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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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COMMISSION FILE NUMBER 000-22298
SCIENTIFIC GAMES HOLDINGS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3615274
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1500 BLUEGRASS LAKES PARKWAY, ALPHARETTA, GEORGIA 30004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 664-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $.001 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in a definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of our Common Stock held by non affiliates
was $191,906,928 on March 23, 2000 . For the purposes of this response, our
executive officers and directors are deemed to be affiliates and the number of
shares held by non affiliates was computed as 10,883,347 shares. As of March
23, 2000, we had 11,414,199 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Our proxy statement for our Annual Meeting of Stockholders, to be held
May 19, 2000, which will be filed pursuant to Regulation 14A within 120 days of
the close of Registrant's fiscal year, is incorporated by reference in answer
to Part III of this report but only to the extent indicated in Part III herein.
In addition, pages 14 through 45 of Scientific Games Holdings Corp.'s 1999
Annual Report to Stockholders are incorporated by reference in answer to Items
6, 7 and 8 of Part II and Item 14(a) of Part IV of this report.
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PART 1
ITEM 1. BUSINESS
GENERAL
Scientific Games Holdings Corp. (the "Company" or "Scientific Games")
is a leading provider of lottery products, systems and services worldwide.
Except as the context otherwise requires, references to "Scientific Games," the
"Company," "we," "our," and "us" refer to the consolidated business and
operations of the Company. We operate through our wholly owned subsidiaries and
our joint ventures, principally, Scientific Games Inc. ("SGI") Scientific Games
International Limited ("SGIL"), Scientific Games International GmbH ("SG
Austria") and SciGames France SAS ("SG France"). Our corporate headquarters and
our primary manufacturing facility are located in Alpharetta, Georgia (suburban
Atlanta) and we employ approximately 1,500 people worldwide. We also have
production and/or operating facilities in California and the United Kingdom and
software and hardware development and maintenance facilities in Georgia,
Austria, France and Germany. Our business consists of sales of products or
services to governmentally operated or sanctioned lotteries worldwide and, to a
lesser extent, to non-lottery entities both in the United States and worldwide.
The Company's business is comprised of two business segments: (1) Instant
Ticket and Related Services (hereinafter sometimes referred to as the "ITRS"
segment) and (2) Systems. In the Instant Ticket and Related Services segment,
we primarily supply game design, sales and marketing training and support,
instant ticket manufacturing and delivery, inventory management and
distribution, advising with respect to security, and retailer telemarketing and
field services. In addition, this segment includes promotional instant tickets
and pull-tab tickets sold to both lottery and non-lottery customers and, on a
growing basis, prepaid phone cards sold to telecommunications companies. In the
Systems segment, we primarily supply transaction processing software that
accommodates instant ticket accounting and validation and on-line lottery
games, point-of-sale terminal hardware which connects to these systems, central
site computers and communication hardware which run these systems, and on-going
support and maintenance services for these products. This segment also includes
software, hardware and support for sports betting and credit card processing
systems for non-lottery customers. In addition, we refer to cooperative
services agreements in various sections of this report. Cooperative services is
our branded marketing name given to the combination of any of the products and
services offered by both the Instant Ticket and Related Services segment and
Systems segment under one customer contract. The Instant Ticket and Related
Services revenues accounted for approximately 79.3% of the Company's gross
revenues in 1999 versus 78.9% in 1998.
Our acquisition in April 1997 of Vienna, Austria based TeleControl
Kommunications - und Computersysteme Gesellschaft m.b.h., an on-line lottery
and transaction processing company now known as SG Austria, enabled us to
expand our systems offerings and make available on-line lottery technology.
