
Brothers' preliminary valuation of Powerhouse, the potential for other bids to
be received and the proposed terms of the Merger Agreement. Counsel to
Powerhouse then reviewed with the Board of Directors its responsibilities and
duties in connection with considering and approving a transaction like the
proposed merger. Based on the information presented and the discussions during
this telephonic meeting, the Board of Directors authorized Powerhouse management
to continue to negotiate the terms of the proposed merger.
Thereafter, Powerhouse and Anchor agreed upon a timetable for continuing
their discussions and completing the financial and legal due diligence by
Anchor.
On March 3, 1999, counsel to Anchor distributed the first draft of the
proposed Merger Agreement, and on March 4 and 5, 1999, Messrs. Rumbolz and
Hettinger met in Atlanta, Georgia with Mr. Rassaby and Ms. Carstensen, together
with counsel to Powerhouse and representatives from Lehman Brothers, to
negotiate the terms of the proposed Merger Agreement.
Anchor completed its preliminary due diligence investigation of Powerhouse
on March 6, 1999.
On March 6, 1999, Lehman Brothers distributed to the Powerhouse Board of
Directors its valuation analyses of Powerhouse, including a comparable
transaction analysis, a comparable company analysis, a breakup value analysis
and a discounted cash flow analysis.
On March 7 and 8, 1999, Powerhouse distributed to the Board of Directors a
copy of the latest draft of the proposed Merger Agreement together with a
summary of the material terms thereof.
The Powerhouse Board of Directors met on March 8, 1999 in Las Vegas to
discuss, consider and vote upon the proposed merger. In addition to all of the
directors, in attendance at this meeting were Mr. Rassaby, Ms. Carstensen and
representatives of Rogers & Hardin LLP, counsel to Powerhouse, and Lehman
Brothers. At this meeting, counsel to Powerhouse reviewed with the directors the
material terms of the proposed Merger Agreement, and Lehman Brothers presented
its financial analysis of the proposed merger and rendered its oral opinion as
to the fairness, from a financial point of view, of the consideration to be
offered to the Powerhouse stockholders in connection therewith. After lengthy
discussion, the Powerhouse Board of Directors unanimously determined that the
proposed merger is fair to, and in the best interests of, the Powerhouse
stockholders, adopted the proposed Merger Agreement with such changes as Mr.
Haddrill may deem necessary and recommended that the Powerhouse stockholders
vote in favor of approving and adopting the Merger Agreement and the
consummation of the merger contemplated thereby, all of which was subject to the
Board of Directors receiving the written fairness opinion of Lehman Brothers in
form and substance satisfactory to the Board of Directors.
Immediately following the board meeting, Mr. Rassaby and Ms. Carstensen,
together with counsel to Powerhouse, met with Messrs. Fulton, Rumbolz and
Hettinger to finalize the proposed Merger Agreement, which Mr. Rassaby then
reviewed with Mr. Haddrill.
On March 9, 1999, Lehman Brothers delivered its written fairness opinion to
the Powerhouse Board of Directors and the parties thereafter executed and
delivered the Merger Agreement.
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<PAGE> 24
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER
The decision of the Board of Directors to adopt and approve the merger and
the Merger Agreement were the product of a lengthy evaluation process. This
process involved numerous meetings at which the Board of Directors considered
the various proposals made by Anchor, discussed various possible responses and,
with the assistance of its financial and legal advisors, took and authorized
various actions. See "-- Background of the Merger."
The Board of Directors, in making its determination that the merger and the
Merger Agreement are in the best interests of Powerhouse stockholders,
considered a number of factors, including, without limitation, the following
significant items:
- The directors' familiarity with, and presentations by Powerhouse's
management and Lehman Brothers regarding, the business, operations,
financial condition, competitive position, business strategy and
prospects of Powerhouse, and current industry, economic and market
conditions, both on a historical and on a prospective basis.
- The strategic alternatives available to Powerhouse, including
acquisitions by strategic or financial buyers, leveraged
recapitalizations, stock repurchases and continued independent
operations.
- Historical and prospective market prices of Powerhouse common stock
compared to the consideration to be received in the merger. See "Lehman
Brothers Fairness Opinion -- Valuation Analyses Performed -- Stock
Trading Analysis."
- Lehman Brother's opinion that, as of March 9, 1999, the merger
consideration to be received by holders of Powerhouse common stock was
fair to them from a financial point of view. See "Lehman Brothers
Fairness Opinion" for a discussion of factors considered by Lehman
Brothers in rendering its fairness opinion. A copy of the Lehman Brothers
opinion is attached as Annex B to this proxy statement, and you are urged
to read the opinion in its entirety.
- Consideration of the terms of the Merger Agreement, including the
"fiduciary out" provision (subject to the payment of a termination fee)
if an acquisition proposal is received that is superior to the current
proposal by Anchor. See "Summary of the Merger Agreement -- No
Solicitation," "-- Termination of the Merger Agreement" and
"-- Termination Fee."
- The $9.0 million fee payable to Powerhouse if Anchor fails to secure
sufficient funds to satisfy its obligations under the Merger Agreement by
November 30, 1999, provided that Anchor does not have a right to
terminate the Merger Agreement.
- Review by the Board of Directors of presentations by, and discussions of
the terms of the Merger Agreement with, Powerhouse senior executives, as
well as its legal counsel and financial advisors.
In view of the various factors considered by the Board of Directors,
including the material factors listed above, the Board of Directors did not find
it necessary or practicable to quantify or otherwise attempt to assign relative
importance to the specific factors considered in making its determination, nor
did the Board of Directors evaluate whether such factors were of equal
importance. Individual members of the Board of Directors may have given
different weights to different factors.
The Powerhouse Board of Directors unanimously recommends that you vote
"FOR" the adoption of the Merger Agreement. Some members of the Board of
Directors and of the management of Powerhouse have interests that may present
them with potential conflicts of interest in connection with the merger. See
"Interests of Certain Persons in the Merger."
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<PAGE> 25
LEHMAN BROTHERS FAIRNESS OPINION
Lehman Brothers has acted as financial advisor to the Board of Directors of
Powerhouse in connection with the merger.
As part of its role as financial advisor to Powerhouse, on March 8, 1999,
Lehman Brothers delivered its oral opinion (subsequently confirmed in writing in
an opinion dated March 9, 1999) (the "Fairness Opinion") to the Board of
Directors of Powerhouse to the effect that, as of the date of the opinion and
subject to certain assumptions made, factors considered and limitations imposed,
as set forth in the opinion, the merger consideration, defined as $19.50 per
share payable in cash, to be offered to the holders of Powerhouse common stock
in the merger is fair, from a financial point of view, to such holders.
A COPY OF LEHMAN BROTHERS' OPINION IS ATTACHED TO THIS PROXY STATEMENT AS
ANNEX B. POWERHOUSE'S STOCKHOLDERS SHOULD READ SUCH OPINION IN ITS ENTIRETY FOR
A DISCUSSION OF THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE SUMMARY OF
SUCH OPINION SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
No limitations were imposed by Powerhouse on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion, except that Powerhouse did not authorize Lehman Brothers to
solicit, and Lehman Brothers did not solicit, proposals from third parties with
respect to the purchase of any or all of Powerhouse's businesses. The form and
amount of the consideration to be offered to the holders of Powerhouse common
stock were determined through arm's-length negotiations between the parties. In
arriving at its opinion Lehman Brothers did not ascribe a specific range of
value to Powerhouse, but rather made its determination as to the fairness, from
a financial point of view, of the merger consideration to be offered to the
holders of Powerhouse common stock, on the basis of the financial and
comparative analysis described below. Lehman Brothers' opinion is for the use
and benefit of the Board of Directors of Powerhouse and was rendered to the
Board of Directors in connection with its consideration of the merger. Lehman
Brothers' opinion is not intended to be and does not constitute a recommendation
to any stockholder of Powerhouse as to whether to accept the merger
consideration offered in the merger. Lehman Brothers was not requested to opine
as to, and its opinion does not address, Powerhouse's underlying business
decision to proceed with or effect the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the merger; (2) publicly available
information concerning Powerhouse that it believed to be relevant to its
analysis, including its Annual Report on Form 10-K for the year ended December
31, 1997 and Quarterly Report on Form 10-Q for the quarter ended September 30,
1998; (3) financial and operating information with respect to the business,
operations and prospects of Powerhouse and of each of its businesses,
respectively, including financial results of Powerhouse for the fiscal year
ended December 31, 1998 and projections prepared by management; (4) a trading
history of Powerhouse's common stock from March 3, 1996 to March 3, 1999 and a
comparison of that trading history with those of other companies that it deemed
relevant; (5) a comparison of the historical financial results and present
financial condition of Powerhouse with those of other companies that it deemed
relevant; and (6) a comparison of the financial terms of the merger with the
financial terms of certain other recent transactions that it deemed relevant. In
addition, Lehman Brothers had discussions with the management of Powerhouse
concerning its business, operations, assets, financial condition and prospects
and have undertaken such other studies, analyses and investigations as it deemed
appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of the
information and has further relied upon the assurances of management of
Powerhouse that they are not aware of any facts or circumstances that would make
the information inaccurate or misleading. With respect to the financial
projections of Powerhouse, upon Powerhouse's advice, Lehman Brothers assumed
that the projections have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Powerhouse as to its future
financial performance and that Powerhouse will perform substantially in
accordance with such projections. In arriving at its opinion, Lehman Brothers
has conducted only a
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<PAGE> 26
limited physical inspection of the properties and facilities of Powerhouse and
has not made or obtained any evaluations or appraisals of the assets or
liabilities of Powerhouse. In addition, Powerhouse did not authorize Lehman
Brothers to solicit, and Lehman Brothers did not solicit, any indications of
interest from any third party with respect to a purchase of Powerhouse or any of
its businesses. The Fairness Opinion necessarily is based upon market, economic
and other conditions as they exist on, and can be evaluated as of, the date
thereof.
VALUATION ANALYSES PERFORMED
In connection with the preparation and delivery of its opinion, Lehman
Brothers performed a variety of financial and comparative analyses, as described
below. The preparation of a fairness 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, Lehman Brothers 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, Lehman Brothers believes that its analyses
must be considered as a whole and that considering any portion of its 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, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Powerhouse. 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.
Certain of the analyses include information presented in tabular format. In
order to fully understand the financial analyses used by Lehman Brothers, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of such financial analyses.
Stock Trading Analysis. Lehman Brothers considered various historical data
concerning the trading prices for Powerhouse common stock for the period from
March 3, 1996 to March 3, 1999. At March 3, 1999, the closing share price of
Powerhouse common stock was $14.63. Lehman Brothers calculated the average
closing price of Powerhouse common stock for the following time periods leading
up to and ending with March 3, 1999: One week ($14.48), one month ($13.51), six
months ($11.74), one year ($11.05), and three years ($7.90).
The table below shows the premium of the merger consideration to the
average closing share price of Powerhouse common stock over the following
periods:
<TABLE>
<CAPTION>
One Day One Week One Month Six Month One Year Three Year
- ------- -------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
33% 35% 44% 66% 76% 147%
</TABLE>
Comparable Transaction Analysis. Lehman Brothers reviewed certain
information regarding eleven selected transactions involving gaming and gaming
equipment companies since February 1990. Lehman Brothers reviewed the prices
paid in these transactions in terms of the Total Enterprise Value (which is
comprised of each company's equity and total debt) as a multiple of the
historical and projected twelve months' earnings before interest, income taxes,
depreciation, and amortization ("EBITDA"), as publicly available or as estimated
by third-party research analysts, and compared the multiples to those of the
financial results for Powerhouse implied by the merger consideration. The eleven
completed transactions reviewed in this analysis (collectively, the "Powerhouse
Transaction Comparables") were: the acquisition of Boomtown by Hollywood Park,
the acquisition of Empress Entertainment by Horseshoe Gaming, the acquisition of
Casino Magic by Hollywood Park, the acquisition of Players International by
Jackpot Enterprises, the acquisitions of Par-A-Dice Gaming and Treasure Chest by
Boyd Gaming, the acquisition of Barcrest by International Game Technology, the
acquisition of Tele Control Kommunications by Scientific Games Holdings, the
acquisition of Bally Gaming International by Alliance Gaming, the initial public
offering of
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<PAGE> 27
GTECH Holdings, and the leveraged recapitalization of GTECH Holdings. Each of
the transactions involves companies engaged in one of the four business sectors
in which Powerhouse is engaged. Lehman Brothers calculated the implied value of
Powerhouse by selecting a range of multiples of the historical and projected
EBITDA for the Powerhouse Transaction Comparables and applying this multiple
range to the projected 1999 EBITDA of Powerhouse, as projected by Powerhouse.
Based on the Powerhouse Transaction Comparables, Lehman Brothers used a multiple
range between 4.2x and 6.0x 1999 projected EBITDA. Using this methodology,
Lehman Brothers calculated an implied equity value of Powerhouse between $14.31
and $21.98 per share on a fully-diluted basis (assuming the exercise of all
outstanding options).
<TABLE>
<CAPTION>
Derived Multiple Range
of 1999 EBITDA Equity Value Per Share
- ---------------------- ----------------------
<S> <C>
4.2x - 6.0x $14.31 - $21.98
</TABLE>
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Powerhouse and the acquired businesses analyzed, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the quantitative
results of the analysis, and accordingly, also made qualitative judgments
concerning differences between the characteristics of these transactions and the
merger that would affect the acquisition values of Powerhouse and such acquired
companies.
Comparable Public Company Analysis. Lehman Brothers compared certain
publicly available financial and operating data and projected financial
performance (based upon third-party research analysts' estimates) of selected
publicly traded gaming and gaming equipment companies. The gaming and gaming
equipment companies reviewed in this analysis (collectively, the "Powerhouse
Comparable Group") were selected because they are engaged in one or more of the
four business sectors in which Powerhouse is engaged. The Powerhouse Comparable
Group consisted of: GTECH Holdings, Scientific Games Holdings, International
Game Technology, Alliance Gaming, Anchor Gaming, Autotote, Dover Downs
Entertainment, Churchill Downs, Penn National Gaming and MTR Gaming Group. The
Powerhouse Comparable Group was divided into four segments corresponding to
Powerhouse's four business sectors. Lehman Brothers selected trading multiples
of projected 1999 EBITDA and 1999 Earnings per Share ("EPS") from the Powerhouse
Comparable Group for each of Powerhouse's business sectors, and then calculated
a blended average of multiples of projected 1999 EBITDA and 1999 EPS based on
the range of those multiples derived for each sector, each weighted based on the
percentage of EBITDA attributable to each of the four sectors. The implied value
of Powerhouse was then calculated by applying the blended average range of
multiples to the projected 1999 EBITDA and 1999 EPS of Powerhouse, as projected
by Powerhouse. Lehman Brothers calculated, using this methodology, an implied
equity value for Powerhouse between $10.50 and $20.70 per share on a
fully-diluted basis.
<TABLE>
<CAPTION>
Derived Multiple Range Equity Value Per Share
---------------------- ----------------------
<S> <C> <C>
1999 EPS 10.0x - 11.1x $10.50 - $11.66
1999 EBITDA 4.1x - 5.7x $13.89 - $20.70
</TABLE>
Because of the inherent differences between the businesses, operations and
prospects of Powerhouse and the businesses, operations and prospects of the
companies included in the Powerhouse Comparable Group, Lehman Brothers believed
that it was inappropriate to, and therefore did not, rely solely on the
quantitative results of the analysis, and accordingly also made qualitative
judgments concerning differences between the financial and operating
characteristics of Powerhouse and the companies in the Powerhouse Comparable
Group that would affect the public trading values of Powerhouse and such
comparable companies.
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<PAGE> 28
Break-up Analysis. Lehman Brothers performed a break-up analysis of
Powerhouse's four business segments to calculate a break-up value of Powerhouse.
A range of multiples of Total Enterprise Value to projected 1999 EBITDA for each
of the four business sectors was determined based on a quantitative and
qualitative analysis of the financial and operating data and projected financial
performance of the Powerhouse Comparable Group and on a quantitative and
qualitative analysis of the Powerhouse Transaction Comparables. The range of
multiples was applied to the projected EBITDA for each sector as projected by
Powerhouse to provide an implied value for each sector, which were added
together and tax effected to arrive at a break-up value for Powerhouse. Lehman
Brothers calculated, using this methodology, an implied equity value for
Powerhouse between $15.57 and $19.75 per share on a fully-diluted basis.
<TABLE>
<CAPTION>
Derived Multiple Range
of 1999 EBITDA Equity Value Per Share
- ---------------------- ----------------------
<S> <C>
4.8x - 6.1x $15.57 - $19.75
</TABLE>
Discounted Cash Flow Analysis. Lehman Brothers performed a discounted cash
flow analysis of Powerhouse. Lehman Brothers utilized estimates of projected
financial performance prepared by Powerhouse for the year 1999 through the year
2001 and, for the years 2002 and 2003, arrived at estimates of projected
financial performance based on assumptions provided by Powerhouse. Utilizing
these projections, Lehman Brothers calculated a range of values based upon (a)
the sum of the discounted net present value of the projected stream of after-tax
free cash flow for Powerhouse to the year 2003, and (b) the projected terminal
value of Powerhouse at that year based upon a range of multiples of projected
EBITDA. Lehman Brothers used a discount rate of 18.5% and terminal multiples of
EBITDA ranging from 4.0x to 6.0x. Using this methodology, Lehman Brothers
calculated an equity value of Powerhouse between $13.45 and $20.47 per share on
a fully-diluted basis.
Engagement of Lehman Brothers. Lehman Brothers 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 Powerhouse selected Lehman Brothers because of its
expertise, reputation and familiarity with Powerhouse 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 merger, Powerhouse
will pay Lehman Brothers a fee of approximately $2.0 million, $650,000 of which
has already been paid and approximately $1.35 million of which will be payable
upon the closing of the merger. Powerhouse has also agreed to reimburse Lehman
Brothers for up to $75,000 of its reasonable expenses (including, without
limitation, professional and legal fees and disbursements) incurred in
connection with its engagement, and to indemnify Lehman Brothers and certain
related persons against certain liabilities in connection with its engagement,
including certain liabilities under the federal securities laws.
Lehman Brothers was the arranger of, and is currently a lender under,
Powerhouse's credit facility. Lehman Brothers has also performed various
investment banking services for Powerhouse in the past, for which it has
received customary fees. In the ordinary course of its business, Lehman Brothers
actively trades in the debt and equity securities of Powerhouse for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities.
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<PAGE> 29
SUMMARY OF THE MERGER AGREEMENT
THE DESCRIPTION OF THE MERGER AGREEMENT CONTAINED IN THIS PROXY STATEMENT
IS NOT COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT ITSELF, THE FULL TEXT OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS
ANNEX A, AND WHICH IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE URGED
TO READ THE FULL TEXT OF THE MERGER AGREEMENT CAREFULLY.
STRUCTURE AND EFFECTIVE TIME
The Merger Agreement provides for the merger of Merger Sub into Powerhouse.
Powerhouse will survive the merger and continue to exist after the merger as a
wholly-owned subsidiary of Anchor. The merger will become effective at the time
a certificate of merger is filed with the Delaware Secretary of State (or a
later time if agreed in writing by the parties and specified in the certificate
of merger). The time that the merger becomes effective is referred to in this
proxy statement as the "effective time." The effective time is expected to occur
promptly after the Powerhouse stockholders adopt the Merger Agreement at the
Special Meeting. The Special Meeting is scheduled for June 7, 1999. However, the
closing of the merger may be delayed if other closing conditions have not been
satisfied by that time.
MERGER CONSIDERATION
The Merger Agreement provides that each share of Powerhouse common stock
outstanding immediately prior to the effective time will, at the effective time,
be converted into the right to receive cash from Anchor in an amount equal to
the merger consideration ($19.50 per share of common stock, in cash without
interest). All shares owned by Powerhouse, Anchor or any of their direct or
indirect wholly-owned subsidiaries will, at the effective time, be cancelled and
no payment will be made for such shares. If appraisal rights for any shares are
perfected, then those shares will be treated as described under "Appraisal
Rights."
PAYMENT PROCEDURES
Anchor will appoint an exchange agent who will make payment of the merger
consideration in exchange for certificates representing shares of Powerhouse
stock. Anchor will make cash available to the exchange agent in order to permit
the payment of the merger consideration. Promptly after the effective time, the
exchange agent will send Powerhouse stockholders a letter of transmittal and
instructions explaining how to send their stock certificates to the exchange
agent. Checks for the merger consideration (minus any withholding taxes required
by law) will be mailed to stockholders promptly following the exchange agent's
receipt and processing of stock certificates and properly completed transmittal
documents.
EMPLOYEE AND DIRECTOR STOCK OPTIONS
All outstanding Powerhouse stock options will become vested and fully
exercisable at the effective time of the merger pursuant to their terms. As a
result of the merger, each option will be converted into the right to receive
from Powerhouse for each share subject to the option an amount in cash equal to
the excess of $19.50 over the exercise price per share of the option, net of
withholding taxes.