Scientific Games' predecessor company had previously developed and operated
on-line lottery systems from 1985 until 1991. During that period, it supplied
and operated on-line lottery systems in Iowa, Maine, New Hampshire, Vermont,
West Virginia and sold an on-line system to the Virginia Lottery. Following our
1997 acquisition of SG Austria, we entered into a joint venture agreement in
1998 with La Francaise des Jeux ("FDJ"), the operator of the French National
Lottery, to develop a new generation of on-line terminals. Such agreement also
provides for the assumption by the joint venture of FDJ's terminal and software
maintenance contracts with six German State Lottery customers and terminal
software maintenance for FDJ. Related agreements between the Company and FDJ
also provide for the initial supply of 13,500 SciScan Technology(R) terminals,
the installation of an SGI-NET instant ticket validation system, a central site
computer system and on-going maintenance of the system. In addition, the
Company has received contracts to provide systems software and hardware and
related support services from Western Canada Lottery Corporation ("WCLC") and
Golden Casket Lottery Corporation, the state operated lottery in Queensland,
Australia (through Praxa Limited, the prime contractor). The WCLC contract was
our first on-line lottery contract in North America since our 1997 re-entry
into the on-line systems segment of the lottery industry after previously
exiting this business line in 1991. The Company sold an initial order of 400
SciScan terminals to Instant Lottery, S.A., the operator of the national
lottery in Greece.
INDUSTRY OVERVIEW
Lotteries are operated by domestic and foreign governmental
authorities and their licensees in approximately 200 jurisdictions throughout
the world. Although there are many types of lotteries worldwide, governmentally
authorized lotteries may generally be categorized into three principal groups:
instant lotteries, on-
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line lotteries and the traditional draw-type lotteries. An instant lottery is
typically played by removing a coating from a preprinted ticket to determine
whether it is a winner. On-line lotteries are generally pari-mutuel in nature
(although fixed prizes are also offered) and are conducted through a
computerized lottery system in which lottery terminals are connected to a
central computer, usually by dedicated telephone lines. Internationally, the
older form of traditional draw-type lottery games, in which players purchase
tickets which are manually processed for a future drawing for prizes of a fixed
amount, is a popular form of play. In addition to the foregoing types of
lotteries, there are video lotteries played on electronic machines featuring
keno, "line-up" (cherries, bars, plums, etc.) and similar video games. Video
lotteries are typically targeted to locations such as horse and dog racing
tracks, athletic arenas, certain bars, clubs and similar establishments.
Currently, 38 jurisdictions in the United States sell instant lottery
tickets. Of the approximately 8.4 billion instant tickets (12.3 billion 2x4
equivalent size) we sold in 1999, approximately 20% were sold outside the
United States. Based on industry information, it is estimated that 1999 U.S.
on-line lottery retail sales were approximately $19.0 billion compared to 1999
international on-line lottery retail sales of approximately $60.0 billion.
Currently, 38 jurisdictions in the United States sell on-line lottery tickets.
Governments typically authorize lotteries as a means of generating revenues
without the imposition of additional taxes. Lottery revenues are frequently set
aside for particular public purposes, such as education, aid to the elderly,
conservation, transportation and economic development. As lottery ticket sales
have become a significant source of funding for such programs, many
jurisdictions have come to rely on the revenues generated by such sales.
There are many promotional (i.e., commercial) game suppliers
(including the Company) which produce instant tickets for both sales promotion
companies and their end users. We believe we are the only company which offers
the promotional market a full line of support and services similar to those
which we offer to the government lottery market. While potential instant ticket
lottery customers in the United States currently are limited to the 38
jurisdictions where such games are legally permitted, promotional games are
believed permitted in substantially all states. A significant difference
between lottery games and promotional games is the lower level of security
requirements associated with promotional games, which typically offer less
valuable prizes.
We also provides several international telecommunications companies
with pre-paid phone cards. This product experienced significant sales growth in
1999 and utilizes our secure ticket technology. We anticipate the sales growth
of this product to continue in 2000.
The lottery industry (both instant ticket and on-line) is highly
competitive and is in a period of intense price-based competition, particularly
in the Instant Ticket and Related Services segment. This price-based
competition has resulted in certain contracts being awarded or re-awarded at
lower equivalent prices than charged in the previous contracts. We expect
competition on the basis of price to continue in 2000 in both the instant
ticket and on-line lottery industry.
BUSINESS STRATEGY
Scientific Games is a leading provider of lottery products, integrated
systems and support services to lotteries worldwide. We intend to expand our
leadership position by (i) pursuing new instant ticket printing and systems
opportunities in both the domestic and foreign marketplaces, (ii) emphasizing
and marketing our expertise in lottery service capabilities, (iii) growing our
on-line lottery business by utilizing our SGI-NET technology, a high
performance, configurable hardware and software-redundant transaction
processing system that can accommodate both instant and on-line lottery
operations, (iv) continuing our emphasis on customer service and responsiveness
to customer needs both before and after delivery of products and services, (v)
investing in our facilities while aggressively pursuing practices and methods
which reduce operating costs, (vi) increasing the funding of research and
development costs that continue to provide innovations for our customers such
as SGI-NET, (vii) partnering with respected local corporations to establish new
lotteries in foreign countries, (viii) selling SciScan terminals to new and
existing customers both domestically and internationally, (ix) promoting the
sales advantages of our Winner's Choice(TM) probability tickets to new and
existing customers, and (x) further expanding our role in the provision of
prepaid telephone cards to international telecommunications customers.
As state governments face budgetary pressures, they increasingly seek
methods of reducing state spending. One method of reducing spending which is
often considered by states is privatization or outsourcing of various operating
tasks associated with lottery operations. We have contracts that contain
expanded services, sometimes
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referred to as cooperative services, with nine domestic lotteries. These
lotteries have elected to privatize certain operating functions related to the
management of instant ticket games. We expect that more state or foreign
governments will decide to privatize or outsource various lottery operations.
We have significant experience in this field and are well positioned to offer
this privatization or outsourcing option to the industry. We intend to continue
to emphasize and invest in the provision of expanded services to both our
instant ticket customers and systems customers.
The increased application of computer-based and communications
technologies (including proprietary technologies) to the manufacturing and
servicing of instant tickets (See - "New Product Development") continues to
separate the instant ticket from conventional forms of printing. We are
generally recognized within the lottery industry as the leader in applying
these technologies to the manufacturing and sale of instant tickets. In order
to maintain our position as a leading innovator within the lottery industry, we
intend to continue to explore and develop new technologies and their
application to instant lottery tickets and systems.
In addition to the internal development of new products, we intend to
leverage our management expertise, reputation, and contacts in the lottery
industry by pursuing joint ventures and marketing agreements which will provide
access to lottery customers to whom we do not currently provide products or
services.
PRODUCTS AND SERVICES
In 1974, we introduced the first "secure" instant game ticket. Today,
the instant tickets we manufacture are typically printed on recyclable ticket
stock by a series of computer controlled presses and ink-jet imagers, which we
believe incorporate the most advanced technology and security currently
available in the industry. Instant tickets generally range in size from 2
inches by 3 inches to ticket sizes as large as some greeting cards; instant
tickets are normally played by removing a coating to determine if they are
winning tickets. We market instant tickets and related services to domestic
lottery jurisdictions, foreign lottery jurisdictions and commercial customers.
The Company currently has contracts with 26 of the 38 states/jurisdictions in
the U.S. which currently sell instant lottery tickets. These U.S. Instant
Ticket and Related Services contracts are typically at a fixed price per
thousand tickets or a percentage of lottery sales to the public and typically
range from one to five years in duration, although they usually have one or
more extension options. Our customers have exercised extension options in
domestic lottery contracts with us a majority of the time. See - "Markets" for
additional information.
We also manufacture instant tickets for promotional games customers
and prepaid phone cards for international telecommunication customers. The
majority of our promotional games and prepaid phone cards are produced at our
United Kingdom subsidiary, SGIL. Examples of promotional games which we have
produced include games for European newspapers, major food and beverage
companies, and games for various other commercial customers. Prepaid phone
cards are supplied to international telecommunications customers. The Company
is not in the business of providing telecommunications services, but rather in
the production of the prepaid phone cards used by the telecommunications
industry. Sales of promotional games products and services and prepaid phone
cards each accounted for less than 10% of the Company's consolidated revenues
in 1999.
Scientific Games pioneered the idea of privatizing lottery functions,
sometimes referred to as cooperative services, as a means of reducing the
operating costs of lotteries while increasing lottery revenues and is the only
instant ticket manufacturer which offers separate lottery ticket cooperative
support services to supplement its manufacturing operations. Cooperative
services may consist of designing and installing game management software,
instant ticket production, telemarketing, field sales, accounting, instant
ticket distribution, sales staff training, estimating ticket needs, managing
staff, advising with respect to security, instant ticket validation, and
provision of computer hardware, validation terminals, SciScan Technology
validation terminals, maintenance, communication network and sales agent
hot-line service for lottery jurisdictions. While the majority of lottery
jurisdictions to date have chosen to control the distribution and sales of
tickets, Scientific Games has been successful in demonstrating to a number of
jurisdictions that we can perform these functions effectively and at a lower
cost.