REPAYMENT OF INDEBTEDNESS
In connection with the merger and at the effective time, Powerhouse will
repay (in cash) all of its outstanding indebtedness for borrowed money
(including amounts under Powerhouse's credit agreement with Lehman Brothers,
which are required to be repaid pursuant to the terms of such credit agreement),
except for indebtedness not required by its terms to be repaid upon completion
of the merger. If the amount of such indebtedness exceeds Powerhouse's cash on
hand, then Anchor will make available to Powerhouse all funds necessary to
effect the repayment as of the effective time.
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<PAGE> 30
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains a number of representations and warranties by
Powerhouse, Anchor and Merger Sub. These representations and warranties were
made as of the date of the Merger Agreement, and must be remade in all material
respects as of the effective time. They will not, however, survive the effective
time of the merger. Powerhouse, Anchor and Merger Sub all made representations
and warranties regarding, among other things, matters such as corporate
organization, authorization of the merger, no conflicts and governmental
approvals. Powerhouse also made representations and warranties relating to,
among other things:
- Powerhouse's capitalization;
- SEC filings;
- financial statements;
- the absence of "a material adverse effect" (as defined below under
"Material Adverse Effect");
- title to properties;
- litigation;
- compliance with law;
- employee benefits;
- taxes;
- labor matters;
- Year 2000 compliance;
- major customers;
- insider interests;
- insurance;
- termination;
- severance and employment agreements;
- non-competition;
- material contracts;
- environmental matters; and
- intellectual property.
With respect to the merger, Powerhouse made representations and warranties
that:
- Section 203 of the Delaware General Corporation Law, which imposes
certain limitations on business combinations with interested
stockholders, does not apply to the merger;
- the Powerhouse Board of Directors has approved the merger; and
- the approval of the Powerhouse stockholders is necessary to consummate
the merger.
CONDUCT PRIOR TO THE EFFECTIVE TIME
Until the effective time, Powerhouse and its subsidiaries are required to
comply with a number of interim operating covenants. In general, Powerhouse
agreed to operate during the period in the usual and ordinary course in all
material respects in the same manner as previously operated. Powerhouse also
agreed to refrain from taking a number of actions, such as making significant
acquisitions or incurring indebtedness other than in the ordinary course of
business, without Anchor's prior consent. Powerhouse also agreed to limitations
on its conduct regarding:
- issuance of securities and dividends;
- changes in governing documents;
- employee compensation;
- accounting methods;
- taxes;
- material agreements;
- capital expenditures; and
- litigation.
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<PAGE> 31
ADDITIONAL AGREEMENTS
The Merger Agreement contains a number of additional agreements of Anchor,
Merger Sub and Powerhouse regarding the completion of the merger and related
transactions. Certain of these agreements are summarized below.
Special Meeting and Proxy Materials. Powerhouse agreed to prepare this
proxy statement, mail it to Powerhouse stockholders and call and hold the
Special Meeting. Powerhouse also agreed to use all reasonable efforts to solicit
proxies in favor of adoption of the Merger Agreement, and to take such other
action as might be required to secure the adoption of the Merger Agreement by
the stockholders. Powerhouse also agreed that, subject to certain exceptions
described below under "No Solicitation," the Powerhouse Board of Directors will
unanimously recommend that the Powerhouse stockholders vote in favor of adopting
the Merger Agreement, will include that recommendation in this proxy statement,
and will not withdraw or adversely modify its recommendation.
No Solicitation. Subject to exceptions summarized below, Powerhouse agreed
that it will not, and will not authorize or permit any of the officers,
directors, employees, agents and other representatives of Powerhouse and its
subsidiaries to, directly or indirectly, solicit, facilitate or encourage the
initiation of any inquiries or proposals regarding an acquisition proposal or
negotiate with any prospective buyer in connection with any acquisition
proposal. An "acquisition proposal" means:
- any proposal or offer with respect to the acquisition of Powerhouse by
merger or otherwise by any person or group (other than by Anchor or any
of its affiliates);
- the acquisition by a third party of more than 19.9% of the total assets
of Powerhouse and its subsidiaries, taken as a whole;
- the acquisition by a third party of 19.9% or more of the outstanding
shares of Powerhouse common stock from or in a transaction or series of
related transactions that results in a change of control of Powerhouse;
- the adoption by Powerhouse of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or
- the acquisition by Powerhouse or any of its subsidiaries of more than
19.9% of the outstanding shares of Powerhouse common stock.
However, the Merger Agreement provides that Powerhouse and its Board of
Directors may engage in discussions or negotiations concerning an acquisition
proposal received after the date of the Merger Agreement that was not solicited
in violation of the Merger Agreement (and may furnish information and cooperate
in this regard) if it determines in good faith that the acquisition proposal (if
consummated) would be a superior proposal and that failure to do so would be
inconsistent with its fiduciary duties to the Powerhouse stockholders. A
"superior proposal" means a bona fide acquisition proposal that the Powerhouse
Board of Directors by majority vote determines in its good faith judgment and in
the exercise of its fiduciary duties (after consultation with its legal and
financial advisors), would result in a transaction that is more favorable to
Powerhouse's stockholders than the Merger Agreement. In addition, the Merger
Agreement provides that, following receipt of a superior proposal, the Board of
Directors may withdraw, modify or not make its recommendation in favor of the
merger and the Board of Directors may recommend or enter into an agreement in
principle or a definitive agreement with respect to the superior proposal,
provided that Powerhouse pay to Anchor the termination fee described below. See
"-- Termination Fee" on page 28.
Powerhouse has agreed not to engage in negotiations with, or disclose any
non-public information to, any person making an acquisition proposal unless it
receives from such person an executed confidentiality agreement with terms
substantially similar to the confidentiality agreement between Powerhouse and
Anchor, dated as of January 20, 1999. Powerhouse will promptly notify Anchor in
writing of the receipt of any acquisition proposal or any modification of an
acquisition proposal, or any bona fide request for non-public information of
Powerhouse in connection with the making of an acquisition proposal. The notice
must include
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<PAGE> 32
the identity of the person or group making the acquisition proposal and the
material terms and conditions of the acquisition proposal.
Indemnification and Insurance. Anchor has agreed to guarantee the
surviving corporation's obligations under the indemnification agreements by and
between Powerhouse and each of its directors and executive officers. Anchor has
also agreed that, for a period of six years from the effective time, the
certificate of incorporation and bylaws of the surviving corporation will
contain indemnification and exculpation provisions that are at least as
favorable to Powerhouse officers and directors as Powerhouse's existing
certificate of incorporation and bylaws.
In addition, Anchor has agreed to permit Powerhouse to expend up to
$500,000 to purchase a "tail" with a term of not more than five years for its
current officers' and directors liability insurance, which Powerhouse expects to
do immediately prior to the effective time.
Antitrust Filings. Powerhouse and Anchor agreed to file their respective
pre-merger notification and report forms under the HSR Act as soon as
practicable after the signing of the Merger Agreement. Both companies filed
these materials on April 2, 1999. The waiting period will expire at 11:59 p.m.
on May 2, 1999, unless extended by a request for additional information or
documentary material or unless early termination of the waiting period is
granted.
Gaming Approvals. Under the Merger Agreement, the merger cannot be
completed until Anchor has received evidence that any governmental gaming
regulator whose consent or approval is required before the merger can be
consummated has given that consent or approval. This condition does not apply to
consents and approvals:
- that, if not obtained, could not reasonably be expected to have a
material adverse effect on Powerhouse or Anchor;
- that may be required from the gaming regulators in four selected
jurisdictions; or
- the failure of which to receive is primarily the result of regulatory
concerns regarding Anchor or its affiliates or as a result of breach by
them of their obligation to use their commercially reasonable best
efforts to seek such consents and approvals. See "-- Gaming Approvals" on
page 29.
Approvals under Material Contracts. Under the Merger Agreement, Anchor
must have received evidence that all consents or approvals required under any of
Powerhouse's material contracts have been obtained, other than consents and
approvals that, if not obtained, could not reasonably be expected to have a
material adverse effect on either Powerhouse or Anchor. See "-- Approvals under
Material Contracts" on page 31.
In addition to the agreements summarized above, Powerhouse made certain
covenants relating to, among other things, confidentiality, access to
information, public disclosure, cooperation to complete the merger, notice of
certain events, third party consents and regulatory filings.
CONDITIONS TO THE MERGER
Conditions to Each Party's Obligations to Effect the Merger. The
obligations of Powerhouse, Anchor and Merger Sub to consummate the merger are
subject to the satisfaction of the following conditions:
- Powerhouse stockholders must adopt the Merger Agreement;
- the absence of any law, regulation or order making the merger illegal or
prohibiting the merger; and
- all waiting periods, if any, under the HSR Act for the transactions
contemplated by the Merger Agreement must have expired or terminated
early.
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<PAGE> 33
Conditions to the Obligations of Powerhouse to Effect the Merger. The
obligation of Powerhouse to effect the merger is further subject to the
satisfaction of the following additional conditions:
- the representations and warranties of Anchor and Merger Sub must have
been true as of the date of the Merger Agreement and must be true in all
material respects as if made as of the effective time;
- Anchor and Merger Sub must have performed in all material respects their
obligations under the Merger Agreement; and
- Anchor and Merger Sub must have delivered to Powerhouse certain closing
certificates.
Conditions to the Obligations of Anchor and Merger Sub to Effect the
Merger. The obligations of Anchor and Merger Sub to effect the merger are
subject to the satisfaction of the following additional conditions:
- the representations and warranties of Powerhouse must have been true as
of the date of the Merger Agreement and must be true in all material
respects as if made as of the effective time;
- Powerhouse must have performed in all material respects its obligations
under the Merger Agreement;
- the Powerhouse directors and executive officers must have performed all
of their obligations under the Voting Agreements;
- Anchor must have received a "comfort" letter from KPMG LLP, Powerhouse's
independent accountants;
- Anchor must have received a legal opinion from Rogers & Hardin LLP,
Powerhouse's counsel;
- Anchor must have received all consents and approvals (including the
Gaming Approvals) (see "-- Regulatory Approvals" on page 29) from all
governmental entities that are required to be obtained before
consummation of the merger other than such consents and approvals (1)
that, if not obtained, could not reasonably be expected to have a
material adverse effect on Anchor or Powerhouse; (2) from identified
jurisdictions (see "-- Regulatory Approvals" on page 29); or (3) the
failure of which to receive is primarily the result of regulatory
concerns regarding Anchor or it affiliates or as a result of breach by
them of their obligation to use their commercially reasonable best
efforts to seek such consents and approvals;
- Anchor must have received all consents or approvals required under the
terms of any of Powerhouse's material contracts other than such consents
and approvals that, if not obtained, could not reasonably be expected to
have a material adverse effect on Anchor or Powerhouse;
- Powerhouse must deliver to Anchor certain closing certificates; and
- no event can have occurred since March 9, 1999 that would constitute a
material adverse effect on Powerhouse (see "-- Material Adverse Effect"
on page 29).
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the merger may be abandoned at
any time prior to the effective time (notwithstanding approval of the merger by
Powerhouse's stockholders) as follows:
- by the mutual written consent of Anchor, Merger Sub and Powerhouse;
- by Anchor and Merger Sub, on the one hand, or Powerhouse, on the other
hand, if any court of competent jurisdiction or other governmental body
has issued a final order, decree or ruling or taken any other final
action restraining, enjoining or otherwise prohibiting the merger and
such order, decree, ruling or other action is or has become
nonappealable; or
- by either Anchor or Powerhouse (provided that the terminating party is
not in material breach of any of its representations, warranties, or
obligations under the Merger Agreement), if the approval of the
26
<PAGE> 34
Powerhouse stockholders required for the consummation of the merger shall
not have been obtained by reason of the failure to obtain the required
vote at the special meeting;
- by Powerhouse if:
- a person or group has made a bona fide offer (1) that the Powerhouse
Board of Directors by a majority vote determines in its good faith
judgment and in the exercise of its fiduciary duties, after
consultation with its legal and financial advisors, would result in a
superior proposal; and (2) as a result of which the Powerhouse Board
of Directors determines that it would be inconsistent with its
fiduciary duties under applicable law not to terminate the Merger
Agreement, provided that Powerhouse pay to Anchor the $9.0 million
termination fee (if applicable) and reimburse Anchor for its
out-of-pocket expenses up to $2.5 million (see "-- Termination Fee" on
page 28);
- there has been a breach (which breach is not cured or not capable of
being cured prior to 10 days following notice to Anchor of such
breach) of any representation or warranty on the part of Anchor or
Merger Sub that materially adversely affects (or materially delays)
the consummation of the merger;
- there has been a material breach (which breach is not cured or not
capable of being cured prior to 10 days following notice to Anchor of
such breach) of any covenant or agreement on the part of Anchor or
Merger Sub that materially adversely affects (or materially delays)
the consummation of the Merger;
- the merger has not occurred by September 30, 1999, unless (1) the
failure to consummate the merger is the result of a breach of covenant
in the Merger Agreement or a material breach of any representation or
warranty set forth in the Merger Agreement by Powerhouse (in which
case such date will be extended by the number of days attributable to
such breach) or (2) the failure to consummate the merger is the result
of the failure to be fulfilled of the condition to receive the
required consents and approvals from government authorities (see
"-- Regulatory Approvals" on page 29) in which case such date will be
October 31, 1999, provided that Anchor must have diligently pursued
fulfillment of such condition prior to September 30, 1999; or
- if the merger is not effected (provided that Anchor does not have the
right to terminate the Merger Agreement, as described below) because
Anchor has failed to secure sufficient funds to satisfy its
obligations under the Merger Agreement on or before November 30, 1999
(and all other conditions to the obligations of Powerhouse to
consummate the merger have been fulfilled or waived by such date).
- by Anchor if:
- there has been a breach (which breach is not cured or not capable of
being cured prior to 10 days following notice to Powerhouse by Anchor
of such breach) of any representation or warranty on the part of
Powerhouse having a material adverse effect on Powerhouse or
materially adversely affecting the ability of Anchor or Merger Sub to
consummate the merger (including the ability to secure the financing
necessary to satisfy its obligations under the Merger Agreement);
- there has been a breach (which breach is not cured or not capable of
being cured prior to 10 days following notice to Powerhouse by Anchor
of such breach) of any covenant or agreement on the part of Powerhouse
resulting in a material adverse effect on Powerhouse or materially
adversely affecting or delaying the ability of Anchor or Merger Sub to
consummate the merger (including the ability to secure the financing
necessary to satisfy its obligations under the Merger Agreement);
- Powerhouse breaches its agreement not to solicit or facilitate the
initiation of any inquiry or proposal regarding an acquisition
proposal, except to the extent permitted under the Merger Agreement
(in which event Powerhouse may be obligated to pay Anchor the fee
described under "Termination Fee" on page 28);
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<PAGE> 35
- Powerhouse enters into an agreement, letter of intent or arrangement
with respect to an acquisition proposal (in which event Powerhouse may
be obligated to pay Anchor the fee described under "Termination Fee"
on page 28);
- the Powerhouse Board of Directors has withdrawn or modified in a
manner adverse to Anchor or Merger Sub its approval or recommendation
of the Merger Agreement, or the merger or has recommended another
transaction, or has adopted any resolution to effect any of the
foregoing;
- the First District Court of Appeal of the State of Florida in the
matter of GTech Corporation v. State of Florida Department of Lottery
and Automated Wagering International, Inc., Case No. 98-1155 (Fla. 1st
DCA), on or before July 15, 1999 shall have reversed or rendered an
adverse decision with respect to the Final Order entered by the State
of Florida Department of Lottery on March 23, 1998; provided, however,
that if such Court shall have so reversed or rendered an adverse
decision with respect to such Final Order on or before such date, then
Anchor and Powerhouse have agreed to negotiate in good faith for a
period of two weeks from the date of such reversal or adverse
determination to reach a mutually satisfactory amendment to the Merger
Agreement to eliminate any adverse effect to the Anchor or Merger Sub
that could result from such reversal or adverse determination before
Anchor will be entitled to exercise its right of termination under
this section of the Merger Agreement; or
- the merger has not occurred by November 30, 1999, unless the failure
to consummate the merger is the result of a breach of covenant set
forth in the Merger Agreement or a material breach of any
representation or warranty set forth in the Merger Agreement by Anchor
(in which case such date will be extended by the number of days
attributable to such breach).
TERMINATION FEE
Anchor is entitled to a termination fee of $9.0 million plus up to $2.5
million of out-of-pocket expenses actually incurred in connection with the
transactions contemplated by the Merger Agreement if, within 270 days of the
termination of the Merger Agreement, Powerhouse enters into an agreement with
respect to an acquisition proposal or a third party acquisition of Powerhouse
occurs and:
- Powerhouse terminates the Merger Agreement because the Powerhouse Board
of Directors has determined that an offer made by a third party would be
a superior proposal and the failure to terminate the Merger Agreement in
light of such offer would be inconsistent with the fiduciary duties of
the Powerhouse Board of Directors to enter into a definitive agreement or
agreement in principle with another party with respect to a superior
proposal; or
- Anchor terminates the Merger Agreement because Powerhouse breaches its
agreement not to solicit other acquisition proposals or enters into an
agreement with respect to a competing acquisition proposal from a third
party.
Powerhouse is entitled to a termination fee of $9.0 million plus up to $2.5
million of expenses actually incurred in connection with the transaction
contemplated by the Merger Agreement if Powerhouse terminates the Merger
Agreement as a result of Anchor's failure to secure sufficient funds to satisfy
its obligations under the Merger Agreement by November 30, 1999, provided that
Anchor does not have a right to terminate the Merger Agreement.
PAYMENT OF FEES AND EXPENSES
Except as described in the Termination Fee section above, all fees and
expenses incurred in connection with the Merger Agreement and the related
transactions will be paid by the party incurring the expenses whether or not the
merger is consummated.
AMENDMENTS AND WAIVERS
The provisions of the Merger Agreement may be amended or waived if, and
only if, the amendment or waiver is in writing and signed on behalf of
Powerhouse, Anchor and Merger Sub.
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<PAGE> 36
MATERIAL ADVERSE EFFECT
For purposes of the Merger Agreement, a "material adverse effect" means
with respect to any person any change or effect that, individually or in the
aggregate, could reasonably be expected to be materially adverse to the
condition (financial or otherwise), business, properties, assets, liabilities,
results of operations or legal or regulatory environment of such person and its
subsidiaries, taken as a whole.
CONSEQUENCES OF THE MERGER
After the merger, Powerhouse stockholders will no longer have any interest
in Powerhouse or its future earnings or growth. Powerhouse will no longer be
registered as a reporting company under the federal securities laws, and shares
of Powerhouse common stock will no longer be quoted on the Nasdaq National
Market System or listed on any other exchange.
REGULATORY APPROVALS
HSR Approval. Under the HSR Act and the rules of the Federal Trade
Commission (the "FTC") relating to the HSR Act, the merger cannot be completed
until pre-merger notifications have been filed and certain information has been
furnished to the Antitrust Division of the U.S. Department of Justice and the
FTC, and a specified waiting period has expired or been terminated. Powerhouse
and Anchor each filed their respective pre-merger notification and report forms
under the HSR Act with the FTC and the Antitrust Division on April 2, 1999. The
waiting period will expire at 11:59 p.m. on May 2, 1999, unless extended by a
request for additional information or documentary material by the FTC or the
Antitrust Division or unless early termination of the waiting period is granted.
The Merger Agreement provides that all waiting periods under the HSR Act
must have expired or terminated early in order to complete the merger.
At any time before or after the effective time, the Antitrust Division or
the FTC could, if deemed necessary or desirable to do so, act under the federal
antitrust laws and seek to enjoin completion of the merger or seek the
divestiture of substantial assets of Anchor or Powerhouse. At any time before or
after the effective time, and notwithstanding that the HSR Act waiting period
has expired, any state attorney general of a state where Powerhouse or Anchor
has operations also could take action under its state antitrust laws to enjoin
completion of the merger or seek divestiture of substantial assets. Private
parties also may take legal action under federal and/or state antitrust laws
under certain circumstances.
Powerhouse and Anchor believe that the merger will comply with federal and
state antitrust laws. However, there can be no assurance that a challenge to the
merger will not be made or that, if made, Powerhouse and Anchor would prevail or
would not be required to accept certain conditions, including divestitures, in
order to complete the merger.
Gaming Approvals.
Lotteries. To ensure the integrity of their lottery operations, most
jurisdictions require detailed background disclosure and investigation of
vendors providing goods and services under a contract awarded for a major
procurement of lottery services, which typically include, on-line computer
systems and services; instant ticket printing; ticket validation systems; gaming
devices; drawing equipment; and advertising services. Background investigations
typically are conducted on company subsidiaries, affiliates, officers, directors
and stockholders who own 5% or more of the outstanding capital stock of the
vendor to determine whether such persons satisfy the suitability standards
defined under statutes and regulations of each jurisdiction.
The award of lottery contracts and ongoing operations of lotteries in
international jurisdictions also are highly regulated, although the operations
typically vary from lotteries in the United States. In addition, restrictions
are often imposed on foreign corporations seeking to do business in
international jurisdictions.
Gaming Devices. The manufacture, distribution and operation of gaming
devices or facilities are also subject to extensive federal, state, provincial
and local laws and regulation. All jurisdictions require various
29
<PAGE> 37
licenses, permits and approvals to be held by companies and their key personnel
in connection with the manufacture, distribution or operation of gaming devices
or facilities. Generally, gaming devices may not be manufactured, distributed or
operated unless such licenses are obtained from the appropriate regulatory
authorities of the jurisdiction. The laws and regulations vary from jurisdiction
to jurisdiction but primarily concern the responsibility, financial stability
and suitability of directors, officers and key employees of gaming equipment
manufacturers, distributors and suppliers, as well as persons with a 5% or
greater financial interest or involvement in gaming operations.
Pari-mutuel Wagering. In certain jurisdictions, Powerhouse's pari-mutuel
wagering operations are also subject to extensive state regulatory and licensing
requirements similar to those to which the on-line lottery and video gaming
machine operations are subject.
The foregoing is only a summary of the various applicable gaming regulatory
requirements to which Powerhouse is subject under the law of the State of Nevada
and certain other states. For a complete description of such requirements, see
the section captioned "Government Regulation" in Powerhouse's Annual Report on
Form 10-K for the year ended December 31, 1998 and with respect to Nevada
regulatory matters "Nevada Regulatory Matters," which is contained within such
section.
Under the Merger Agreement, the merger cannot be completed until Anchor has
received evidence that any governmental gaming regulator whose consent or
approval is required before the merger can be consummated has given that consent
or approval. This condition does not apply to consents and approvals:
- that, if not obtained, could not reasonably be expected to have a
material adverse effect on Powerhouse or Anchor;
- that may be required from the gaming regulators in the Province of
Mpumalanga in South Africa, the States of Victoria or New South Wales in
Australia, or the States of Louisiana or Minnesota in the United States
of America; or
- the failure of which to receive is primarily the result of regulatory
concerns regarding Anchor or its affiliates or as a result of breach by
them of their obligation to use their commercially reasonable best
efforts to seek such consents and approvals.
Powerhouse believes it will be necessary to obtain the following consents
and approvals before consummation of the merger:
- Nevada. Under Nevada law, changes in control of Powerhouse through
merger, consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby such
person obtains control, may not occur without the prior approval of the
Nevada Gaming Commission. Entities seeking to acquire control of a
registered, publicly traded gaming corporation, such as Powerhouse, must
satisfy the Nevada State Gaming Control Board and the Nevada Gaming
Commission of a variety of stringent standards before assuming control.
The Nevada Gaming Commission may also require controlling stockholders,
executive officers, directors and other persons having a material
relationship or involvement with the entity proposing to acquire control,
to be investigated and licensed or found suitable as part of the approval
process relating to the transaction. The merger requires the prior
approval of the Nevada Gaming Commission upon the recommendation of the
Nevada State Gaming Control Board. Anchor and Powerhouse filed the
necessary applications with the Nevada Gaming Control Board on March 25,
1999, for approval of Anchor's acquisition of control of Powerhouse.
- New Mexico. The New Mexico Racing Commission has notified Powerhouse and
Anchor that the acquisition by Anchor of 10% or more of Powerhouse's
common stock (which would happen as a result of the merger) must be
approved by the New Mexico Racing Commission. Anchor and Powerhouse
initiated the approval process with the New Mexico Racing Commission on
March 23, 1999.
- Mississippi. Under Mississippi law, changes in control of registered,
publicly traded gaming corporations, such as Powerhouse, through merger,
consolidation, stock or asset acquisitions, management or consulting
agreements or any arrangement or action resulting in control by a person
may not occur
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<PAGE> 38
without the prior approval of the Mississippi Gaming Commission. The
merger requires the prior approval of the Mississippi Gaming Commission.
Anchor and Powerhouse filed the necessary applications with the
Mississippi Gaming commission on April 7, 1999 for approval of Anchor's
acquisition of control of Powerhouse pursuant to the Merger.
- Montana. Under Montana law governing Powerhouse's ownership of its
licensed gaming subsidiaries engaged in the manufacturing, distributing
and route operations businesses, Anchor may not become the registered
owner of more than 5% of the Powerhouse common stock without the prior
approval of the Gambling Control Division of the Montana Department of
Justice. The necessary applications were filed with the Division on April
1, 1999.
There may be other jurisdictions that assert that their prior consent or
approval is required before the merger can be consummated, and Powerhouse gives
no assurance that the above list of jurisdictions is comprehensive. While
Powerhouse and Anchor do not know of any reason why they should not obtain the
regulatory approvals needed in a timely manner, there is no certainty as to
when, or if, such approvals will be given or obtained.
In addition to those jurisdictions in which the consent or approval of a
governmental gaming regulator is required before consummation of the merger,
most jurisdictions in which Powerhouse operates will require that applications
for approval of directors, officers and key employees of Anchor be filed either
before, or within a fixed period after the merger has occurred.
Approvals under Material Contracts. Under the Merger Agreement, Anchor
must have received evidence that all consents or approvals required under any of
Powerhouse's material contracts have been obtained, other than consents and
approvals that, if not obtained, could not reasonably be expected to have a
material adverse effect on either Powerhouse or Anchor.
Powerhouse has provided information about the merger and about Anchor to
all parties to its material contracts. Powerhouse has also provided Anchor with
a list of contracts that Powerhouse regards as material. Powerhouse is unable to
predict whether a party to a material contract may regard the merger with Anchor
as contrary to the party's interests.
VOTING AGREEMENTS
The description of the voting agreements contained in this proxy statement
is only a summary and is qualified in its entirety by reference to the
agreements themselves. The full text of a form of the voting agreement executed
by each of the Powerhouse directors and executive officers is attached to this
proxy statement as Annex C.
As a condition to executing the Merger Agreement, Anchor required the
Powerhouse directors and executive officers (Madams Becker and Carstensen and
Messrs. Burt, Davey, Eide, Haddrill, Hardesty, Rassaby and Roman) to enter into
Voting Agreements that require them to vote in favor of adoption of the Merger
Agreement at the Special Meeting. As of the date of this proxy statement, these
stockholders collectively owned 465,068 shares of common stock, or approximately
4.4% of the outstanding shares of Powerhouse common stock.
Under their respective voting agreements, the management stockholders also
agreed to vote their shares against any competing acquisition proposals that
might be made. They also agreed not to transfer or encumber any of their shares
to any other person. All of the voting agreements terminate if the Merger
Agreement is terminated. The management stockholders agreed not to take any
action that, if attributed to the Company, would be prohibited under the
non-solicitation provisions of the Merger Agreement or otherwise assist,
facilitate or encourage a third party in making an acquisition proposal for
Powerhouse.
The existence of these voting agreements could discourage other parties
from attempting to acquire Powerhouse.
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<PAGE> 39
ANCHOR'S SOURCE OF FUNDS
Anchor intends to consummate the transactions contemplated by the Merger
Agreement using (1) funds expected to be available under a new senior credit
facility, and (2) other cash resources available to Anchor.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Powerhouse officers and directors own Powerhouse common stock. To that
extent, their interest in the merger may be considered to be the same as other
Powerhouse stockholders. For information concerning such ownership, see
"Security Ownership of Certain Beneficial Owners and Management." However, in
considering the recommendation of the Powerhouse Board of Directors that the
Merger Agreement be adopted, Powerhouse stockholders should be aware that a
number of Powerhouse officers and directors have interests in the merger that
are, or may be, different from other Powerhouse stockholders.
As a result of the merger, all outstanding Powerhouse stock options will
become vested and fully exercisable at the effective time and will be converted
into the right to receive from Powerhouse for each share subject to the option
an amount in cash equal to the excess of $19.50 over the exercise price per
share of the option, net of any applicable withholding taxes. The Powerhouse
directors and executive officers hold options to acquire an aggregate of 637,800
shares of Powerhouse common stock, of which options to acquire an aggregate of
573,798 shares of Powerhouse common stock are currently vested and exercisable
and options to acquire an aggregate of 64,002 shares of Powerhouse common stock
will become vested and exercisable as a result of the merger. The weighted
average exercise price of the 64,002 options held by Powerhouse directors and
executive officers that vest and become exercisable as a result of the merger is
$10.89 per share.
In addition, completion of the merger will constitute a change of control
of Powerhouse under the employment agreements of certain Powerhouse executive
officers, triggering certain rights of those officers, including the right to
receive certain payments if their employment is terminated and the elimination
of the restrictions on restricted stock awards. Specifically, Mr. Haddrill's
employment agreement provides that he will receive a payment of a minimum $1.8
million under certain circumstances if his employment is terminated after a
change of control of Powerhouse, such as the merger, his employee benefits will
continue until January 1, 2003 and the restrictions on 85,000 shares of
Powerhouse common stock held by Mr. Haddrill will immediately lapse. None of Mr.
Haddrill's options to acquire Powerhouse common stock vest upon the merger
because all such options are already vested and exercisable.
Other of Powerhouse's executive officers have employment agreements that
provide that they will be entitled to receive certain payments if their
employment is terminated following the merger. These payments aggregate
approximately $1.1 million.
Anchor also has agreed to guaranty the obligations of Powerhouse arising
under the indemnification agreements by and between Powerhouse and each of its
directors and executive officers. See "Summary of the Merger
Agreement -- Additional Agreements -- Indemnification and Insurance."
Madams Becker and Carstensen and Messrs. Burt, Davey, Eide, Haddrill,
Hardesty, Rassaby and Roman have entered into voting agreements with Anchor
that, among other things, require them to vote their shares in favor of adopting
the Merger Agreement.
In addition, two members of the Powerhouse Board of Directors, Mr. Burt and
Mr. Haddrill, are expected to be elected to serve as directors of Anchor and to
serve as consultants to Anchor after the closing of the merger. Pursuant to a
consulting agreement with Anchor, Mr. Haddrill will provide consulting services
to Anchor for two years following the merger. In exchange for those services,
Mr. Haddrill will receive $150,000 per month for the first six months of the
consulting agreement, during which Mr. Haddrill will provide consulting services
on a full-time basis, and $23,000 per month for the remaining 18 months of the
consulting agreement, during which Mr. Haddrill will provide consulting services
on a limited basis. The consulting agreement also provides that Mr. Haddrill
will not compete with Anchor for a period of two years following the merger,
will serve as a member of the Anchor Board of Directors and will receive
$450,000 in exchange therefor. The terms of the consulting agreement with Mr.
Burt have not yet been finalized. Mr. Burt will be
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<PAGE> 40
entitled to receive compensation for his services as director of Anchor on the
same basis as Anchor's other outside directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN FIVE PERCENT BENEFICIAL OWNERS
The following table sets forth the stock ownership of all persons known by
Powerhouse to be the beneficial owners of more than 5% of the outstanding shares
of Powerhouse common stock as of April 15, 1999, based upon Schedule 13D or 13G
reports filed with the Securities and Exchange Commission or other information
believed to be reliable, other than those persons set forth in "-- Beneficial
Ownership of Directors and Officers" below.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK OR COMMON
STOCK EQUIVALENTS BENEFICIALLY OWNED
-------------------------------------
COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE(1)
- ------------------------------------ ----------- ----------------
<S> <C> <C>
Dimensional Fund Advisors Inc.
1299 Ocean Ave., 11th Floor
Santa Monica, CA 90401-1038............................... 720,900(2) 6.4%
Fir Tree Partners (Fir Tree, Inc. d/b/a Fir Tree Partners)
1211 Ave of the Americas, 29th Fl.
New York, New York 10036.................................. 697,400(3) 6.2%
Capital Technology Inc.
8314 Pineville-Matthews Road, Suite 295
Charlotte, NC 28226....................................... 616,100(4) 5.5%
R.B. Haave Associates, Inc.
36 Grove Street
New Canaan, CT 06840...................................... 534,200(5) 5.0%
</TABLE>
- ---------------
(1) Based on 10,667,190 shares of common stock outstanding as of the close of
business on April 15, 1999. Based on a Schedule 13G dated April 20, 1999,
Par Investment Partners, L.P., Par Group, L.P. and Par Capital Management,
Inc. (collectively, "Par") reported that they have sole voting and
dispositive power with respect to 897,600 shares of Powerhouse common stock.
Par's business address is One Financial Center, Suite 1600, Boston, MA
02111.
(2) Dimensional Fund Advisors Inc. ("Dimensional"), incorporated in Delaware, an
investment advisor registered under the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
Investment Company Act of 1940, and serves as investment manager to certain
other investment vehicles, including commingled groups trusts. (These
investment companies and investment vehicles are the "Portfolios"). In its
role as investment advisor and investment manager, Dimensional possesses
both voting and investment power over the securities of Powerhouse held by
the Portfolios. Dimensional disclaims beneficial ownership of all of the
shares of Powerhouse common stock held by the Portfolios.
(3) Fir Tree, Inc. is a New York corporation doing business as Fir Tree Partners
("Fir Tree Partners"), of which Jeffrey Tannenbaum is the sole shareholder,
executive officer, director and principal. Mr. Tannenbaum acquired the
shares through his position as principal of Fir Tree Partners for an
institutional account for which Fir Tree Partners serves as trading advisor
and for the account of the Fir Tree Value Fund, L.P. ("Fir Tree Value
Fund"), of which Mr. Tannenbaum is the general partner. Fir Tree Partners is
the beneficial owner of 697,400 shares of Powerhouse common stock, of which
45,315 shares are beneficially owned by Fir Tree Partners in its capacity as
investment advisor to Fir Tree Value Partners, LDC, a Cayman Islands limited
duration company ("Fir Tree LDC"). Mr. Tannenbaum is the investment advisor
of Fir Tree LDC and, as such, retains voting and dispositive power over the
shares, and 546,465 shares are beneficially owned by Fir Tree Partners for
the account of the Fir Tree Value Fund, LP and 105,620 shares are held for
the account of the Fir Tree Institutional Value Fund, LP.
33
<PAGE> 41
(4) Capital Technology Inc. is an investment advisor organized in North
Carolina. Capital Technology Inc. has sole power to dispose or direct the
disposal of all shares beneficially owned and has sole power to vote or
direct to vote 279,500 shares.
(5) R.B. Haave Associates, Inc. is an investment advisor organized in Delaware.
BENEFICIAL OWNERSHIP OF DIRECTORS AND OFFICERS
The following table sets forth the beneficial ownership of Powerhouse
common stock by each director and each executive officer so indicated and all
executive officers and directors as a group as of April 15, 1999.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK OR COMMON STOCK
EQUIVALENTS BENEFICIALLY OWNED
---------------------------------------------------
FULLY DILUTED
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE(1)(2)
- ------------------------ --------- ----------------
<S> <C> <C>
Richard M. Haddrill+,++.................... 590,357(3)(4) 5.3%
Michael L. Eide++.......................... 215,707(5) 2.0
John R. Hardesty+.......................... 117,837(6) 1.1
Patricia W. Becker+........................ 31,392(6) *
Richard R. Burt+........................... 32,285(6) *
James J. Davey+............................ 35,135(6) *
Susan J. Carstensen++...................... 16,153(7) *
All directors and executive officers as a
group.................................... 1,038,866(3)(4)(5)(6)(7) 9.3
</TABLE>
- ---------------
+ Director of Powerhouse
++ Executive Officer of Powerhouse
* Denotes less than 1%
(1) Based on 10,667,190 shares of common stock outstanding as of the close of
business on April 15, 1999.
(2) "Fully Diluted Percentage" means, as of April 15, 1999, the number of shares
of common stock and common stock equivalent held by such person, divided by
the sum of (i) the number of shares of common stock outstanding and (ii) the
number of shares of common stock issuable upon conversion or exercise of all
outstanding convertible securities, option and warrants convertible into, or
exercisable for, common stock at that time or within sixty days thereafter.
(3) Includes 75,000 shares of restricted stock of Powerhouse vesting in equal
installments on each of January 1, 2000, 2001, and 2002 and 10,000 shares of
restricted stock of Powerhouse vesting on September 9, 1999.
(4) Includes options to purchase 364,800 shares of common stock, currently
exercisable or which will be exercisable within 60 days, granted pursuant to
Powerhouse's 1994 Stock Incentive Plan.
(5) Includes options to purchase 77,333 shares of common stock currently
exercisable granted pursuant to Powerhouse's 1994 Stock Incentive. Includes
12,318 shares held by Mr. Eide's son as to which Mr. Eide disclaims
beneficial ownership.
(6) Includes options to purchase 10,000 shares of common stock currently
exercisable granted pursuant to Powerhouse's 1994 Stock Incentive Plan and
options to purchase 20,000 shares of common stock currently exercisable
pursuant to Powerhouse's 1993 Stock Incentive Plan for Non-Employee
Directors.
(7) Includes options to purchase 11,665 shares of common stock granted under
Powerhouse's 1994 Incentive Stock Plan currently exercisable or which will
be exercisable within 60 days.
34
<PAGE> 42
SELECTED FINANCIAL INFORMATION
The following selected financial information for the years ended December
31, 1994, 1995, 1996, 1997 and 1998 has been derived from the audited
consolidated financial statements of Powerhouse. The selected financial
information set forth below should be read in conjunction with the historical
financial statements and related notes of Powerhouse incorporated by reference
in this proxy statement.
<TABLE>
<CAPTION>
POWERHOUSE
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
-------- ------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
REVENUES:
Lottery systems..................................... $101,559 $91,653 $ 88,843 $ 94,771 $103,581
Gaming machines and systems......................... 53,149 46,086 43,632 57,626 53,215
Pari-mutuel systems................................. 13,831 20,144 20,499 20,177 20,028
Gaming operations................................... 20,243 23,279 23,707 24,361 24,327
-------- ------- -------- -------- --------
Total revenues............................... 188,782 181,162 176,681 196,935 201,151
COSTS OF REVENUES:
Lottery systems..................................... 62,397 59,438 59,333 62,558 62,281
Gaming machines and systems......................... 28,808 24,912 21,084 31,766 30,054
Pari-mutuel systems................................. 9,338 14,176 12,545 12,784 12,879
Gaming operations................................... 15,661 19,189 19,386 19,873 20,019
-------- ------- -------- -------- --------
116,204 117,715 112,348 126,981 125,233
-------- ------- -------- -------- --------
Gross profit.......................................... 72,578 63,447 64,333 69,954 75,918
OTHER OPERATING EXPENSES:
Selling, general and administrative................. 34,000 31,140 28,697 31,655 36,635
Research and development............................ 8,513 8,888 7,969 9,788 10,011
Other charges....................................... 23,994 2,763 34,135 -- --
Depreciation and amortization....................... 20,694 22,587 23,822 21,995 19,701
-------- ------- -------- -------- --------
87,201 65,378 94,623 63,438 66,347
-------- ------- -------- -------- --------
Earnings (loss) from operations....................... (14,623) (1,931) (30,290) 6,516 9,571
Other income (expense)................................ (242) (1,833) (2,694) (2,869) (1,590)
-------- ------- -------- -------- --------
Earnings (loss) before income taxes and extraordinary
items............................................... (14,865) (3,764) (32,984) 3,647 7,981
Income tax benefit (expense).......................... (1,303) 846 8,753 1,135 (3,405)
-------- ------- -------- -------- --------
Net earnings (loss) from continuing operations........ (16,168) (2,918) (24,231) 4,782 4,576
Reversal of loss on discontinuance of pari-mutuel
systems, net........................................ -- (5,482) 5,482 -- --
-------- ------- -------- -------- --------
Net earnings (loss) before extraordinary items........ (16,168) (8,400) (18,749) 4,782 4,576
Extraordinary gain, net............................... -- -- 4,014 13,269 --
-------- ------- -------- -------- --------
Net earnings (loss)................................... $(16,168) $(8,400) $(14,735) $ 18,051 $ 4,576
======== ======= ======== ======== ========
Earnings (loss) per share data:
Basic:
Continuing operations............................. $ (1.56) $ (0.28) $ (2.28) $ 0.46 $ 0.43
-------- ------- -------- -------- --------
Net earnings (loss)............................... $ (1.56) $ (0.80) $ (1.39) $ 1.75 $ 0.43
======== ======= ======== ======== ========
Diluted:
Continuing operations............................. $ (1.56) $ (0.28) $ (2.28) $ 0.46 $ 0.42
-------- ------- -------- -------- --------
Net earnings (loss)............................... $ (1.56) $ (0.80) $ (1.39) $ 1.72 $ 0.42
======== ======= ======== ======== ========
Weighted average shares:
Basic............................................... 10,337 10,555 10,635 10,329 10,580
Potential common stock(1)........................... -- -- -- 160 323
-------- ------- -------- -------- --------
Diluted............................................. 10,337 10,555 10,635 10,489 10,903
======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital....................................... $ 23,344 $ 19,987 $ 28,083 $ 37,050 $ 41,177
Total assets.......................................... 174,032 165,851 168,043 161,397 188,475
Total long-term debt (excluding current
installments)....................................... 9,060 12,885 9,312 31,446 51,765
Stockholders' equity.................................. 94,112 86,448 72,231 82,146 87,978
</TABLE>
- ---------------
(1) Excluded if anti-dilutive.