Domestically, we now have contracts for expanded services with the
states of Delaware, Florida, Georgia, Kentucky, Maine, Nebraska, New York,
Pennsylvania and West Virginia. Under such contracts, we typically provide
selected management, distribution services and/or data processing for the
jurisdiction's instant ticket lottery game business and we are paid a
percentage of the lottery's total instant ticket revenues. Customers select
those
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services which they desire to privatize from a menu of cooperative services
offered. Replacement of these agreements may be associated with large
conversion costs incurred by the lottery to hire and/or retrain staff and
redesign and install a software system and other protocols to manage its
instant ticket business.
In addition to scratch off instant tickets, our Instant Ticket and
Related Services business also includes the sale of pull-tab tickets to our
lottery customers. In October 1997, we sold substantially all of the assets of
our pull-tab manufacturer subsidiary, GameTec Inc. to International Gamco, Inc.
("Gamco"). However, we continue to sell pull-tab tickets to lotteries in the
U.S. through a marketing agreement with Gamco.
In its Systems segment, the Company primarily supplies transaction
processing software that accommodates instant ticket accounting and validation
and on-line lottery games, point-of-sale terminal hardware which connects to
these systems, central site-computer and communication hardware which runs
these systems, and ongoing support and maintenance services for these products.
This segment also includes software, hardware and support for sports betting,
credit card processing systems for non-lottery customers, SciScan Technology
and SGI-NET. SciScan Technology is a keyless validation system for retailers
which significantly reduces the time requirements of ticket validation while at
the same time improving security of the game. SGI-NET is a high-performance,
configurable hardware and software-redundant transaction processing system that
can accommodate both instant and on-line lottery operations. SGI-NET's
configurability and software-driven architecture enables it to operate with
virtually any type or number of terminals and provides flexibility to adapt to
unique characteristics of almost any lottery.
NEW PRODUCT DEVELOPMENT
Since its inception, Scientific Games has provided many of the
innovations in instant ticket technology in both manufacturing and game
development which subsequently became the industry standard. Past examples of
new products developed by Scientific Games include the ink-jet printed instant
ticket, cooperative services (lottery privatization), bar coding on the front
and back of tickets (which facilitates validation), the IL/MVS instant ticket
accounting management, ticket validation software technology, Terra 2000(R)
tickets, SciScan Technology(R) and SGI-NET. The Terra 2000 ticket is a
recyclable and biodegradable paper ticket, which meets the rigorous security
standards demanded by the lottery industry.
Scientific Games and its partner TeleCom Productions, Inc. introduced
The Daily Race Game(TM) in January 1997. The Daily Race Game is a
player-selection game that combines on-line, virtual reality horse racing with
a popular "pick your numbers" format to draw the winning numbers for an
on-lottery game. Players choose three horses from a field of 12 in a 55-second
animated horse race that can be shown on either commercial or closed-circuit
television.
Another recent innovation, which we introduced in 1997, is our
probability-game ticket, Winner's Choice(TM). Winner's Choice(TM) is a
scratch-off instant ticket lottery game in which every ticket is a potential
winner (unlike existing tickets, where winning tickets are pre-determined
before a player scratches). Winner's Choice combines some of the best features
of instant and on-line games, and possesses three important player benefits -
choice, instant-win opportunities and appealing play styles. Probability games
have been discussed within the lottery industry for years, but have never been
viable because secure validation could not be assured. The Company's new
SciScan Technology provides secure validation to enable probability tickets to
be sold. Winner's Choice games are currently undergoing field testing in Maine,
Kentucky and Nebraska conducted by Scientific Games in cooperation with the
respective lotteries.
Scientific Games is continually looking for ways to apply its
expertise in specialty printing technologies and security/randomization
techniques to develop commercially viable products for both the lottery
industry as well as for other commercial applications. We are committed to new
product development and we will continue to explore new means of delivering our
products, possibly via the internet, and new opportunities to market new
products and services to new and existing customers.