35
<PAGE> 43
MARKET PRICE AND DIVIDEND INFORMATION
Powerhouse common stock is listed and quoted on the Nasdaq National Market
System under the symbol "PWRH." The following table sets forth for the calendar
periods indicated the high and low closing sales prices per share of common
stock as reported by Nasdaq. Powerhouse has not declared any dividends on its
common stock during this period. The prices reflected in the following table do
not include mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
CLOSING PRICE PER SHARE
------------------------
HIGH LOW
--------- ---------
<S> <C> <C>
1997:
First Quarter............................................. $ 4.88 $ 3.25
Second Quarter............................................ 6.25 3.50
Third Quarter............................................. 11.38 5.94
Fourth Quarter............................................ 12.75 8.75
1998:
First Quarter............................................. 15.25 9.88
Second Quarter............................................ 14.44 7.75
Third Quarter............................................. 12.00 7.38
Fourth Quarter............................................ 14.56 8.63
1999:
First Quarter............................................. 18.75 12.50
Second Quarter (through April 27, 1999)................... 17.44 16.75
</TABLE>
The last reported sales price per share of Powerhouse common stock on March
9, 1999, the last trading day prior to the public announcement of the execution
of the Merger Agreement, was $14.81 as reported by Nasdaq.
The last reported sales price per share of Powerhouse common stock on April
27, 1999, was $17.44 as reported by Nasdaq. STOCKHOLDERS ARE URGED TO OBTAIN A
CURRENT MARKET QUOTATION FOR THE POWERHOUSE COMMON STOCK PRIOR TO MAKING ANY
DECISION WITH RESPECT TO THE MERGER.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
STOCKHOLDERS AND OPTION HOLDERS
The conversion of the Powerhouse stockholders' shares into the right to
receive cash in the merger will constitute a taxable transaction for federal
income tax purposes and may also be taxable under applicable state, local,
foreign income or other tax laws. Generally, a stockholder will recognize gain
or loss in an amount equal to the difference between the cash to be received by
the stockholder pursuant to the merger and the stockholder's adjusted basis in
the shares. If the shares constitute a capital asset in the stockholder's hands,
the rate at which any gain is taxed for federal income tax purposes will depend
on how long the stockholder has held the shares on the date of the merger.
A stockholder who is a nonresident alien individual, a foreign corporation,
a nonresident alien fiduciary of a foreign estate or trust, or a foreign
partnership with certain types of partners may not be subject to federal income
tax with respect to any gain or loss on the sale of Powerhouse stock. However,
this exemption is subject to a number of complex limitations that depend on a
stockholder's particular circumstances.
In general, holders of options to purchase Powerhouse common stock will be
required to report as ordinary taxable income any cash they receive in exchange
for cancellation of the options. In addition, any cash payable to an option
holder will be reduced by the amount of any taxes required to be withheld on
such ordinary income.
THIS SUMMARY DESCRIBES CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER FOR POWERHOUSE STOCKHOLDERS. IT DOES NOT DISCUSS ALL POTENTIALLY RELEVANT
FEDERAL INCOME TAX MATTERS OR THE CONSEQUENCES TO
36
<PAGE> 44
ANY STOCKHOLDERS OR OPTIONHOLDERS SUBJECT TO SPECIAL TAX TREATMENT, OR ANY STATE
OR LOCAL TAX CONSEQUENCES OF THE MERGER. THE TAX CONSEQUENCES TO PARTICULAR
POWERHOUSE STOCKHOLDERS WILL DEPEND ON THEIR SPECIFIC CIRCUMSTANCES. POWERHOUSE
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL,
STATE AND LOCAL TAX CONSEQUENCES OF THE MERGER TO THEM.
APPRAISAL RIGHTS
Section 262 of the Delaware General Corporation Law provides that
Powerhouse stockholders who do not wish to accept the merger consideration may
elect to have the fair value of their shares (exclusive of any element of value
arising from the accomplishment or expectation of the merger) determined by the
Delaware Chancery Court. This amount would then be paid to the stockholder in
cash, together with a fair rate of interest from the date the merger is
consummated. The following summary of Section 262 is qualified in its entirety
by reference to the full text of Section 262, which is attached to this Proxy
Statement as Annex D.
STOCKHOLDERS WHO WISH TO EXERCISE THEIR APPRAISAL RIGHTS OR TO PRESERVE
THEIR APPRAISAL RIGHTS SHOULD CAREFULLY REVIEW ANNEX D. FAILURE TO COMPLY WITH
THE PROCEDURES SPECIFIED IN SECTION 262 IN A TIMELY MANNER MAY RESULT IN THE
LOSS OF THE APPRAISAL RIGHT. BECAUSE OF THE COMPLEXITY OF THESE PROCEDURES,
STOCKHOLDERS ARE URGED TO SEEK THE ADVICE OF LEGAL COUNSEL IF THEY ARE
CONSIDERING EXERCISING THEIR APPRAISAL RIGHTS.
Stockholders who wish to exercise appraisal rights under Section 262 must
satisfy each of the following conditions:
- the stockholder must not vote in favor of the merger;
- the stockholder must deliver to Powerhouse a written demand for appraisal
before the vote on the Merger Agreement at the Special Meeting. This
written demand for appraisal must be in addition to and separate from any
proxy or vote against the Merger Agreement. Merely voting against,
abstaining from voting, or failing to vote in favor of adoption of the
Merger Agreement will not constitute a demand for appraisal within the
meaning of Section 262;
- the stockholder must continuously hold the shares for which appraisal is
sought from the date of the demand through the effective time. Appraisal
rights will be lost if the shares are transferred before the effective
time;
- the stockholder must file a petition in the Delaware Court of Chancery
demanding a determination of the fair value the shares within 120 days
after the effective time; and
- demands for appraisal must be made in writing and must be mailed or
delivered to: Powerhouse Technologies, Inc., 2311 South Seventh Avenue,
Bozeman, Montana 59715, Attention: Vicki Pollington, Acting Assistant
Secretary.
STOCKHOLDERS SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS
DETERMINED UNDER SECTION 262 COULD BE GREATER THAN, THE SAME AS, OR LESS THAN
THE MERGER CONSIDERATION. THE LEHMAN BROTHERS OPINION IS NOT AN OPINION AS TO
FAIR VALUE UNDER SECTION 262.
If a stockholder demands appraisal of shares under Section 262 and fails to
perfect, withdraws or loses the appraisal right, the stockholder's shares will
be converted into the right to receive the merger consideration. Stockholders
may withdraw a demand for appraisal by delivering to Powerhouse a written
withdrawal of the demand and acceptance of the merger consideration. However,
Powerhouse must consent to any withdrawal request made more than 60 days after
the effective time.
OTHER MATTERS
As of the date of this proxy statement the Powerhouse Board of Directors
does not intend to present, and has not been informed that any other person
intends to present, any matters for action at the Special Meeting other than as
discussed herein.
37
<PAGE> 45
If the merger is not consummated, or if it is not consummated within the
time period currently contemplated, Powerhouse will hold a 1999 annual meeting
of stockholders. As described in Powerhouse's proxy statement relating to its
1998 annual meeting of stockholders, proposals of Powerhouse's stockholders to
be considered for inclusion in the proxy statement relating to its 1999 annual
meeting of stockholders must have been received at Powerhouse's executive office
by January 1, 1999. No such proposals were received by Powerhouse by that date.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, both Powerhouse and Anchor file reports, proxy
statements and other information with the SEC. These reports, proxy statements
and other information contain additional information about Powerhouse and
Anchor. You can inspect and copy these materials at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the following Regional Offices of the SEC:
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. For further information concerning
the SEC's public reference rooms, you may call the SEC at 1-800-SEC-0330. Some
of this information may also be accessed on the World Wide Web through the SEC's
Internet address at "http://www.sec.gov."
The SEC allows Powerhouse to "incorporate by reference" information into
this proxy statement, which means that Powerhouse can disclose important
information by referring you to another document filed separately with the SEC.
Information incorporated by reference is considered part of this proxy
statement, except to the extent that the information is superseded by
information in this proxy statement. This proxy statement incorporates by
reference the information contained in the following documents previously filed
by Powerhouse with the SEC (SEC file number 000-19322):
(a) Powerhouse's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998; and
(b) Powerhouse's Current Report on Form 8-K filed March 12, 1999
(event date March 9, 1999).
Powerhouse also incorporates by reference the information contained in all
other documents Powerhouse files with the SEC after the date of this proxy
statement and before the Special Meeting. The information contained in any such
document will be considered part of this proxy statement from the date the
document is filed. These incorporated documents speak only as of their
respective dates (or such other date as stated therein) and not as of the date
of this proxy statement.
If you are a stockholder of Powerhouse and would like to receive a copy of
any document incorporated by reference into this proxy statement (which will not
include any of the exhibits to the document other than those exhibits that are
themselves specifically incorporated by reference into this proxy statement),
you should write to Powerhouse Technologies, Inc., 2311 South Seventh Avenue,
Bozeman, Montana 59715, Attention: Vicki Pollington, Acting Assistant Secretary.
In order to ensure timely delivery of the documents you request, you should make
your request by June 1, 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN (OR INCORPORATED BY
REFERENCE INTO) THIS PROXY STATEMENT. POWERHOUSE HAS NOT AUTHORIZED ANYONE TO
GIVE ANY INFORMATION DIFFERENT FROM THE INFORMATION CONTAINED IN (OR
INCORPORATED BY REFERENCE INTO) THIS PROXY STATEMENT. THIS PROXY STATEMENT IS
DATED APRIL 28, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT IS ACCURATE AS OF ANY LATER DATE, AND THE MAILING OF THIS
PROXY STATEMENT TO STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
38
<PAGE> 46
ANNEXED DOCUMENTS
Certain important information related to Powerhouse, Anchor, Merger Sub,
their respective subsidiaries and the Merger Agreement is included in the
materials attached to this proxy statement. Such materials are specifically
incorporated herein and made part hereof. You should read these materials
carefully. These materials are:
Annex A Merger Agreement
Annex B Opinion of Lehman Brothers Inc.
Annex C Form of Voting Agreement
Annex D Section 262 of the Delaware General Corporation Law
39
<PAGE> 47
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
ANCHOR GAMING
ANCHOR POWERHOUSE ACQUISITION CORPORATION
AND
POWERHOUSE TECHNOLOGIES, INC.
DATED AS OF MARCH 9, 1999
<PAGE> 48
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 9, 1999, among ANCHOR
GAMING, a Nevada corporation ("Parent"), ANCHOR POWERHOUSE ACQUISITION
CORPORATION, a Delaware corporation and a direct wholly-owned subsidiary of
Parent ("Merger Sub"), and POWERHOUSE TECHNOLOGIES, INC., a Delaware corporation
(the "Company").
PRELIMINARY STATEMENTS
A. The respective Boards of Directors of Parent, Merger Sub and the Company
have approved the merger of Merger Sub with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), whereby the
issued and outstanding shares of common stock of the Company, $.01 par value per
share (the "Company Common Stock"), will be converted into the right to receive
cash consideration of $19.50 per share (the "Per Share Amount").
B. The Merger requires the approval of the holders of a majority of the
outstanding shares of the Company Common Stock (the "Company Stockholder
Approval").
C. Concurrently with the execution and delivery of this Agreement and as a
condition and inducement to each of Parent's and Merger Sub's willingness to
enter into this Agreement, certain stockholders of the Company named on Exhibit
A-1 have entered into or agreed to enter into Voting Agreements (the "Voting
Agreements") with Parent, substantially in the form of Exhibit A-2, pursuant to
which such stockholders have agreed, among other things, to vote all shares of
Company Common Stock beneficially owned by such stockholders, or for which such
stockholders exercise voting power pursuant to an irrevocable proxy, in favor of
approval and adoption of this Agreement and the Merger.
D. Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which all parties hereby
acknowledge, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, Merger Sub will be
merged with and into the Company at the Effective Time (as defined in Section
1.3). Following the Merger, the separate corporate existence of Merger Sub will
cease and the Company will continue as the surviving corporation (the "Surviving
Corporation") and will succeed to and assume all the rights and obligations of
the Company and of Merger Sub in accordance with the DGCL. At the election of
Parent or Merger Sub, any one or more direct or indirect wholly-owned
subsidiaries of Parent incorporated under the laws of the State of Delaware may
be substituted for Merger Sub as a constituent corporation in the Merger. As
used in this Agreement, the term "Merger Sub" refers to any such substituted
corporation.
Section 1.2 Closing. The closing of the Merger will take place at 10:00
a.m. on a date to be specified by the parties, which will be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VI (the "Closing Date"), at the offices of Parent, unless another time,
date or place is agreed to in writing by the parties to this Agreement.
Section 1.3 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties will prepare,
execute and acknowledge and thereafter file a certificate of merger in such form
as is required by the DGCL and will make all other filings or recordings
required under the DGCL. The Merger will become effective at such time as such
filings are made with the Delaware
A-1
<PAGE> 49
Secretary of State, or at such other time as Merger Sub and the Company agree
should be specified in such filings (the date and time of such filing, or such
later date or time as may be set forth therein, being the "Effective Time").
Section 1.4 Effects of the Merger. The Merger will have the effects set
forth in Section 259 of the DGCL and all other effects specified in the
applicable provisions of the DGCL. Without limiting the foregoing, at the
Effective Time, all properties, rights, privileges, powers, and franchises of
the Company and Merger Sub will vest in the Surviving Corporation and all debts,
liabilities, obligations, and duties of the Company and Merger Sub will become
the debts, liabilities, obligations, and duties of the Surviving Corporation.
Section 1.5 Certificate of Incorporation and Bylaws. At the Effective
Time, the certificate of incorporation and bylaws of the Surviving Corporation
will be amended to be in the form of Exhibits B and C, respectively (except that
the name of the Surviving Corporation will be changed to Powerhouse
Technologies, Inc.).
Section 1.6 Directors. The directors of Merger Sub at the Effective Time
will continue as the directors of the Surviving Corporation, until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 1.7 Officers. The following officers of the Company will be the
initial officers of the Surviving Corporation and will hold office until the
earlier of their death, resignation or removal:
Michael D. Rumbolz
President and Secretary
Section 1.8 Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation considers or is 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 Merger Sub or the Company or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of Merger Sub or
the Company, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Merger Sub or the Company, 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 II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; MERGER CONSIDERATION
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any shares of capital stock of the Company or any shares of
capital stock of Merger Sub:
(a) Each share of the capital stock of Merger Sub issued and outstanding
immediately prior to the Effective Time will be converted into and exchanged for
one fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) Each share of Company Common Stock that is owned by the Company or by
any subsidiary of the Company and each share of Company Common Stock that is
owned by Parent, Merger Sub or any other subsidiary of Parent immediately prior
to the Effective Time will automatically be canceled and retired without any
conversion thereof and no consideration will be delivered with respect thereto.
A-2
<PAGE> 50
(c)(i) Except for shares to be canceled in accordance with Section
2.1(b), each share of the Company Common Stock issued and outstanding as of
the Effective Time (the "Shares") will be automatically canceled and
extinguished and converted into the right to receive in cash the Per Share
Amount (the "Merger Consideration") without interest, less any required
withholding taxes, upon surrender of the certificate formerly representing
such Shares in accordance with Section 2.3.
(ii) As of the Effective Time, all such Shares will no longer be
outstanding and will automatically be canceled and retired and will cease
to exist, and each certificate previously representing any such Shares will
thereafter represent the right to receive the Merger Consideration. The
holders of such certificates previously evidencing such Shares outstanding
immediately prior to the Effective Time will cease to have any rights with
respect to such Shares as of the Effective Time, except as otherwise
provided in this Agreement or by law. Such certificates previously
representing Shares will be exchanged for the Merger Consideration upon the
surrender of such certificates in accordance with the provisions of Section
2.3, without interest.
Section 2.2. Appraisal Rights.
(a) Notwithstanding anything in this Agreement to the contrary, Shares that
are issued and outstanding immediately prior to the Effective Time and that are
held by stockholders that have complied in all respects with the requirements of
the DGCL concerning the right of a stockholder of the Company to dissent from
the Merger and to require an appraisal of such Shares in the manner provided in
the DGCL, if applicable, and that, as of the Effective Time, have not
effectively withdrawn or lost such right to appraisal (the "Dissenting Shares")
will not be converted into or represent a right to receive the Merger
Consideration, but the holders of such Dissenting Shares will be entitled only
to such rights as are granted under Section 262 of the DGCL. Each holder of
Dissenting Shares that becomes entitled to payment for such Shares pursuant to
such section of the DGCL will receive payment for such Dissenting Shares from
the Surviving Corporation in accordance with the DGCL; provided, however, that
to the extent that any holder or holders of Shares have failed to establish the
entitlement to appraisal rights as provided in Section 262 of the DGCL, such
holder or holders (as the case may be) will forfeit the right to appraisal of
such Shares and each such Share will thereupon be deemed to have been converted,
as of the Effective Time, into and represent the right to receive payment from
the Surviving Corporation of the Merger Consideration, without interest.
(b) The Company will give the Parent and the Purchaser (i) prompt notice of
any written demands for appraisal, withdrawals of demands for appraisal, and any
other instrument served pursuant to Section 262 of the DGCL received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under Section 262 of the DGCL. The Company will
not, except with the express written consent of the Parent, voluntarily make any
payment with respect to any demands for appraisal or settle or offer to settle
any such demands.
Section 2.3. Payment for Shares.
(a) Prior to the Effective Time, Merger Sub will appoint a bank or trust
company reasonably acceptable to the Company as agent for the holders of Shares
(the "Paying Agent") to receive and disburse the Merger Consideration to which
holders of Shares become entitled pursuant to Section 2.1(c). At the Effective
Time, Merger Sub or Parent will provide the Paying Agent with sufficient cash to
allow the Merger Consideration to be paid by the Paying Agent for each Share
then entitled to receive the Merger Consideration (the "Payment Fund").
(b) Promptly after the Effective Time, Merger Sub or Parent will cause the
Paying Agent to mail to each record holder of an outstanding certificate or
certificates representing Shares that as of the Effective Time represent the
right to receive the Merger Consideration (the "Certificates"), a form of letter
of transmittal (which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates for payment. Upon surrender to the Paying Agent of
a Certificate, together with such letter of transmittal duly executed and
completed in accordance with its instructions and such other documents as may be
requested, the holder of such Certificate will be entitled to receive in
exchange for such
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Certificate, subject to any required withholding of taxes, the Merger
Consideration and such Certificate will forthwith be canceled. No interest will
be paid or accrued on the Merger Consideration upon the surrender of the
Certificates. If payment or delivery is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it will be a
condition of payment or delivery that the Certificate so surrendered be properly
endorsed, with signature properly guaranteed, or otherwise be in proper form for
transfer and that the person requesting such payment or delivery pay any
transfer or other taxes required by reason of the payment or delivery to a
person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.3(b), each Certificate (other than Certificates
held by persons referred to in Section 2.1(b)) will represent for all purposes
only the right to receive the Merger Consideration, without interest and subject
to any required withholding of taxes. Notwithstanding the foregoing, neither the
Paying Agent nor any party to this Agreement will be liable to a holder of
Shares for any Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(c) Promptly following the date that is six months after the Effective
Time, the Paying Agent will return to the Surviving Corporation all cash,
certificates and other property in its possession that constitute any portion of
the Payment Fund, and the duties of the Paying Agent will terminate. Thereafter,
each holder of a Certificate formerly representing a Share may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in exchange therefor the Merger
Consideration without any interest. Neither Parent, Merger Sub, nor the
Surviving Corporation will be liable to any holder of Shares for any amount paid
to a public official pursuant to applicable abandoned property, escheat or
similar laws. If Certificates are not surrendered prior to midnight on the
fourth anniversary of the Effective Time, unclaimed amounts of the Payment Fund
will, to the extent permitted under applicable law, become the property of the
Surviving Corporation. Notwithstanding the foregoing, the Surviving Corporation
will be entitled to receive from time to time all interest or other amounts
earned with respect to the Payment Fund as such amounts accrue or become
available.
(d) After the Effective Time there will be no registration of transfers on
the stock transfer books of the Surviving Corporation of the Shares that were
outstanding immediately prior to the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as follows:
Section 3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority and any
necessary governmental authority to own, operate, and lease its properties and
assets and to carry on its business as it is now being conducted, except for
failures to have such power and authority as could not reasonably be expected to
result in a Company Material Adverse Effect (as defined below). The Company is
duly qualified or licensed to do business and is in good standing in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities makes such qualification or licensing necessary, except for
failures to be so qualified or licensed and in good standing as could not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Copies of the certificate of incorporation and bylaws
of the Company, including all amendments, have been delivered to Parent and
Merger Sub and such copies are accurate and complete. The certificate of
incorporation and bylaws of the Company are in full force and effect and the
Company is not in default of the performance, observation, or fulfillment of any
provision of its certificate of incorporation or bylaws. For the purposes of
this Agreement, "Company Material Adverse Effect" or "Company Material Adverse
Change" means any change or effect that, individually or when taken together
with all such other changes or effects, could reasonably be expected to be
materially adverse to the condition (financial or other), business, properties,
assets, liabilities, results of operations, or legal or regulatory environment
of the Company and its subsidiaries, taken as a whole.
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Section 3.2 Subsidiaries. Schedule 3.2 contains a list of each subsidiary
of the Company and its jurisdiction of incorporation or organization. The
Company is, directly or indirectly, the record and beneficial owner of all the
outstanding shares of capital stock of each of its subsidiaries, there are no
proxies or voting agreements with respect to any such shares, and no equity
security of any of its subsidiaries is or may become required to be issued by
reason of any options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of any such
subsidiary, and there are no contracts, commitments, understandings or
arrangements by which any subsidiary is bound to issue additional shares of its
capital stock or securities convertible into or exchangeable for such shares.
All such shares directly or indirectly owned by the Company are owned by the
Company or a wholly-owned subsidiary of the Company, free and clear of any
claim, lien, encumbrance or agreement, except for liens listed on Schedule 3.2.
Each subsidiary of the Company is a corporation duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
incorporation and has the requisite corporate power and authority and any
necessary governmental authority to own, operate, or lease its properties and
assets and to carry on its business as it is now being conducted, except for
failures as could not, individually or in the aggregate, reasonably be expected
to result in a Company Material Adverse Effect. Each subsidiary of the Company
is duly qualified or licensed to do business and is in good standing in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities makes such qualification or licensing necessary, except for
failures to be so qualified, licensed or in good standing as could not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. Copies of the charter documents, bylaws or equivalent
organizational documents of each subsidiary of the Company have been delivered
to Parent and are accurate and complete. Neither the Company nor any subsidiary
of the Company (a) beneficially owns any equity interests in any entities that
are not subsidiaries of the Company or (b) is party to any joint venture,
partnership or similar arrangement.
Section 3.3 Authorized Capital. As of March 4, 1999, the authorized
capital stock of the Company consists solely of (a) 25,000,000 shares of common
stock, $.01 par value per share, of which 10,622,957 shares are outstanding and
(b) 10,000,000 shares of preferred stock, $.01 par value per share, of which no
shares are outstanding. All of the outstanding shares of capital stock of the
Company have been duly authorized and are validly issued, fully paid,
nonassessable, and free of preemptive rights. Schedule 3.3 lists each
outstanding stock option of the Company (the "Employee Options"), the number of
shares covered by such Employee Options, the exercise prices, and the plan or
agreement pursuant to which such Employee Options were issued. Except as set
forth above or on Schedule 3.3, there are no preemptive rights nor any
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Company or any of its
subsidiaries. There are no voting trusts or other understandings to which the
Company or any of its subsidiaries is a party with respect to the voting capital
stock of the Company or any of its subsidiaries.
Section 3.4 Corporate Authorization. The Company has the full corporate
power and authority to execute and deliver this Agreement and, subject to any
necessary stockholder approval of the Merger, to consummate the transactions
contemplated by this Agreement. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the Merger and
of the other transactions contemplated by this Agreement have been duly and
validly authorized by all necessary corporate action and, except for any
required approval of the Merger and any adoption of this Agreement by the
stockholders of the Company in connection with the consummation of the Merger,
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated by this
Agreement. This Agreement has been duly and validly executed and delivered by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
Section 3.5 Approvals; No Violations. No filing with, and no permit,
authorization, consent or approval of, any foreign or domestic public body or
authority is necessary for the consummation by the Company of the transactions
contemplated by this Agreement, except (i) the filing of a premerger
notification and report form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act"), (ii) the filing with the Securities and Exchange
Commission (the "SEC") of (x) the Proxy Statement (as
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defined in Section 5.2) and (y) such reports under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (iii) the
filing of the certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, and (iv) as set forth on Schedule 3.5.
Except as set forth on Schedule 3.5, the execution and delivery of this
Agreement by the Company, the consummation by the Company of the transactions
contemplated by this Agreement and the compliance by the Company with any of the
provisions of this Agreement will not (a) conflict with or result in any breach
of any provision of the charters, bylaws or equivalent organizational documents
of the Company or any of its subsidiaries; (b) result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, lease, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound; or (c) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its subsidiaries or any of their properties or assets, except
such violations, conflicts, breaches, defaults, terminations or accelerations
referred to in this Section 3.5 as could not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect or
adversely affect the ability of any party to perform its obligations under this
Agreement.
Section 3.6 SEC Filings; Financial Statements. At least since December
31, 1995, the Company has timely filed with the SEC all forms, reports,
statements, and documents required to be filed by it pursuant to the Securities
Act of 1933 and the rules and regulations promulgated thereunder (the
"Securities Act"), and the Exchange Act, and the rules and regulations
promulgated thereunder, together with all amendments thereto and will file all
such forms, reports, statements and documents required to be filed by it prior
to the Effective Time (collectively, the "Company Reports"), and has otherwise
complied in all material respects with the requirements of the Securities Act
and the Exchange Act. The Company has made available to Merger Sub accurate and
complete copies of all Company Reports and will promptly deliver to Merger Sub
any Company Report filed by the Company after the date of this Agreement. As of
their respective dates, the Company Reports did not and (in the case of Company
Reports filed after the date of this Agreement) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were or (in the case of Company Reports filed
after the date of this Agreement) will be made, not misleading. Each of the
historical consolidated balance sheets included in or incorporated by reference
into the Company Reports as of its date and each of the historical consolidated
statements of income and earnings, stockholders' equity and cash flows included
in or incorporated by reference into the Company Reports (including any related
notes and schedules) fairly presents or will (in the case of Company Reports
filed after the date of this Agreement) fairly present the consolidated
financial condition, results of operations, stockholders' equity and cash flows,
as the case may be, of the Company and its subsidiaries for the periods set
forth (subject, in the case of unaudited statements, to normal year-end audit
adjustments), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved. The Company
maintains a system of internal accounting controls sufficient to provide that
transactions are executed in accordance with management's general or specific
authorization, transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to maintain accountability for assets, access to assets is permitted only in
accordance with management's general or specific authorization and the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
Section 3.7 Absence of Certain Liabilities and Changes. Except as set
forth on Schedule 3.7, in the audited financial statements of the Company for
the period ended and as of December 31, 1998 (a copy of which has been delivered
to Parent), or in the Company Reports, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent, or otherwise that could, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect. Since
December 31, 1998, the Company and its subsidiaries have conducted their
respective businesses in a manner consistent with past practices, and neither
the Company nor any of its subsidiaries has become
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subject to any liabilities or obligations other than liabilities or obligations
incurred in the ordinary course of business consistent with past practices or
incurred in connection with this Agreement, or the Merger and disclosed in the
Company Reports or consisting of legal, printing, accounting and other customary
fees (but not including those of Lehman Brothers, Inc., or in the audited
financial statements of the Company as of and for the period ended December 31,
1998 (a copy of which has been delivered to Parent) the Company's financial
advisor (the "Advisor")) not exceeding $800,000 in the aggregate and incurred in
connection with this Agreement or the Merger. Except as disclosed on Schedule
3.7, in the Company Reports filed prior to the date of this Agreement and
publicly available, since September 30, 1998, the Company has conducted its
business only in the ordinary course consistent with prior practice, and there
has not been (i) any Company Material Adverse Change, (ii) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of the Company's capital stock, (iii) 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 shares of its capital stock, (iv) any
granting by the Company or any of its subsidiaries to any officer or employee of
the Company or any of its subsidiaries of (x) any increase in compensation,
except in the ordinary course of business consistent with prior practice or as
was required under employment agreements in effect as of the date of the most
recent audited financial statements included in the Company Reports filed prior
to the date of this Agreement or (y) any right to participate in (by way of
bonus or otherwise) the profits of the Company or any of its subsidiaries except
in the ordinary course of business consistent with past practice, (v) any
granting by the Company or any of its subsidiaries to any such officer or
employee of any increase in severance or termination pay, except as was required
under employment, severance or termination agreements in effect as of the date
of the most recent audited financial statements included in the Company Reports
filed prior to the date of this Agreement and publicly available, (vi) any entry
into, or renewal or modification, by the Company or any of its subsidiaries, of
any employment, consulting, severance or termination agreement with any officer,
director or employee of the Company or any of its subsidiaries, (vii) any
damage, destruction or loss, whether or not covered by insurance, that has or
could reasonably be expected to have a Company Material Adverse Effect, (viii)
any change in accounting methods, principles or practices by the Company
materially affecting its assets, liabilities or business, or (ix) any other
action taken by the Company or any of its subsidiaries which, if Section 5.1 had
then been in effect, would have been prohibited by such Article if taken without
Parent's consent (and no agreement, understanding, obligation or commitment to
take any such action exists).
Section 3.8 Compliance with Applicable Law.
(a) The Company and each of its subsidiaries currently hold and are in
compliance with the terms of all licenses, permits and authorizations necessary
for the lawful conduct of their respective businesses, and have complied with,
and neither the Company nor any of its subsidiaries is in violation of, or in
default under, the applicable statutes, ordinances, rules, regulations, orders
or decrees of any federal, state, local or foreign governmental bodies, agencies
or authorities having, asserting or claiming jurisdiction over it or over any
part of its operations or assets, except for violations that could not,
individually or in the aggregate reasonably be expected to, result in a Company
Material Adverse Effect. The businesses of the Company and its subsidiaries are
not being and have not been conducted in violation of any law, ordinance or
regulation of any governmental authorities and regulatory agencies except for
violations as could not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect. No investigation or
review by any governmental bodies or authorities or regulatory agencies with
respect to the Company or any of its subsidiaries is pending or, to the
knowledge of the Company, threatened, nor, to the knowledge of the Company, have
any governmental bodies or authorities or regulatory agencies indicated in
intention to conduct such an investigation or review (other than routine
investigations and reviews by gaming regulatory authorities to which the Company
is subject in the ordinary course of its business), and no fine has been levied
against, or order entered with respect to, the Company or any subsidiary by any
governmental body or authority or regulatory agency.
(b) The Company and each of its subsidiaries are, and each of their
respective directors, officers and persons performing management functions
similar to officers are, in compliance with all applicable Gaming Laws (as
defined below), except for noncompliance which could not reasonably be expected
to have a
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Company Material Adverse Effect. None of the Company, any subsidiary of the
Company or any director or officer of the Company or any subsidiary of the
Company 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 could not reasonably be
expected to have a Company Material Adverse Effect. The term "Gaming Laws" means
any federal, state, local or foreign statute, ordinance, rule, regulation,
permit, consent, registration, finding of suitability, approval, license,
judgment, order, decree, injunction or other authorization, including any
condition of limitation placed thereon, governing or relating to the current or
contemplated casino and gaming activities and operations of the Company or any
of its subsidiaries.
Section 3.9 Termination, Severance, and Employment Agreements. Set forth
on Schedule 3.9 is a complete and accurate list of each (a) employment,
severance or collective bargaining agreement not terminable without liability or
obligation on 60 days' or less notice; (b) agreement with any director,
executive officer or other key employee, agent or contractor of the Company or
any subsidiary of the Company (i) the benefits of which are contingent, or the
terms of which are materially altered, on the occurrence of a transaction
involving the Company or any subsidiary of the Company of the nature of any of
the transactions contemplated by this Agreement or relating to an actual or
potential change in control of the Company or any of its subsidiaries or (ii)
providing any term of employment or other compensation guarantee or extending
severance benefits or other benefits after termination not comparable to
benefits available to employees, agents, or contractors generally; (c)
agreement, plan or arrangement under which any person may receive payments that
may be subject to the tax imposed by Section 4999 of the Internal Revenue Code
of 1986 (the "Code") or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (d) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. Except as disclosed on Schedule 3.9, since
September 30, 1998, neither the Company nor any of its subsidiaries has entered
into or amended any employment or severance agreement with any director, officer
or key employee or, granted any severance or termination pay to any officer,
director or key employee of the Company or any of its subsidiaries.
Section 3.10 Employee Benefits.
(a) Set forth in Schedule 3.10 is a complete and correct list of all
"Employee Benefit Plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all plans or policies
providing for "fringe benefits" (including but not limited to vacation, paid
holidays, personal leave, employee discounts, educational benefits or similar
programs), and each other bonus, incentive compensation, deferred compensation,
profit sharing, stock, severance, retirement, health, life, disability, group
insurance, employment, stock option, stock purchase, stock appreciation right,
supplemental unemployment, layoff or any other similar plan, agreement, policy
or understanding (whether written or oral, qualified or nonqualified, currently
effective or terminated), and any trust, escrow or other agreement related
thereto, which (i) is or has been established, maintained or contributed to by
the Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate has any liability, or (ii) provides benefits, or describes
compensation or benefit policies or procedures applicable, to any officer,
employee, director, former officer, former employee or former director of the
Company or any ERISA Affiliate, or any dependent thereof, regardless of whether
funded (each, an "Employee Plan," and collectively, the "Employee Plans"). The
term "ERISA Affiliate" shall mean any corporation, trade or business the
employees of which, together with the employees of the Company, are required to
be treated as employed by a single employer under the provisions of ERISA or
Code Section 414.
(b) Neither the Company nor any ERISA Affiliate has at any time maintained
any plan subject to the provisions of Title IV of ERISA or contributed, or been
obligated to contribute, to any "multiemployer plan" within the meaning of ERISA
Section 4001(a)(3).
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(c) With respect to each Employee Benefit Plan that is a "pension plan"
within the meaning of ERISA Section 3(2), no "accumulated funding deficiency"
within the meaning of ERISA Section 302 or Code Section 412 has occurred and all
contributions required under any such plan have been timely made. With respect
to each such plan which is intended to constitute a qualified plan under Code
Section 401(a):
(i) such plan has satisfied in form the requirements of such exception
except to the extent amendments are not required by law to be made until
after the Closing Date;
(ii) the Internal Revenue Service has issued a favorable determination
letter as to the qualified status of the plan;
(iii) there has been no termination or partial termination of the
plan; and
(iv) the plan has been operated and administered in material
compliance with its terms and applicable laws.
(d) Each Employee Benefit Plan has been operated in material compliance
with ERISA, the Code, and other applicable law.
(e) With respect to each Employee Benefit Plan, the Company has furnished
to Merger Sub true, correct and complete copies of (i) the plan documents
(including amendments and summary plan descriptions); (ii) the most recent
determination letter received from the Internal Revenue Service; (iii) the
annual reports (Form 5500) required to be filed for the three most recent plan
years of each such Employee Benefit Plan; and (iv) all related trust agreements,
insurance contracts or other funding agreements which implement such Employee
Benefit Plan;
(f) Except as set forth on Schedule 3.10 and to the extent of coverage
required under Code Section 4980B, no written or oral representations have been
made to any employee or officer or former employee or officer of the Company
promising or guaranteeing any coverage under any employee welfare benefit plan
(as defined in ERISA Section 3(1)) for an period of time beyond the end of the
current plan year.
(g) Except as set forth on Schedule 3.10, the consummation of the
transactions contemplated by this Agreement will not (i) accelerate the time of
payment or vesting, or increase the amount of compensation (including amounts
due under an Employee Benefit Plan) due to any employee, officer, former
employee or former officer of Merger Sub; or (ii) require the Company to make a
larger contribution to, or pay greater benefits or provide owner rights under,
any Employee Benefit Plan than it otherwise would.
(h) No condition exists that would subject Merger Sub, any ERISA Affiliate
or the Company to any excise tax, penalty tax or fine related to any Employee
Benefit Plan, including, but not limited to a violation of Section 406(a) or (b)
of ERISA or any "prohibited transaction" (as defined in Code Section
4975(c)(1)).
(i) Other than routine claims for benefits, there are no actions, suits,
claims, audits or investigations pending or, to the Company's Knowledge,
threatened against, or with respect to, any of the Employee Benefit Plans or
their assets; and all contributions required to be made to the Employee Benefit
Plans have been made timely.
Section 3.11 Taxes. The Company and its subsidiaries have timely filed
all federal income tax returns and reports and other material returns and
reports relating to federal, state, local and foreign taxes required to be
filed. Such reports and returns are true, correct and complete, except for such
failures to be true, correct and complete as could not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect. The Company and its subsidiaries have paid or made adequate provision
for all taxes owed except taxes that if not so paid or provided for could not
reasonably be expected to result in a Company Material Adverse Effect, and,
except as disclosed in Schedule 3.11, no unpaid deficiencies in taxes or other
governmental charges for any period have been proposed or assessed by any
government taxing authority and, to the knowledge of the Company, no government
tax authority is threatening to propose or assess against the Company or any of
its subsidiaries any such deficiency or charge that could, individually or in
the aggregate, reasonably be expected to result in a Company Material Adverse
Effect. The Company and its subsidiaries
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have withheld or collected and paid over to the appropriate governmental
authorities or are properly holding for such payment all taxes required by law
to be withheld or collected, except for such failures to have so withheld or
collected and paid over, or to be so holding for payment as could not,
individually or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect. There are no material liens for taxes upon the assets
of the Company or its subsidiaries, other than liens for current taxes not yet
due and payable and liens for taxes that are being contested in good faith by
appropriate proceedings diligently prosecuted and listed on Schedule 3.11.
Neither the Company nor any of its subsidiaries has agreed to or is required to
make any adjustment under Section 481(a) of the Code. Neither the Company nor
any of its subsidiaries has made any election under Section 341(f) of the Code.
There are no outstanding agreements, waivers or arrangements extending the
statutory period of limitation applicable to any claim for, or the period for
the collection or assessment of, taxes due from or with respect to the Company
or any of its subsidiaries for any taxable period. No claim has been made by a
taxing authority in a jurisdiction in which the Company does not file tax
returns that the Company is required to file tax returns in such jurisdiction,
and, to the Company's knowledge, no taxing authority could reasonably make such
a claim. The Company has not been a member of an affiliated group as defined in
Section 1504 of the Code (or any analogous combined, consolidated or unitary
group as defined under state, local or foreign income tax law) other than one of
which the Company was the common parent. The Company has no obligation or
liability for the payment of taxes of any other person arising as a result of
any obligation to indemnify another person or as a result of the Company
assuming or succeeding to the tax liability of any other person as a successor,
transferee or otherwise. The Company will not be required to include any amount
in taxable income for any taxable period (or portion thereof) ending after the
Effective Time as a result of (A) a change in method of accounting for a taxable
period ending prior to the Effective Time, (B) any "closing agreement" as
described in Section 7121 of the Code (or corresponding provision of state,
local or foreign income tax laws) entered into prior to the Effective Time, (C)
any sale reported on the installment method that occurred prior to the Effective
Time or (D) any prepaid amount received prior to the Effective Time. All taxes
accrued but not yet due and all contingent liabilities for taxes are adequately
reflected in the reserves for taxes in the financial statements contained in the
Company Reports. Except as set forth on Schedule 3.11, there has been no
"ownership change" as described in Section 382 of the Code that has resulted in
any limitation on the Company's ability to offset pre-change losses against its
taxable income.
Section 3.12 Litigation. Except as set forth on Schedule 3.12, there is
no suit, claim, action, proceeding or investigation pending or, to the knowledge
of the Company, threatened against the Company or any of its subsidiaries or any
of their respective properties or assets before any court, regulatory agency or
tribunal that, individually or in the aggregate, if adversely determined, could
reasonably be expected to result in a Company Material Adverse Effect. Neither
the Company nor any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree that, individually or in the aggregate, could
reasonably be expected to result in a Company Material Adverse Effect or would
prevent or delay the consummation of the transactions contemplated by this
Agreement.
Section 3.13 Environmental Matters.
(a) Except for matters disclosed in Schedule 3.13 and except for matters
that are not reasonably expected to result, individually or in the aggregate
with all other such matters, in liability to the Company or any of its
subsidiaries in excess of $1,000,000, (i) the properties, operations and
activities of the Company and its subsidiaries are in compliance with all
applicable Environmental Laws (as defined below); (ii) the Company and its
subsidiaries and the properties and operations of the Company and its
subsidiaries are not subject to any existing, pending or, to the knowledge of
the Company, threatened action, suit, claim, investigation, inquiry or
proceeding by or before any governmental authority under any Environmental Laws;
(iii) all notices, permits, licenses, or similar authorizations, if any,
required to be obtained or filed by the Company or any of its subsidiaries under
any Environmental Laws in connection with any aspect of the business of the
Company or its subsidiaries, including, without limitation, those relating to
the treatment, storage, disposal or release of a hazardous or otherwise
regulated substance, have been duly obtained or filed and will remain valid and
in effect after the Merger, and the Company and its subsidiaries are in
compliance with the terms and conditions of all such notices, permits, licenses
and similar authorizations; (iv) the Company and its
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subsidiaries have satisfied and are currently in compliance with all financial
responsibility requirements applicable to their operations and imposed by any
governmental authority under any Environmental Laws, and the Company and its
subsidiaries have not received any notice of noncompliance with any such
financial responsibility requirements; (v) to the Company's knowledge, there are
no physical or environmental conditions existing on any property of the Company
or its subsidiaries or resulting from the Company's or such subsidiaries'
operations or activities, past or present, at any location, that would give rise
to any on-site or off-site remedial obligations imposed on the Company or any of
its subsidiaries under any Environmental Laws or that would effect the soil,
groundwater or surface water or human health (to the extent of exposure to
hazardous substances); (vi) to the Company's knowledge, since the effective date
of the relevant requirements of applicable Environmental Laws and the extent
required by such applicable Environmental Laws, all hazardous or otherwise
regulated substances generated by the Company and its subsidiaries have been
transported only by carriers authorized under Environmental Laws to transport
such substances and wastes, and disposed of only treatment, storage, and
disposable facilities authorized under Environmental Laws to treat, store or
dispose of such substances and wastes; (vii) there has been no exposure of any
person or property to hazardous substances or any pollutant or contaminant, nor
has there by any release of hazardous substances, or any pollutant or
contaminant into the environment by the Company or its subsidiaries or in
connection with their properties or operations that could reasonably be expected
to give rise to any claim against the Company or any of its subsidiaries for
damages or compensation; and (viii) the Company and its subsidiaries have made
available to Parent all internal and external environmental audits and studies
and all correspondence on substantial environmental matters in the possession of
the Company or its subsidiaries relating to any of the current or former
properties or operations of the Company and its subsidiaries.