TRADEMARKS AND PATENTS
We own rights in the following trademarks, which include certain
federally registered marks: Winner's Choice(TM), Terra 2000(R), SciScan
Technology(R). We believe our marks are valuable and, accordingly intend to
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maintain our marks and the related registrations. We are not aware of any
pending claims of infringement or other challenges to our right to use our
marks in the lottery business in the United States. Certain technology
associated with our products is the subject of issued patents and patent
applications currently pending with the United States Patent Office and
selected other countries outside the United States. The Company also holds a
number of other patents and licenses with respect to certain technology used in
its business. The loss of any such patent or license, however, would not in the
opinion of management have a material adverse effect on the Company's overall
business.
CUSTOMER SERVICE
We have an active professional customer service team which works
closely with lotteries in instant ticket game design. Artwork concepts, game
play style and prize structure are assembled, proposed, and refined. Important
manufacturing information is also assembled and documented in the "working
papers" by our customer service representatives. This information, when
approved by the lottery, becomes the technical manufacturing specifications for
specific instant ticket orders.
MARKETING
Scientific Games has been instrumental in the development of marketing
strategies for instant games for domestic and foreign lotteries, including some
of the most successful lotteries in North America. The Company's involvement
includes all phases of instant game marketing support, including marketing
strategies, prize structures, game rules, delivery schedules, play styles,
telemarketing, instant ticket ordering and billing, field sales support,
research, game design, working papers, retailer manuals, instant game concepts,
ticket quantities, delivery and promotions. Scientific Games or its predecessor
has prepared market research analysis of gaming tendencies in most new state
lotteries since 1982, and we can provide our customers with a bank of
lottery-specific consumer and market research data derived from these years of
analyses.
Instant tickets and on-line games are believed to have a broad
consumer appeal throughout the world. Consumers are generally split equally
between men and women, are distributed evenly between ages 25 and 65, and cover
a broad range of socioeconomic groupings. This broad-based market is
significantly affected by appropriate advertising and promotion activities. The
most successful lotteries have found that lottery products are largely an
impulse item, which must be marketed like other consumer products.
Sales of lottery products are based on, among other factors, the
quality of the lottery product, prize structure design and the existence of
efficient retail distribution systems, which allow maximum convenience to
consumers. Scientific Games, with its large game library and extensive research
into product design and consumer purchasing habits, has been an industry leader
in producing new products, distribution methodologies and consumer promotions
to enhance sales.
SECURITY
Scientific Games recognizes that security and integrity are the
foundation of successful lottery organizations. As the incidence and severity
of publicly reported cases of physical and computer crime continue, major
lotteries periodically reassess key security questions concerning the
vulnerability of lottery games. Attempts to penetrate security measures may
come from various combinations of customers, retailers, vendors, lottery
employees and others. Because the integrity of a lottery is believed essential
to its successful operation, both the vendor and lottery must guard their
systems against unauthorized actions. We are not unaware of any practical,
economically feasible way to breach the security of our instant lottery tickets
or on-line games which could result in a material loss to any of our customers,
nor are we aware of any breach thereof which has resulted in any material loss
to any of our lottery customers.
Scientific Games constantly assesses the adequacy of its security
systems, incorporating various improvements, such as bar coding and additional
layers of protection in our instant tickets. There must be well-planned
security measures in place at every stage of the lottery operation. Scientific
Games has pioneered and effected security safeguards in areas of ticket
specifications, production, packaging, delivery, distribution and accounting.
Also, computer function safeguards, including secure ticket data, control
number encryption, winner file data, and ticket stock control have been
incorporated in the Company's data processing and the computer
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operations phase. We also retain a major public accounting firm to perform
agreed upon procedures for each game produced before it is sent to the
customer.
MANUFACTURING PROCESS
Using a series of computer-controlled presses and ink-jet imagers,
management believes Scientific Games' tickets incorporate the most advanced
technology and security methodology available in the industry. Its facilities
are designed for efficient, secure production of instant game tickets and
support ink-jet image tape generation, printing, packaging and storage of
instant game tickets.