(b) For purposes of this Agreement, the term "Environmental Laws" will mean
any and all laws, statutes, ordinances, rules, regulations or orders of any
Governmental Entity pertaining to health (to the extent of exposure to hazardous
substances) the environment currently in effect in any and all jurisdictions in
which the Company and its subsidiaries own property or conduct business,
including, without limitation, the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as
amended, the Toxic Substances Control Act, as amended, the Hazardous & Solid
Waste Amendments Act of 1984, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation
Act, as amended, the Oil Pollution Act of 1990, any state laws implementing the
foregoing federal laws and all other environmental conservation or protection
laws. For purposes of this Agreement, the terms "hazardous substance" and
"release" have the meanings specified in CERCLA and RCRA and will include
petroleum and petroleum products, radon and PCB's and the term "disposal" has
the meaning specified in RCRA; provided, however, that to the extent the laws of
the state in which the property is located establish a meaning for "hazardous
substance," "release" or "disposal" that is broader than that specified in
either CERCLA or RCRA, such broader meaning will apply.
Section 3.14 Voting Requirements. The Board of Directors of Company at a
meeting duly called and held: (i) determined that the Merger is advisable and
fair and in the best interests of the Company and its stockholders; (ii)
approved the Merger and this Agreement and the transactions contemplated by this
Agreement; (iii) recommended approval of this Agreement and the Merger by the
Company's stockholders and directed that the Merger be submitted for
consideration by the Company's stockholders; and (iv) adopted a resolution
having the effect of causing the Merger not to be subject to Sections 203 of the
DGCL. The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock entitled to vote is the only vote of the holders
of any class or series of the Company's capital stock necessary to approve the
Merger, this Agreement and the transactions contemplated by this Agreement.
Section 3.15 Finders and Investment Bankers; Transaction
Expenses. Neither the Company nor any of its officers or directors has employed
any investment banker, business consultant, financial advisor, broker or finder
in connection with the transactions contemplated by this Agreement, except for
the Advisor, or incurred any liability for any investment banking, business
consultancy, financial advisory, brokerage or
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finders' fees or commissions in connection with the transactions contemplated
hereby, except for fees payable to the Advisor (as reflected in agreements
between such firm and the Company, copies of which have been delivered to
Parent).
Section 3.16. Insurance. The Company and each of its subsidiaries are
currently insured, and during each of the past five calendar years have been
insured, for reasonable amounts against such risks as companies engaged in a
similar business and similarly situated would, in accordance with good business
practice, customarily be insured.
Section 3.17. Title to Properties; Entire Business. The Company and its
subsidiaries have good title or a valid and subsisting leasehold interest in and
to or a valid and enforceable license to use all material assets, properties and
rights owned, used or held for use by them in the conduct of their respective
businesses, in each case, free and clear of any liens, claims or encumbrances
other than (a) as set forth on Schedule 3.12 or (b) Permitted Liens (as defined
below). The Company and its subsidiaries own or have sufficient right to use all
assets and properties necessary to conduct their businesses in the manner in
which they are currently conducted. As used in this Agreement, a "Permitted
Lien" means: (a) a lien of a landlord, carrier, warehouseman, mechanic,
materialman or any other statutory lien arising in the ordinary course of
business; (b) a lien for taxes not yet due or being contested in good faith; (c)
with respect to the right of the Company or its subsidiaries to use any property
leased to the Company or its subsidiaries, a lien that arises by the terms of
the applicable lease; (d) a purchase money security interest arising in the
ordinary course of business; or (e) a lien that does not materially detract from
the value of the encumbered property or assets or does not materially detract
from or interfere with the use of the encumbered property or assets in the
ordinary course of business.
Section 3.18. Intellectual Property Rights. There are no registered
patents, trademarks, service marks, trade names or copyrights, or applications
for or licenses (to or from the Company or any of its subsidiaries) with respect
to any of the foregoing that are material to the Company and its subsidiaries
taken as a whole, that (a) are owned by the Company or any of its subsidiaries,
or with respect to which the Company or any of its subsidiaries has any rights,
or (b) are used, whether directly or indirectly, by the Company or any of its
subsidiaries, other than as set forth on Schedule 3.18. Except as set forth in
Schedule 3.18, the Company and its subsidiaries have the right to use the
trademarks and trade names set forth on such Schedule 3.18 and any other
computer software and software licenses, intellectual property, proprietary
information, trade secrets, trademarks, trade names, copyrights, material and
manufacturing specifications, drawings and designs used by the Company or any of
its subsidiaries (collectively, "Intellectual Property"), without infringing on
or otherwise acting adversely to the rights or claimed rights or any person,
except to the extent such infringement or actions adverse to another's rights or
claimed rights could not reasonably be expected to have a Company Material
Adverse Effect. Except as set forth on such Schedule 3.18, neither the Company
nor any of its subsidiaries is obligated to pay any royalty or other
consideration material to the Company and its subsidiaries taken as a whole to
any person in connection with the use of any Intellectual Property. Except as
set forth in such Schedule 3.18 and as could not reasonably be expected to have
a Company Material Adverse Effect, to the Company's knowledge, no other person
is infringing on the rights of the Company and its subsidiaries in any of their
Intellectual Property.
Section 3.19 Major Customers. The Company has made available to Parent a
list of the ten largest customers by dollar volume of the Company and its
subsidiaries (the "Major Customers"), with the amount of revenues attributable
to each such customer, for each fiscal years ending December 31, 1997 and 1998.
Except as set forth on Schedule 3.19, none of the Major Customers has terminated
or materially altered its relationship with the Company since January 1, 1997
or, to the Company's knowledge, threatened to do so or otherwise notified the
Company of its intention to do so, and there has been no material dispute with
any of the Major Customers since January 1, 1997.
Section 3.20. Year 2000 Compliance. The disclosures in the Company's
Quarterly Report on Form 10-Q for the period ending September 30, 1998 regarding
the "status of Year 2000 Compliance" are true, complete and correct in all
material respects as if made on the date of this Agreement.
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Section 3.21. Certain Material Contracts. Except as disclosed on Schedule
3.21, there is no contract or agreement that is material to the business,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole. Each material contract disclosed on Schedule 3.21 is, to the
extent it purports to be, a valid and legally binding obligation of the Company
or its subsidiaries, as applicable, and is in full force and effect. Neither the
Company nor any of its subsidiaries is in violation of or in default under (nor
does there exist any condition which upon the passage of time or the giving of
notice, or both, would cause such a violation or default under) any loan or
credit agreement, note, bond, mortgage, indenture, lease or any other contract,
agreement, arrangement or understanding to which it is a party or by which it or
any of its properties or assets is bound, except for violations or defaults that
could not reasonably be expected to have a Company Material Adverse Effect.
Section 3.22. Insider Interests. Except as set forth on Schedule 3.22, no
person that beneficially owns in excess of 5% of the outstanding Company Common
Stock nor any executive officer or director of the Company or any of its
subsidiaries or any affiliate of any officer or director of the Company or any
of its subsidiaries (as the term "affiliate" is defined in Rule 12b-2 under the
Exchange Act) (a) has any interest in any assets or property (whether real or
personal, tangible or intangible) of or used in the business of the Company or
any subsidiary of the Company (other than as an owner of outstanding securities
of the Company); (b) (except for any person that beneficially owns in excess of
5% of the outstanding Company Common Stock) has any direct or indirect interest
of any nature whatsoever in any person or business which competes with, conducts
any business similar to, has any arrangement or agreement (including
arrangements regarding the shared use of personnel or facilities) with (whether
as a customer or supplier or otherwise), or is involved in any way with, the
Company or any subsidiary of the Company; or (c) is indebted or otherwise
obligated to the Company. The Company is not indebted or otherwise obligated to
any such person, except for amounts due under normal arrangements applicable to
all employees generally as to salary or reimbursement of ordinary business
expenses not unusual in amount or significance. As of the date of this
Agreement, except for claims and proceedings listed on Schedule 3.22, there are
no losses, claims, damages, costs, expenses, liabilities or judgments which
would entitle any director, officer or employee of the Company or any of its
subsidiaries to indemnification by the Company or its subsidiaries under
applicable law, the certificate of incorporation or bylaws of the Company or any
of its subsidiaries or any insurance policy maintained by the Company or any of
its subsidiaries.
Section 3.23 Noncompetition. The Company and its subsidiaries are not,
and after the Effective Time neither the Surviving Corporation nor Parent will
be (by reason of any agreement to which the Company is a party), subject to any
noncompetition or similar restriction on their respective businesses.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
Section 4.1 Organization and Qualification. Each of Parent and Merger Sub
is a corporation duly organized, validly existing, and in good standing under
the laws of its jurisdiction of incorporation and has all requisite corporate
power and authority and any necessary governmental authority to carry on its
business as now conducted. Each of Parent and Merger Sub is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification or licensing necessary, except for failures to be so
duly qualified or licensed and in good standing as could not, individually or in
the aggregate, reasonably be expected to result in a Parent Material Adverse
Effect. For the purposes of this Agreement, "Parent Material Adverse Effect" or
"Parent Material Adverse Change" means any change or effect that, individually
or when taken together with all such other changes or effects, could reasonably
be expected to be materially adverse to the condition (financial or other),
business, properties, assets, liabilities, results of operations or legal or
regulatory environment of Parent and its subsidiaries, taken as a whole.
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Section 4.2 Corporate Authorization. Each of Parent and Merger Sub has
the full corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated by this Agreement. The execution,
delivery and performance by each of Parent and Merger Sub of this Agreement and
the consummation by Parent and Merger Sub of the Merger and of the other
transactions necessary for such consummation have been duly and validly
authorized by Parent as sole stockholder of Merger Sub and by the Board of
Directors of each of Parent and Merger Sub and no other corporate proceedings on
the part of Parent or Merger Sub are necessary to authorize this Agreement or to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly and validly executed and delivered by each of Parent and Merger Sub
and constitutes a valid and binding obligation of each of Parent and Merger Sub,
enforceable in accordance with its terms.
Section 4.3 Approvals; No Violations. No filing with, and no permit,
authorization, consent or approval of any foreign or domestic public body or
authority is necessary for the consummation by Parent and Merger Sub of the
transactions contemplated by this Agreement, except (i) the filing of a
premerger notification and report form under the HSR Act, (ii) the filing with
the SEC of such reports under the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated by this Agreement, (iii)
the filing of the certificate of merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, and (iv) as set forth on Schedule 4.3.
Except as set forth on Schedule 4.3, the execution and delivery of this
Agreement by Parent and Merger Sub, the consummation by Parent and Merger Sub of
the transactions contemplated by this Agreement and the compliance by them with
any of the provisions of this Agreement will not (a) conflict with or result in
any breach of any provision of the organizational documents or bylaws of Parent
or Merger Sub; (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, or acceleration under), any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
lease, contract, agreement, or other instrument or obligation to which Parent or
Merger Sub is a party or by which either of them or any of their respective
properties or assets may be bound; or (c) violate any order, writ, injunction,
decree, statute, rule, or regulation applicable to Parent or Merger Sub or any
of their respective properties or assets, except such violations, conflicts,
breaches, defaults, terminations, or accelerations referred to in this Section
4.3 as could not, individually or in the aggregate, reasonably be expected to
result in a Parent Material Adverse Effect.
Section 4.4 No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization, or the
negotiation and consummation of this Agreement and the transactions contemplated
by this Agreement, Merger Sub has not incurred any obligations or liabilities,
nor has it engaged in any business or activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
Section 4.5 Information Supplied. None of the information supplied or to
be supplied by Parent or Merger Sub for inclusion or incorporation by reference
in the Proxy Statement (as defined in Section 5.2) will, at the date the Proxy
Statement is first mailed to the stockholders of the Company or at the time of
the meeting of the stockholders of the Company held to vote on approval and
adoption of this Agreement and the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 4.6 Financing. Purchaser will use its commercially reasonable
best efforts to secure sufficient funds on the Closing Date to satisfy its
obligations under this Agreement, including, without limitation, preserving its
right to borrow pursuant to the terms of a letter dated March 9, 1999 from Bank
of America National Trust and Savings Association and NationsBanc Montgomery
Securities LLC by securing an extension of such commitment or by executing
definitive loan agreements as contemplated by such letter.
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ARTICLE V
COVENANTS
Section 5.1 Conduct of Business of the Company.
(a) Except as expressly contemplated by this Agreement during the period
from the date of this Agreement to the Effective Time:
(i) Each of the Company and its subsidiaries will conduct its business
solely in the ordinary course consistent with past practices.
(ii) Neither the Company nor any of its subsidiaries will
intentionally take or willfully omit to take any actions that is intended
to or could reasonably be expected to result in, a Company Material Adverse
Effect.
(iii) The Company will use its reasonable best efforts to preserve
intact the business organization of the Company and each of its
subsidiaries, to keep available the services of its and their present
officers and key employees and consultants and to maintain satisfactory
relationships with customers, agents, reinsurers, suppliers and other
persons having business relationships with the Company or its subsidiaries.
(b) Without limiting the provisions of Section 5.1(a) or as otherwise
expressly provided in this Agreement, neither the Company nor any of its
subsidiaries will:
(i) issue, sell or dispose of additional shares of capital stock of
any class (including shares of Company Common Stock) of the Company or any
of its subsidiaries, or securities convertible into or exchangeable for any
such shares or securities, or any rights, warrants or options to acquire
any such shares or securities, other than shares of Company Common Stock
issued upon exercise of the options disclosed in Schedule 3.3, in each case
as disclosed on Schedule 3.3;
(ii) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding capital stock, or
other securities of the Company or any of its subsidiaries;
(iii) split, combine, subdivide or reclassify any of its capital stock
or declare, set aside, make or pay any dividend or distribution on any
shares of its capital stock except for dividends or distributions to the
Company and its subsidiaries from their respective subsidiaries;
(iv) sell, pledge, dispose of or encumber any of its assets, except
for sales, pledges, dispositions or encumbrances in the ordinary course of
business consistent with past practices or between the Company and its
subsidiaries;
(v) incur or modify any indebtedness or issue or sell any debt
securities, or assume, guarantee, endorse or otherwise as an accommodation
become absolutely or contingently responsible for obligations of any other
person, or make any loans or advances, other than in the ordinary course of
business consistent with past practices;
(vi) adopt or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement, deferred
compensation, employment or other employee benefit agreements, trusts,
plans, funds or other arrangements for the benefit or welfare of any
director, officer or employee, or (except for normal increases in the
ordinary course of business that are consistent with past practices and
that, in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company) increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay
any benefit not required by any existing plan or arrangement (including,
without limitation, the granting or vesting of stock options or stock
appreciation rights) or take any action or grant any benefit not expressly
required under the terms of any existing agreements, trusts, plans, funds
or other such arrangements or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing, or make or agree to
make any payments to any directors, officers, agents, contractors or
employees relating to a change or potential change in control of the
Company;
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(vii) acquire by merger, consolidation or acquisition of stock or
assets any corporation, partnership or other business organization or
division or make any investment either by purchase of stock or securities,
contributions to capital (other than to wholly-owned subsidiaries),
property transfer or purchase of any material amount of property or assets,
in any other person;
(viii) amend its certificate of incorporation, bylaws 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 the Company;
(ix) take any action other than in the ordinary course of business and
consistent with past practices, to pay, discharge, settle or satisfy any
claim, liability or obligation (absolute or contingent, accrued or
unaccrued, asserted or unasserted, or otherwise);
(x) change any method of accounting or accounting practice used by the
Company or any of its subsidiaries, except for any change required by
reason of a concurrent change in generally accepted accounting principles;
(xi) revalue in any respect any of its assets, including, without
limitation, writing off notes or accounts receivable other than in the
ordinary course of business consistent with past practices;
(xii) authorize any new capital expenditure or expenditures (A) that,
when aggregated with all other capital expenditures, exceeds the Company's
1999 capital budget, or (B) that departs from such capital budget with
respect to any item of such capital budget by an aggregate amount exceeding
$5,000,000 without prior consultation with Parent;
(xiii) except in the ordinary course of business consistent with past
practice, make any tax election, settle or compromise any federal, state or
local tax liability or consent to the extension of time for the assessment
or collection of any federal, state or local tax;
(xiv) authorize, recommend, propose or announce an intention to adopt
a plan of complete or partial liquidation or dissolution of the Company;
(xv) enter into any collective bargaining agreement;
(xvi) engage in any transaction with, or enter into any agreement,
arrangement or understanding with, directly or indirectly, any of the
Company's affiliates other than pursuant to such agreements existing on the
date of this Agreement and disclosed on Schedules to this Agreement; or
(xvii) voluntarily take any action or willfully omit to take any
action that could make any representation or warranty in Article III untrue
or incorrect in any material respect at any time, including as of the date
of this Agreement and as of the Effective Time, as if made as of such time.
(c) Notwithstanding anything to the contrary contained in Section 5.1(b),
it is understood and agreed that to become effective, the restrictions contained
in Section 5.1(b)(i) through (viii) and (xiv) may require the approval of
various gaming or other regulatory agencies and will require the approval of the
Nevada Gaming Commission as to those subsidiaries of the Company that are Nevada
gaming licensees and that such restrictions will be effective only to the extent
permitted pursuant to the rules and regulations of such gaming or other
regulatory authorities, it being the intent of the parties that such
restrictions be effective to the maximum extent allowable by applicable law.
Section 5.2 Proxy Statement. Promptly after the execution of this
Agreement, the Company and Parent will cooperate with each other and use all
reasonable efforts to prepare, and the Company will file with the SEC, as soon
as is reasonably practicable, a proxy statement, together with a form of proxy,
with respect to the Special Meeting (as defined in Section 5.3). For the
purposes of this Agreement, the term "Proxy Statement" means such proxy filed in
final form with the SEC at the time it initially is mailed to the stockholders
of the Company and all amendments or supplements thereto, if any, similarly
filed and mailed. The Company will use all reasonable efforts to have the Proxy
Statement cleared by the SEC as promptly as practicable after filing and, as
promptly as practicable after the Proxy Statement has been so cleared, will mail
the Proxy Statement to the stockholders of the Company as of the record date for
the Special Meeting. The
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Company represents that none of the information provided or to be provided by
it, and Parent and Merger Sub represent that none of the information provided or
to be provided by them, for use in the Proxy Statement will, on the date the
Proxy Statement is first mailed to the stockholders of the Company and on the
date of the Special Meeting, be false or misleading with respect to any material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading, and Parent, the Company, and Merger
Sub each agrees to correct any information provided by it for use in the Proxy
Statement that has become false or misleading in any material respect and file
such amendments and supplements as are necessary. The Company agrees that the
Proxy Statement will comply as to form in all material respects with all
applicable requirements of federal securities laws and applicable state laws.
Section 5.3 Action of Stockholders of the Company; Voting.
(a) The Company will take all action necessary in accordance with the DGCL
and the certificate of incorporation and bylaws of the Company, to call, as soon
as is practicable, a meeting of its stockholders (the "Special Meeting") at
which the stockholders of the Company will consider and vote upon the Merger and
this Agreement. Unless the fiduciary duties of the Board of Directors under
applicable law require otherwise, the Proxy Statement will contain the unanimous
recommendation of the Board of Directors of the Company that the stockholders of
the Company vote to adopt and approve the Merger and this Agreement. The Company
will, at the request of Parent, use all reasonable efforts to obtain from its
stockholders proxies in favor of such adoption and approval and to take all
other action necessary, or, in the reasonable judgment of the Company and
Parent, helpful to secure the vote or consent of stockholders required by the
DGCL to effect the Merger.
(b) At the Special Meeting, Parent, Merger Sub and their subsidiaries will
vote, or cause to be voted, all of the shares of Company Common Stock then owned
by any of them in favor of the Merger.
Section 5.4 Additional Agreements. Subject to the terms and conditions of
this Agreement and to the fiduciary obligations of the Board of Directors of the
Company under applicable law, each of the parties agrees to use their respective
best efforts to take, or cause to be taken, all actions to do, or cause to be
done, all things necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this Agreement
(including consummation of the Merger and the financing of the transaction
contemplated by this Agreement) and to cooperate with each other in connection
with the foregoing, including, without limitation, using their respective best
efforts (a) to obtain all necessary waivers, consents and approvals from other
parties to loan agreements, leases and other contracts, (b) to obtain all
necessary consents, approvals and authorizations as are required to be obtained
under any federal, state or foreign law or regulations, (c) to lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated by this
Agreement, (d) to prepare and effect all necessary registrations and filings,
and (e) to fulfill all conditions to and covenants contained in this Agreement.
If, after the Effective Time, any action is necessary to effect the purposes of
this Agreement, the proper officers and directors of each party will take all
such necessary action.
Section 5.5 Gaming Approvals.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the Company, Parent and Merger Sub agrees to promptly prepare
and file all necessary documentation, to effect all applications, notices,
petitions and filings, to obtain as promptly as practicable all permits,
registrations, licenses, findings of suitability, consents, variances,
exemptions, orders, approvals and authorizations of all governmental entities
which are necessary in connection with the consummation of the transactions
contemplated by this Agreement (whether required to be made or obtained prior to
or after the Effective Time) (all of the foregoing, collectively "Gaming
Approvals") and to comply with the terms and conditions of all such Gaming
Approvals. Each of the Company, Parent and Merger Sub (i) will use commercially
reasonable best efforts to, and to cause their respective officers, directors
and affiliates to, file within 30 days after the date of this Agreement, and in
all events will file within 60 days after the date of this Agreement, all
required initial applications and documents in connection with obtaining the
Gaming Approvals; (ii) will act reasonably and promptly thereafter in responding
to additional requests in connection therewith; and (iii) will
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use commercially reasonable best efforts to secure all requisite Gaming
Approvals. Parent and the Company will have the right to review in advance, and
to the extent practicable, each will consult with the other on, in each case
subject to applicable laws relating to the exchange of information, all the
information relating to the Company or Parent, as the case may be, and any of
their respective subsidiaries, directors, officers and stockholders, which
appear in any filing made with, or written materials submitted to, any
governmental entity in connection with the Gaming Approvals. The Company and
Parent agree to promptly advise each other upon receiving any communication from
any governmental entity which causes such party to believe that there is a
reasonable likelihood that any Gaming Approval required from such governmental
entity will not be obtained or that the receipt of any such approval will be
materially delayed.
(b) If any person becomes an Ineligible Person (as defined below) prior to
the Effective Time, then (i) each Ineligible Person will, and the Company will
cause each Ineligible Person to, immediately and permanently, resign from any
position, including as director or officer, in the Company or any subsidiary of
the Company, and each Ineligible Person will have no further management role in
the Company or any such subsidiary; (ii) if required to do so by any
governmental entity as a condition to licensure, each Ineligible Person will,
and the Company will cause each Ineligible Person to, dispose of all of its
securities or other ownership interests in the Company; and (iii) each
Ineligible Person will, and the Company will cause each Ineligible Person to,
cooperate with the Company in their efforts to obtain and retain in full force
and effect the Gaming Approvals. "Ineligible Person" means any officer, director
or other person who owns any capital stock or other interest in the Company (i)
who is denied a Gaming Approval, disqualified from eligibility for a Gaming
Approval or found unsuitable by any governmental entity before the Effective
Time; (ii) whose continued involvement in the business of the Company as an
employee, director, officer or otherwise, may, in Parent'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 the
Company or the Surviving Corporation; or (iii) is expressly precluded from
having any continuing interest in the Company or the Surviving Corporation 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.
Section 5.6 Notification of Certain Matters. The Company will give prompt
notice to Parent and Merger Sub, and Parent and Merger Sub will give prompt
notice to the Company, of (a) the occurrence, or failure to occur, of any event,
which occurrence or failure could cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at any
time, (b) any material failure of the Company, Parent, or Merger Sub, as the
case may be, or of any officer, director, employee or agent of the Company,
Parent or Merger Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, (c) any act, omission to act, event or occurrence that, with
notice, the passage of time or otherwise, could result in a Company Material
Adverse Effect or a Parent Material Adverse Effect, as the case may be, and (d)
any contingent liability of the Company for which it reasonably believes it
will, with the passage of time or otherwise, become liable. No such notification
will affect the representations or warranties of the parties or the conditions
to the obligations of the parties under this Agreement.
Section 5.7 Access to Information.
(a) From the date of this Agreement to the Effective Time, the Company
will, and will cause its subsidiaries, officers, directors, employees and agents
upon reasonable notice to, afford to officers, employees, and agents of Parent,
Merger Sub and their affiliates and the banks, other financial institutions, and
investment bankers working with Parent or Merger Sub, and their respective
officers, employees and agents, complete access at all reasonable times to its
officers, employees, agents, properties, books, records and contracts, and will
furnish Parent, Merger Sub and their affiliates and the banks, other financial
institutions and investments bankers working with Parent or Merger Sub, all
financial, operating and other data and information as they reasonably request.
(b) Each of Parent and Merger Sub will hold and will cause its directors,
officers, agents, employees, consultants and advisors to hold in confidence,
unless compelled to disclose by judicial or administrative process or, in the
written opinion of its legal counsel, by other requirements of law, all
documents and
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information concerning the Company and its subsidiaries furnished to such
persons in connection with the transactions contemplated by this Agreement
(except to the extent that such information can be shown to have been (i)
previously known by such persons from sources other than the Company, or its
directors, officers, representatives or affiliates; (ii) in the public domain
through no fault of such persons; or (iii) later lawfully acquired by such
persons on a non-confidential basis from other sources who are not known by
Parent or Merger Sub to be bound by a confidentiality agreement or otherwise
prohibited from transmitting the information to Parent or Merger Sub by a
contractual, legal or fiduciary obligation) and will not release or disclose
such information to any other person, except its directors, officers, agents,
employees, consultants and advisors, in connection with this Agreement who need
to know such information. If the transactions contemplated by this Agreement are
not consummated, such confidence shall be maintained and, if requested by or on
behalf of the Company, Parent and Merger Sub will, and will use all reasonable
efforts to cause their auditors, attorneys, financial advisors and other
consultants, agents and representatives to, return to the Company or destroy all
copies of written information furnished by the Company to Parent and Merger Sub
or their agents, representatives or advisors. It is understood that Parent and
Merger Sub will be deemed to have satisfied their obligation to hold such
information confidential if they exercise the same care as they take to preserve
confidentiality for their own similar information.
(c) No investigation pursuant to this Section 5.7 will affect any
representations or warranties of the parties in this Agreement or the conditions
to the obligations of the parties to this Agreement.
Section 5.8 Public Announcements. Parent and Merger Sub, on the one hand,
and the Company, on the other hand, will consult with each other before issuing
any press release or otherwise making any public statements with respect to this
Agreement, or the other transactions contemplated by this Agreement, and will
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or the listing requirements of
any securities exchange.
Section 5.9 Officers' and Directors' Indemnification.
(a) The indemnification obligations set forth in the Company's certificate
of incorporation and bylaws on the date of this Agreement shall survive the
Merger and shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company (the "Indemnified
Parties").
(b) Notwithstanding any other provision of this Agreement, the Company may
expend up to $500,000 to purchase a "tail" with a term of not more than 5 years
for its current officers and directors liability insurance policy.
(c) In the event Parent, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 5.9. In the event the Surviving Corporation transfers
any material portion of its assets, in a single transaction or in a series of
transactions, Parent will either guarantee the indemnification obligations
referred to in Section 5.9(a) or take such other action to ensure that the
ability of the Surviving Corporation to satisfy such indemnification obligations
will not be diminished in any material respect.
(d) This Section 5.9 shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
(e) In the event any action, suit, proceeding or investigation relating to
this Agreement or to the transactions contemplated by this Agreement is
commenced by a third party, whether before or after the Effective Time, the
parties to this Agreement agree, subject to the fiduciary duties of the
respective directors of the Company and Parent, to cooperate and use all
reasonable efforts to defend against and respond to such action, suit,
proceeding or investigation.
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(f) As of the Effective Time, Parent shall guaranty the obligations of the
Company under indemnification agreements between the Company and its directors
and executive officers, copies of which have been provided to Parent.
Section 5.10 Employee Options. As soon as practicable following the date
of this Agreement, the Company will use its reasonable best efforts to cause all
outstanding Employee Options to be exercised as of the Effective Time or to take
such actions as are required to provide that each stock option to purchase
shares of Company Common Stock outstanding immediately prior to the consummation
of the Merger, whether or not then exercisable, will be canceled immediately
prior to the consummation of the Merger in exchange for an amount in cash
payable at the time of such cancellation equal to the product of (a) the number
of shares of Company Common Stock subject to such stock option and unexercised
immediately prior to the consummation of the Merger and (b) the excess of the
Merger Consideration over the per share exercise price pursuant to such stock
option.
Section 5.11 Other Actions by the Company. If any "fair price,"
"moratorium," "control share acquisition" or other form of antitakeover statute,
regulation, charter provision or contract is or becomes applicable to the
transactions contemplated by this Agreement, the Company and the members of the
Board of Directors of the Company will use their best efforts to grant such
approvals and take such actions as are necessary under such laws, provisions or
contracts so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise act to eliminate or minimize the effects of such
statute, regulation, provision or contract on the transactions contemplated by
this Agreement.
Section 5.12 Available Funds. Parent and Merger Sub will use their
commercially reasonable best efforts to pursue and obtain the financing
sufficient to allow consummation of the transactions contemplated by this
Agreement from recognized national financial institutions as soon as
practicable, including, without limitation, preserving its right to borrow
pursuant to the terms of a letter dated March 9, 1999 from Bank of America
National Trust and Savings Association and NationsBanc Montgomery Securities LLC
by securing an extension of such commitment or by executing definitive loan
agreements as contemplated by such letter.
Section 5.13 Letters of Accountants. The Company shall use its
commercially reasonable best efforts to cause to be delivered to Parent
"comfort" letters of KPMG L.L.P., the Company's independent public accountants,
dated and delivered on the date on which the Proxy Statement is mailed to the
Company's stockholders and on the Closing Date, each addressed to Parent, in
form and substance reasonably satisfactory to Parent and reasonably customary in
scope and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
Section 5.14 Employees; Transition After the Effective Time, Anchor will
expand its board of directors and offer seats thereon to Richard R. Burt and
Richard M. Haddrill. Promptly after the Closing, Parent will grant to employees
of the Company as of the date of this Agreement that are still employed by
Parent or its affiliates on the 60th day after the Effective Time options to
purchase an aggregate of 350,000 shares of common stock, par value $.01 per
share, of Parent, which options will have reasonable vesting and other terms
approved by a committee comprising Michael D. Rumbolz, Richard R. Burt and
Richard M. Haddrill. For 12 months after the Effective Time, Parent will not
require any senior executive of the Company to relocate without a relocation
expense plan approved of by Richard R. Burt and Richard M. Haddrill.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1 Mutual Conditions. The respective obligations of each party
to effect the Merger are subject to the satisfaction prior to the Effective Time
of the following conditions:
(a) This Agreement will have been adopted and approved by the affirmative
vote of the stockholders of the Company in accordance with the certificate of
incorporation and bylaws of the Company and with applicable law.
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(b) No federal or state statute, rule, regulation, injunction, decree or
order will be enacted, promulgated, entered or enforced that would prohibit
consummation of the Merger or of the other transactions contemplated by this
Agreement; provided that the parties to this Agreement agree to use their
respective commercially reasonable best efforts to have any such injunction,
decree or order lifted.
(c) The waiting period applicable to the consummation of the Merger under
the HSR Act will have expired or been terminated.
Section 6.2 Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Each of the representations and warranties of the Company contained in
this Agreement will be true and correct in all material respects (except that
where any statement in a representation or warranty expressly includes a
standard of materiality, such statement will be true and correct in all respects
giving effect to such standard) as of the Closing Date as though made on and as
of the Closing Date, provided that those representations and warranties which
address matters only as of a particular date will remain true and correct in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement will be
true and correct in all respects giving effect to such standard) as of such
date. Parent will have received a certificate of the Chief Executive Officer and
Chief Financial Officer of the Company to such effect.
(b) The Company will have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. Parent will have received a
certificate of the Chief Executive Officer and Chief Financial Officer of the
Company to that effect.
(c) The stockholders of the Company party to the Voting Agreements will
have performed all of their obligations thereunder at or prior to the Closing
Date.
(d) The Company will have delivered, or caused to be delivered, to Parent
(i) a certificate of good standing from the Delaware Secretary of State and of
comparable authority in other jurisdictions in which the Company 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 the Company approving the execution,
delivery and performance of this Agreement and the instruments contemplated
hereby, certified by the Secretary of the Company; and (iii) a true and complete
copy of the certificate of incorporation or comparable governing instruments, as
amended, of the Company 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 bylaws or comparable governing instruments,
as amended, of the Company and its subsidiaries certified by the Secretary of
the Company and its subsidiaries, as applicable.
(e) Parent will have received "comfort" letters from KPMG L.L.P. on the
date the Proxy Statement is mailed to the Company's stockholders and on the
Closing Date.
(f) From and including the date of this Agreement, there will not have
occurred a Company Material Adverse Change.
(g) Parent will 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 the Company, Merger Sub or Parent from all governmental entities as
are required before consummation of the Merger and the transactions contemplated
hereby, have been obtained or made, as applicable, by the Company, Merger Sub or
Parent, as the case may be, without the imposition of any limitations,
prohibitions or requirements that could reasonably be expected to result in a
Company Material Adverse Effect of a Parent Material Adverse Effect, and are in
full force and effect, other than those Consents and Filings (i) that, if not
obtained or made, could not reasonably be expected to have a Parent Material
Adverse Effect or Company Material Adverse Effect before or
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immediately after the Effective Time; (ii) from those jurisdictions designated
on Schedule 6.2(g); or (iii) the failure to receive which is primarily the
result of regulatory concerns regarding Parent or its affiliates or as a result
of a breach by Parent or Merger Sub of Section 5.5(a).
(h) Parent will have received evidence, in form and substance reasonably
satisfactory to it, that all consents, approvals and waivers, required under the
terms of any contract or agreement required to be listed on Schedule 3.21 (other
than the agreements with respect to funded indebtedness listed on Schedule 3.21)
have been obtained or made, as applicable, by the Company, Merger Sub or Parent,
as the case may be, without the imposition of any limitations, prohibitions or
requirements that could reasonably be expected to result in a Company Material
Adverse Effect of a Parent Material Adverse Effect, and are in full force and
effect, other than those that, if not obtained or made, could not reasonably be
expected to have a Parent Material Adverse Effect or Company Material Adverse
Effect before or immediately after the Effective Time. Without prejudice to any
other rights of any Party to this Agreement, should Parent and the Company
disagree as to whether the terms of any such agreement or contract require
consent, approval or waiver by the other party thereto prior to the Merger or in
order to effect the transactions contemplated by this Agreement, the Parent may
by written notice delivered not more than 30 days after the date of this
Agreement require that the Company provide an opinion of independent counsel
addressed to the Parent as to whether it is reasonably likely that such consent,
approval or waiver is required; provided that such right may be exercised by
Parent with respect to no more than two such contracts or agreements. Unless
such counsel concludes, without unreasonable qualification, that such consent,
waiver or approval is reasonably likely to be required under the terms of such
contract or agreement, then the condition set forth in this Section 6.2(h) will
be deemed satisfied with respect to such contract or agreement. Otherwise, the
terms of this Section 6.2(h) will apply to such contract or agreement.
(i) Parent shall have received an opinion of counsel to the Company, Rogers
& Hardin LLP with respect to the matters set forth in Sections 3.1, 3.2, 3.3,
3.4, 3.5, 3.8 and 3.12. In rendering such opinion, such counsel may rely on
opinions of local counsel to the extent such counsel deems it reasonable to do
so. Such counsel will also state that the Proxy Statement complied as to form in
all material respects with the requirements of the Exchange Act and the rules
thereunder. In addition, such counsel will state that it has participated in the
preparation of the Proxy Statement, and that, although such counsel is not
assuming responsibility for the matters stated in the Proxy Statement, such
counsel has no reason to believe that the Proxy Statement on the date the Proxy
Statement was first mailed to the stockholders of the Company and on the date of
the Special Meeting or the Closing Date, contained a false or misleading
statement of any 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 are made, not misleading.
Section 6.3 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger are also subject to the
following conditions:
(a) Each of the representations of Parent and Merger Sub contained in this
Agreement will be true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement will be true and correct in all respects giving
effect to such standard) as of the Closing Date as though made on and as of the
Closing Date, provided that those representations and warranties which address
matters only as of a particular date will remain true and correct in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement will be
true and correct in all respects giving effect to such standard) as of such
date. The Company will have received a certificate of the Chief Executive
Officer and Chief Financial Officer of Parent to such effect.
(b) Parent will have performed or complied in all material respects with
all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. The Company will have
received a certificate of the Chief Executive Officer and Chief Financial
Officer of Parent to such effect.
(c) Parent will have delivered to the Company (i) a certificate of
existence from the Nevada Secretary of State stating that Parent is a validly
existing corporation together with a certificate of good standing from
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the Delaware Secretary of State stating that Merger Sub is a validly existing
corporation in good standing; (ii) duly adopted resolutions of the Board of
Directors of each of Parent and Merger Sub approving the execution, delivery and
performance of this Agreement and the instruments contemplated hereby, each
certified by the Secretary or the Assistant Secretary of the Company; and (iii)
a true and complete copy of the certificates of incorporation, as amended, of
Parent and Merger Sub certified by the Secretary of State of the state of each
of their incorporation, and a true and complete copy of the bylaws, as amended,
of Parent and Merger Sub certified by the Secretary or Assistant Secretary of
Parent and Merger Sub, as applicable.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding
approval of the Merger by the Company's stockholders):
(a) by mutual written consent of Parent, Merger Sub, and the Company;
(b) by Parent and Merger Sub, on the one hand, or the Company, on the other
hand, if any court of competent jurisdiction or other governmental body has
issued a final order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is or has become nonappealable;
(c) by the Company if a person or group has made a bona fide offer (i) that
the Board of Directors of the Company by a majority vote determines in its good
faith judgment and in the exercise of its fiduciary duties, after consultation
with its legal and financial advisors would result in a transaction more
favorable to the Company's stockholders than the transaction contemplated by
this Agreement (any Acquisition Proposal meeting such criteria being a "Superior
Proposal"); and (ii) as a result of which the Board of Directors of the Company
determines that it would be inconsistent with its fiduciary duties under
applicable law not to terminate this Agreement, provided that such termination
under this clause (c) will not be effective until payment of the fee required by
Section 7.3(b);
(d) by Parent and Merger Sub, if (i) there has been a breach (which breach
is not cured or not capable of being cured prior to 10 days following notice to
the Company by Parent of such breach) of any representation or warranty on the
part of the Company having a Company Material Adverse Effect or materially
adversely affecting the ability of Parent or Merger Sub to consummate the Merger
(including the Financing); (ii) there has been a breach (which breach is not
cured or not capable of being cured prior to 10 days following notice to the
Company by Parent of such breach) of any covenant or agreement on the part of
the Company resulting in a Company Material Adverse Effect or materially
adversely affecting or delaying the ability of Parent or Merger Sub to
consummate the Merger (including the Financing); (iii) the Company engages in
negotiations with any person or group (other than Parent or Merger Sub) that has
proposed a Third Party Acquisition (as defined in Section 7.3(c)) except to the
extent permitted by Section 8.8; (iv) the Company enters into an agreement,
letter of intent or arrangement with respect to a Third Party Acquisition; or
(v) the Board has withdrawn or modified in a manner adverse to Parent or Merger
Sub its approval or recommendation of this Agreement, or the Merger or has
recommended another transaction, or has adopted any resolution to effect any of
the foregoing;
(e) by the Company if (i) there has been a breach (which breach is not
cured or not capable of being cured prior to 10 days following notice to Parent
of such breach) of any representation or warranty on the part of Parent or
Merger Sub that materially adversely affects (or materially delays) the
consummation of the Merger or (ii) there has been a material breach (which
breach is not cured or not capable of being cured prior to 10 days following
notice to Parent of such breach) of any covenant or agreement on the part of
Parent or Merger Sub that materially adversely affects (or materially delays)
the consummation of the Merger;
(f) by the Company, if the Merger has not occurred by September 30, 1999,
unless (i) the failure to consummate the Merger is the result of a breach of
covenant set forth in this Agreement or a material breach
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of any representation or warranty set forth in this Agreement by the Company (in
which case such date will be extended by the number of days attributable to such
breach) or (ii) the failure to consummate the Merger is the result of the
failure to be fulfilled of the condition set forth in Section 6.2(g), in which
case such date will be October 31, 1999, provided that Parent shall have
diligently pursued fulfillment of such condition prior to September 30, 1999; or
by Parent, if the Merger has not occurred by November 30, 1999, unless the
failure to consummate the Merger is the result of a breach of covenant set forth
in this Agreement or a material breach of any representation or warranty set
forth in this Agreement by Parent (in which case such date will be extended by
the number of days attributable to such breach);
(g) by either Parent or the Company (provided that the terminating party is
not in material breach of any of its representations, warranties, or obligations
under this Agreement), if the approval of the stockholders of the Company
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of the
Company's stockholders or at any adjournment or postponement thereof
(h) by Parent if the First District Court of Appeal of the State of Florida
in the matter of GTech Corporation v. State of Florida Department of Lottery and
Automated Wagering International, Inc., Case No. 98-1155 (Fla. 1st DCA), on or
before July 15, 1999 shall have reversed or rendered an adverse decision with
respect to the Final Order entered by the State of Florida Department of Lottery
on March 23, 1998; provided, however, that if such Court shall have so reversed
or rendered an adverse decision with respect to such Final Order on or before
such date, then the parties agree to negotiate in good faith for a period of two
weeks from the date of such reversal or adverse determination to reach a
mutually satisfactory amendment to this Agreement to eliminate any adverse
effect to the Parent or Merger Sub that could result from such reversal or
adverse determination before Parent will be entitled to exercise its right of
termination under this Section 7.1(h); or
(i) by the Company (provided that Parent does not have the right to
terminate this Agreement) if the Merger is not effected because Parent has
failed to secure sufficient funds to satisfy its obligations under this
Agreement on or before November 30, 1999 (and all other conditions to the
obligations of the Company to close under this Agreement have been fulfilled or
waived).