The Company's dedicated computer-controlled printing process is
specifically designed for producing instant lottery game tickets for
governmentally sanctioned lotteries and promotional games. The process is not a
business forms press or a direct mail press temporarily diverted to lottery
work. Our specialized equipment contributes to the underlying superior
manufacturing and product quality. Instant ticket games are delivered finished
and ready for distribution by the lottery, or by Scientific Games in the
jurisdictions which are part of an instant ticket contract with cooperative
services provided by Scientific Games.
Paper and ink are the principal raw materials consumed in the
Company's ticket manufacturing operations. We have a variety of sources for
both paper and ink and should, therefore, not be dependent on any particular
supplier.
PERSONNEL
As of December 31, 1999, we had approximately 1,500 full-time
employees. Three of Scientific Games' employee groups are represented by a
labor union. At the California Facility (See "Properties"), ticket packaging is
performed by approximately 60 employees who are members of the Service
Employees International Union Local 1877. SG Austria's employees are
represented by a Worker's Council, which is typical in many European companies.
At the Leed's Facility in the United Kingdom, approximately 266 employees are
members of the GPMU union. The Company believes that its employee relations are
good.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers and other executive team members of the Company who are
considered executive officers by the Company for the purposes of Rule 3b-7, as
of March 1, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William G. Malloy.................... 53 Director, Chairman, President and Chief
Executive Officer
William F. Behm...................... 54 Director and Executive Vice President
Thomas F. Little..................... 55 Senior Vice President
Cliff O. Bickell..................... 57 Vice President, Treasurer and Chief Financial Officer
C. Gray Bethea, Jr. ................. 55 Vice President, Secretary and General Counsel
Bruce H. Longhurst................... 59 Vice President, International Sales and Marketing
Howard H. Roath...................... 47 Vice President-U.S. Sales and Marketing
William C. Christie.................. 51 Managing Director-Scientific Games International
Limited
James H. Edwards, Jr. ............... 54 Senior Director of Manufacturing
Donald N. MacLean.................... 55 Director- Human Resources
Kenneth W. Taylor.................... 39 Corporate Controller
William R. Murphy.................... 46 Senior Director MIS Support
Lynn A. Becker....................... 38 Senior Director Business Information Systems
John J. Walsh........................ 40 Vice-President, Lottery Operations
James L. Nulph....................... 44 Senior Director of Marketing
Peter Tinkl.......................... 44 Managing Director-Scientific Games International
GmbH
Evelyn P. Yenson..................... 55 Senior Director of Corporate Communications
</TABLE>
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WILLIAM G. MALLOY has been President and Chief Executive Officer since
1990. Mr. Malloy was elected a Director and Chairman of the Board in October
1991 when Centre Partners L.P. and certain executive officers of the Company
purchased substantially all of the assets of the instant lottery ticket
production and sales business and the video lottery business of the predecessor
to the Company in a leveraged buy-out transaction ("Acquisition"). Prior to
becoming the Company's President and Chief Executive Officer, Mr. Malloy served
as Vice President, Treasurer and Chief Financial Officer. Mr. Malloy joined the
Company in 1987 when he transferred from the corporate staff of Bally
Manufacturing Company. Mr. Malloy has over twenty-five years of experience in
the coin-operated amusement and gaming industry. Mr. Malloy currently serves on
the Board of Directors for MDI Entertainment, Inc.
WILLIAM F. BEHM joined the Company in 1978 and was promoted to
Executive Vice President in 1988 and was elected a Director in 1992. Mr. Behm
has overall management responsibility for Scientific Games' research and
business development projects. In addition, he is also responsible for the
Company's product security. Prior to joining Scientific Games, Mr. Behm was an
aerospace engineer with McDonnell Douglas Corporation. Mr. Behm was
instrumental in the development of the Company's former on-line lottery system,
the invention of instant lottery bar codes, the development of the Company's
environmental instant ticket and the development of the Company's recent
SciScan Technology and Winner's Choice product lines. He is co-named as the
inventor of various issued patents and pending applications and is a regular
speaker at trade shows and conferences on the subject of technology in the
lottery industry.