Section 7.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 7.1, this Agreement will
become void and have no effect, without any liability on the part of any party
to this Agreement or its affiliates, directors, officers or stockholders, other
than the provisions of this Section 7.2 and Sections 5.7(b), 5.8 and 7.3.
Nothing contained in this Section 7.2 will relieve any party from liability for
any willful breach of this Agreement.
Section 7.3 Fees and Expenses. (a) In the event Parent and Merger Sub
terminate this Agreement pursuant to Section 7.1(d) or the Company terminates
this Agreement pursuant to Section 7.1(c), the Company will reimburse Parent,
Merger Sub and their affiliates (not later than three business days after
submission of statements together with reasonable documentation therefor) for
all out-of-pocket fees and expenses actually incurred by any of them or on their
behalf in connection with the Merger, the Financing and the proposed
consummation of all transactions contemplated by this Agreement, including,
without limitation, filing fees and fees payable to legal counsel, financing
sources, investment bankers, counsel to any of the foregoing and accountants
(the "Parent Expenses") in an amount not to exceed $2,500,000 in the aggregate.
(b) If (i) (A) Parent and Merger Sub terminate this Agreement pursuant to
Section 7.1(d)(iii) or (iv) or in circumstances that would permit Parent and
Merger Sub to terminate this Agreement pursuant to Sections 7.1(d)(iii) or (iv)
or (B) if the Company terminates this Agreement pursuant to Section 7.1(c) and,
within 270 days after a termination pursuant to clause (A) or clause (B), the
Company enters into an agreement, letter of intent or arrangement with respect
to a Third Party Acquisition, or a Third Party Acquisition occurs, then in
either case the Company will pay to Parent, within one business day following
the execution and delivery of such agreement or letter of intent or the entering
into of such an arrangement or the occurrence of such Third Party Acquisition,
as the case may be, or simultaneously with such termination, a fee, in cash, of
$9,000,000 and reimburse Parent for all Parent Expenses not to exceed $2,500,000
in the aggregate. For the purposes of this Agreement, "Third Party Acquisition"
means the occurrence of any of the
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following events (i) the acquisition of the Company by merger or otherwise by
any person or group other than Parent, Merger Sub or any affiliate of Parent or
Merger Sub (a "Third Party"); (ii) the acquisition by a Third Party of more than
19.9% of the total assets of the Company and its subsidiaries, taken as a whole;
(iii) the acquisition by a Third Party of 19.9% or more of the outstanding
shares of Company Common Stock from the Company or in a transaction or series of
related transactions that results in a change of control of the Company; (iv)
the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or (v) the acquisition by the Company or
any of its subsidiaries of more than 19.9% of the outstanding shares of Company
Common Stock.
(c) If the Company terminates this Agreement pursuant to Section 7.1(e),
then Parent will reimburse the Company (not later than three business days after
such termination and submission of statements together with reasonable
documentation therefor) for all out-of-pocket fees and expenses actually
incurred by the Company or on its behalf in connection with the Merger and the
proposed consummation of all transactions contemplated by this Agreement
(including, without limitation, filing fees and fees payable to legal counsel,
investment bankers, counsel to any of the foregoing and accountants), in an
amount not to exceed an aggregate of $2,500,000.
(d) If the Company terminates this Agreement pursuant to Section 7.1(i),
Parent will pay to the Company promptly upon demand a fee, in cash, of
$9,000,000 and reimburse the Company (not later than three business days after
such termination and submission of statements together with reasonable
documentation therefor) for all out-of-pocket fees and expenses actually
incurred by the Company or on its behalf in connection with the Merger and the
proposed consummation of all transactions contemplated by this Agreement
(including, without limitation, filing fees and fees payable to legal counsel,
investment bankers, counsel to any of the foregoing and accountants), in an
amount not to exceed an aggregate of $2,500,000.
(e) Except as specifically provided in this Section 7.3 each party will
bear its own expenses in connection with this Agreement and the transactions
contemplated by this Agreement.
Section 7.4 Amendment. This Agreement may not be amended except in an
instrument in writing signed on behalf of all of the parties to this Agreement;
provided, however, that after approval of the Merger by the stockholders of the
Company, no amendment that would either decrease the Merger Consideration or
change any other term or condition of this Agreement, if any such change, alone
or in the aggregate, would materially and adversely affect the stockholders of
the Company, may be made without the further approval of the stockholders of the
Company; provided, further, that, after the Merger, no amendment may be made to
Section 5.9 without the consent of the Indemnified Parties.
Section 7.5 Waiver. At any time prior to the Effective Time, whether
before or after the Special Meeting, any party to this Agreement may (a) subject
to the second proviso in Section 7.4, extend the time for the performance of any
of the obligations or other acts of any other party or parties to this
Agreement, (b) subject to the provisos contained in Section 7.4, waive any
inaccuracies in the representations and warranties contained in this Agreement
by any other applicable party or in any documents, certificate, or writing
delivered pursuant to this Agreement by any other applicable party, or (c)
subject to the provisos contained in Section 7.4, waive compliance with any of
the agreements of any other party or with any conditions to its own obligations.
Any agreement on the part of a party to this Agreement to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party by a duly authorized officer.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Survival of Representations, Warranties, and Agreements. The
representations and warranties made in this Agreement will not survive beyond
the Effective Time or the termination of this Agreement, as the case may be. No
investigation made, or information received by, any party to this Agreement will
affect any representation or warranty made by any other party to this Agreement.
The covenants and agreements of the parties to this Agreement will survive in
accordance with their terms.
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Section 8.2 Brokerage Fees and Commissions. The Company hereby represents
and warrants to Parent with respect to the Company and any of its subsidiaries,
that except for the Advisor, and Parent and Merger Sub hereby represent and
warrant to the Company with respect to Parent or any of its subsidiaries that,
except for Merrill Lynch & Co., Inc., no person is entitled to receive from the
Company, Parent, Merger Sub or any of their subsidiaries, respectively, any
investment banking, brokerage or finder's fee or fees in connection with this
Agreement or any of the transactions contemplated by this Agreement.
Section 8.3 Entire Agreement; Assignment. This Agreement, together with
all the Schedules and Annexes, (a) constitutes the entire agreement between the
parties with respect to the subject matter of this Agreement and supersedes all
other prior written agreements and understandings and all prior and
contemporaneous oral agreements and understandings between the parties to this
Agreement or any of them with respect to the subject matter of this Agreement
and (b) will not be assigned by operation of law or otherwise, provided that
Parent may assign its rights under this Agreement, or those of Merger Sub,
including, without limitation, the right to substitute in place of Merger Sub a
subsidiary as one of the constituent corporations to the Merger as provided in
Section 2.1 to any direct or indirect subsidiary of Parent, but no such
assignment will relieve the assigning party of its obligations under this
Agreement. Any purported assignment of this Agreement not made in accordance
with this Section 8.3 will be null, void, and of no effect. No party to this
Agreement has relied upon any representation or warranty, oral or written, of
any other party to this Agreement or any of their officers, directors or
stockholders except for the representations and warranties contained in this
Agreement.
Section 8.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect. Upon any final judicial
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties to this Agreement will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated by this Agreement be consummated to the extent possible.
Section 8.5 Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be deemed to
have been duly given when delivered in person, by cable, telegram or telex,
facsimile or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties as follows:
(a) if to Parent or Merger Sub, to:
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Attention: Michael Rumbolz
Fax: (702) 896-6221
and
Anchor Powerhouse Acquisition Corporation
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Attention: Michael Rumbolz
Fax: (702) 896-6221
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: Glen J. Hettinger
Fax: (214) 939-6100
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(b) if to the Company, to:
Powerhouse Technologies, Inc.
115 Perimeter Place, Suite 911
Atlanta, Georgia 30346
Attention: Richard M. Haddrill
Alan A. Rassaby
Fax: (770) 481-1899
with a copy to:
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Edward J. Hardin
Fax: (404) 525-2224
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address will be effective only upon
receipt).
SECTION 8.6 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS.
Section 8.7 Specific Performance. Each of the parties to this Agreement
acknowledges and agrees that the other parties to this Agreement would be
irreparably damaged in the event any of the provisions of this Agreement were
not performed in accordance with their specific terms or were otherwise
breached. Accordingly, each of the parties to this Agreement agrees that each of
them will be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions of this Agreement in any action instituted in any court of
the United States or any state having subject matter jurisdiction, in addition
to any other remedy to which such party may be entitled, at law or in equity.
Section 8.8 Other Potential Bidders.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, solicit, facilitate or encourage (including by way of furnishing
information) the initiation of any inquires or proposals regarding a Third Party
Acquisition (any of the foregoing inquiries or proposals being referred to in
this Agreement as an "Acquisition Proposal"). Provided that the Company and the
Board shall have complied with the first sentence of this Section 8.8(a),
nothing contained in this Section 8.8(a) or any other provision of this
Agreement shall prevent the Board if it determines in good faith, after
consultation with, and the receipt of advice from, outside counsel, that not to
do so would be inconsistent with its fiduciary duties under applicable law, from
considering, negotiating, approving and recommending to the stockholders of the
Company an unsolicited bona fide written Acquisition Proposal that the Board of
Directors of the Company determines to be a Superior Proposal. Nothing in this
Section 8.8 shall prohibit the Company from complying with Rules 14d-9 and 14e-2
under the Exchange Act with respect to any Superior Proposal that takes the form
of a tender offer.
(b) The Company shall promptly, but in no event later than 24 hours, notify
Parent after receipt of any Acquisition Proposal or any request for nonpublic
information relating to the Company or any of its subsidiaries in connection
with an Acquisition Proposal or for access to the properties, books or records
of the Company or any subsidiary by any person that informs the Board that it is
considering making, or has made, an Acquisition Proposal. Such notice to Parent
shall be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
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<PAGE> 75
(c) If the Board receives a request for material nonpublic information by a
person that makes an unsolicited bona fide Acquisition Proposal and the Board
determines that such proposal, if consummated pursuant to its terms would be a
Superior Proposal, then, and only in such case, the Company may, subject to the
execution of a confidentiality agreement substantially identical to that then in
effect between the Company and Parent, provide such party with access to
information regarding the Company.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from any confidentiality or
standstill agreement to which the Company is a party.
(e) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 8.8; and shall be responsible for any breach of this Section 8.8
by such bankers, advisors and representatives.
Section 8.9 Descriptive Headings; References. The descriptive headings in
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. References in this Agreement to Sections, Annexes and Schedules are
references to the Sections, Annexes and Schedules of this Agreement unless the
context indicates otherwise.
Section 8.10 Parties in Interest. This Agreement will be binding upon and
inure solely to the benefit of each party to this Agreement, and, except as
provided in Sections 5.9 and 8.11, nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 8.11 Beneficiaries. Parent hereby acknowledges that Section 5.9
is intended to benefit the Indemnified Parties referred to in Section 5.9, any
of whom will be entitled to enforce Section 5.9 against the Surviving
Corporation or the Company, as the case may be.
Section 8.12 Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed to be an original, but all of
which will constitute one and the same agreement.
Section 8.13 Obligations. Parent will perform or cause Merger Sub to
perform all of the obligations of Merger Sub under this Agreement, including
consummation of the Merger, in accordance with the terms of this Agreement.
Section 8.14 Certain Definitions. For the purposes of this Agreement: (a)
the term "subsidiary" means each person in which a person owns or controls,
directly or through one or more subsidiaries, 50 percent or more of the stock or
other interests having general voting power in the election of directors or
persons performing similar functions or more than 50% of the equity interests;
(b) the term "person" will be broadly construed to include any individual,
corporation, company, partnership, trust, joint stock company, association or
other private or governmental entity; (c) the term "group" has the meaning given
in Section 13(d)(3) of the Exchange Act; (d) the term "affiliate" has the
meaning given in Rule 144(a)(1) under the Securities Act; and (e) the term
"business day" has the meaning given in Rule 14d-1(c)(6) under the Exchange Act.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
PARENT:
ANCHOR GAMING, a Nevada corporation
By: /s/ Stanley E. Fulton
------------------------------------
Name: Stanley E. Fulton
----------------------------------
Title: Chairman of the Board
-----------------------------------
MERGER SUB:
ANCHOR POWERHOUSE ACQUISITION
CORPORATION, a Delaware corporation
By: /s/ Michael D. Rumbolz
------------------------------------
Name: Michael D. Rumbolz
----------------------------------
Title: Chief Executive Officer
-----------------------------------
COMPANY:
POWERHOUSE TECHNOLOGIES, INC., a
Delaware corporation
By: /s/ Richard M. Haddrill
------------------------------------
Name: Richard M. Haddrill
----------------------------------
Title: President and Chief Executive
Officer
-----------------------------------
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<PAGE> 77
ANNEX B
LEHMAN BROTHERS
March 9, 1999
Board of Directors
Powerhouse Technologies, Inc.
115 Perimeter Place, Suite 911
Atlanta, GA 30346
Members of the Board:
We understand that Powerhouse Technologies, Inc. (the "Company") proposes
to enter into an agreement providing for the merger of a wholly-owned subsidiary
of Anchor Gaming ("Anchor") with and into the Company, and that upon the
effectiveness of such merger, each share of common stock of the Company will be
converted into the right to receive $19.50 in cash (the "Proposed Transaction").
The terms and conditions of the Proposed Transaction are set forth in more
detail in the Agreement and Plan of Merger to be dated March 9, 1999 (the
"Agreement") between the Company and Anchor.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company's stockholders of the consideration to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, the Company's underlying business
decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company that we believe to be relevant to our
analysis, including its Annual Report on Form 10-K for the year ended December
31, 1997 and Quarterly Report on Form 10-Q for the quarter ended September 30,
1998, (3) financial and operating information with respect to the business,
operations and prospects of the Company and each of its businesses furnished to
us by the Company, including financial results of the Company for the fiscal
year ended December 31, 1998 and projections prepared by management of the
Company, (4) a trading history of the Company's common stock from March 3, 1996
to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (5) a comparison of the historical financial
results and present financial condition of the Company with those of other
companies that we deemed relevant, and (6) a comparison of the financial terms
of the Proposed Transaction with the financial terms of certain other
transactions that we deemed relevant. In addition, we have had discussions with
the management of the Company concerning its business, operations, assets,
financial condition and prospects and have undertaken such other studies,
analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company that they
are not aware of any facts or circumstances that would make such information
inaccurate or misleading. With respect to the financial projections of the
Company, upon advice of the Company we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
financial performance of the Company and that the Company will perform
substantially in accordance with such projections. In arriving at our opinion,
we conducted only a limited physical inspection of the properties and facilities
of the Company and have not made or obtained any evaluations or appraisals of
the assets or liabilities of the Company. In addition, you have not authorized
us to solicit, and we have not solicited, any indications of interest from any
third party with respect to the purchase of the Company or any of its
businesses. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
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<PAGE> 78
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
offered to the stockholders of the Company in the Proposed Transaction is fair
to such stockholders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary fees for such
services. In the ordinary course of our business, we actively trade in the debt
and equity securities of the Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities. In addition, we are currently a lender under the Company's
credit facility, which will be repaid in connection with the Proposed
Transaction.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS INC.
By: /s/ Robert Heller
--------------------------------------
Robert Heller, Managing Director
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<PAGE> 79
ANNEX C
FORM OF VOTING AGREEMENT
VOTING AGREEMENT
March , 1999
Anchor Gaming
815 Pilot Road, Suite G
Las Vegas, Nevada 89119
Re: Agreement of Stockholders Concerning Transfer and Voting of Shares of
Powerhouse Technologies, Inc.
I understand that you and Powerhouse Technologies, Inc. (the "Company"), of
which the undersigned is a stockholder, are prepared to enter into an agreement
for the merger of a wholly-owned subsidiary of Parent ("Merger Sub") into the
Company (the "Merger"), 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 in this letter will 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 (the "Shares"), in favor of the
Merger and other transactions provided for in or contemplated by the Agreement
and against any inconsistent proposals or transactions. I hereby revoke any
other proxy granted by me and irrevocably appoint you, during the term of this
letter agreement, as proxy for and on behalf of me to vote (including, without
limitation, the taking of action by written consent) such shares, for me and in
my name, place and stead for the matters and in the manner contemplated by this
Section 1.
2. 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, unless, as a condition to receipt
of such Shares, the transferee agrees to be bound by the terms of this letter.
3. No Solicitation. From the date of this letter until the termination of
this letter, I will not, directly or indirectly, engage in any activity that if
attributed to the Company would be prohibited under Section 8.8 of the Merger
Agreement, or otherwise assist, facilitate or encourage, any person (other than
Parent and Merger Sub) that may be considering making, or has made, an
Acquisition Proposal. I will promptly notify Merger Sub after receipt 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 the Company or any subsidiary of the Company or for access to the properties,
books or records of the Company or any such subsidiary by any such third party
that may be considering making, or has made, an Acquisition Proposal and will
keep Parent fully informed of the status and details of any such Acquisition
Proposal, indication or request. The foregoing provisions of this Section 3 will
not be construed to limit actions taken, or to require actions to be taken, by
me that are required or restricted by my fiduciary duties or my employment
duties, or permitted by the Agreement, and that, in each case, are undertaken
solely in my capacity as a director or officer of the Company.
4. Effective Date; Succession; Remedies; Termination. Upon your acceptance
and execution of the Agreement, this letter agreement will 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. We agree that in light of the inadequacy of
damages as a remedy, specific
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<PAGE> 80
performance will be available to you, in addition to any other remedies you may
have for the violation of this letter agreement. This letter agreement will
terminate on the termination of the Agreement.
5. Nature of Holdings; Shares. All references in this letter to our
holdings of the Shares will be deemed to include Shares held or controlled by
the undersigned, individually, jointly, or in any other capacity, and will
extend to any securities issued to the undersigned in respect of the Shares.
--------------------------------------
Name:
---------------------------------
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<PAGE> 81
ANNEX D
DELAWARE CODE ANNOTATED -- SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL. C. SECTION 262
SECTION 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depositary receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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<PAGE> 82
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to
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<PAGE> 83
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the
D-3
<PAGE> 84
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not entitled
to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
D-4
<PAGE> 85
[POWERHOUSE LOGO]
<PAGE> 86
POWERHOUSE TECHNOLOGIES, INC.
115 PERIMETER CENTER PLACE, SUITE 911
ATLANTA, GEORGIA 30346
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Richard M.
Haddrill and Susan J. Carstensen as Proxies, each with the power to appoint his
or her substitute, and hereby authorizes them to represent and to vote, as
designated below, all the shares of common stock of Powerhouse Technologies,
Inc. held of record by the undersigned on April 15, 1999 at the Special Meeting
of stockholders to be held at the Treasure Island Casino and Hotel, 3300 Las
Vegas Boulevard South, 2nd Floor Convention Level, Las Vegas, Nevada 89109 at
11:00 a.m. local time on June 7, 1999 or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL (1) AND, WITH RESPECT TO ANY OTHER BUSINESS PROPERLY
BROUGHT BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENTS THEREOF, INCLUDING
ADJOURNMENTS OR POSTPONEMENTS FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES
TO ADOPT THE MERGER AGREEMENT, IN THE DISCRETION OF RICHARD M. HADDRILL AND
SUSAN J. CARSTENSEN IN ACCORDANCE WITH THEIR BEST JUDGMENT.
[X] Please mark your votes as in this example
PROPOSAL (1): To adopt the Agreement and Plan of Merger dated as of March 9,
1999 relating to the merger of a wholly-owned subsidiary of Anchor
Gaming with and into Powerhouse Technologies, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Continued and to be signed on reverse side
Continued from other side
Note: Please sign exactly as your name appears on this proxy card. If shares
are held jointly, each holder should sign. Executors, administrators, trustees,
guardians, attorneys and agents should give their full titles. If the
stockholder is a corporation, sign in full corporate name by the authorized
officer.
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Signature
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Signature (if jointly held)
Dated: , 1999
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