THOMAS F. LITTLE joined the Company in 1975 and was promoted to Senior
Vice President in 1991. Mr. Little has overall management responsibility for
Scientific Games' Systems Division, which includes the Company's on-line
lottery systems business. Prior to joining the Company, Mr. Little was Manager
of Data Processing for First National Bank of Atlanta. Mr. Little's experience
includes the introduction of the first video lottery test in Illinois, the
development of the Company's former on-line lottery system and extensive
contacts with the international lottery industry.
CLIFF O. BICKELL joined the Company as Vice President, Treasurer and
Chief Financial Officer in January of 1995. Mr. Bickell has overall management
responsibility for Scientific Games' corporate financial, accounting, and
administrative affairs, including the Company's human resource function. Prior
to joining Scientific Games, Mr. Bickell was Vice President, Chief Financial
Officer and Treasurer of Paragon Trade Brands, a multi-national consumer
products manufacturer where he had similar financial responsibilities. In
addition, Mr. Bickell has held the positions as Senior Vice President,
Corporate Administration Chief Financial Officer of the W. A. Krueger Co., a
commercial printing company, and Treasurer of Dataproducts Corporation, a
multinational electronics manufacturer.
C. GRAY BETHEA, JR. joined the Company in 1985 as Vice President,
Secretary and General Counsel. Mr. Bethea has overall management responsibility
for Scientific Games' legal compliance, statutory interpretation, corporate
matters, and contract documents. Throughout his corporate and private practice
of law, Mr. Bethea has had extensive experience in corporate and contract law.
Prior to joining Scientific Games, Mr. Bethea was a partner with the law firm
of Smith, Gambrell & Russell in Atlanta, Georgia.
BRUCE H. LONGHURST joined the Company in 1997 as Vice President,
International Sales and Marketing. Mr. Longhurst has overall management
responsibility for Scientific Games international marketing and sales efforts.
Prior to joining Scientific Games, Mr. Longhurst was Vice President,
International and Strategic Planning for Autotote Corporation and Managing
Director of its subsidiary TeleControl, which was acquired in 1997 by
Scientific Games. Mr. Longhurst held these and other positions with Autotote
from 1993-1997. From 1988 - 1992, Mr. Longhurst held the position of Executive
Vice President of the Worldwide Wagering Division of General Instrument
Corporation. In addition, Mr. Longhurst was one of the founders and served as
Executive Vice President and General Manager of Ticketron, including its AWI
subsidiary.
HOWARD H. ROATH joined the Company in 1987 and was promoted to Vice
President, U.S. Sales and Marketing in 1997. Mr. Roath has overall management
responsibility for Scientific Games' U.S. marketing and sales efforts. Prior to
joining Scientific Games, Mr. Roath served as Director of Marketing of the
Pennsylvania
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Lottery, Director of Pharmaceutical Assistance Program for the Elderly for the
Pennsylvania Department of Aging and Director of the Division of State
Employment for the Pennsylvania's Governor's Office of Administration.
WILLIAM C. CHRISTIE joined the Company in 1996 as Managing Director
for the Company's subsidiary SGIL in the United Kingdom. Mr. Christie has
overall management responsibility for ticket production and printing for SGIL's
production facilities and for the development of the Company's activities in
prepaid card markets. Prior to joining the Company, Mr. Christie was the
Managing Director of Lottery Products for De La Rue in the United Kingdom.
During his 26 years with De La Rue, Mr. Christie held various other management
positions.
JAMES H. EDWARDS, JR. joined the Company in 1991 as Plant Manager and
was promoted to Director of Manufacturing in 1998. Mr. Edwards has overall
management responsibility for ticket production and printing for the Company's
United States production facilities. Prior to joining the Company, Mr. Edwards
held various management positions with Quebecor Printing, Inc. for over 20
years.
DONALD N. MACLEAN joined the Company in 1997 as Director of Human
Resources. Mr. MacLean manages the personnel function for all of the Company's
locations. Prior to joining the Company, Mr. MacLean held the position of Vice
President of Human Resources for Burnham Service Corporation from 1989 to 1997.
In addition, Mr. MacLean was the Corporate Director of Human Resources for
Interlake Corporation and Division Director of Human Resources for Mueller
Corporation.
KENNETH W. TAYLOR joined the Company in 1987 and was promoted to
Corporate Controller in 1990. Mr. Taylor has management responsibility for
accounting and financial information as well as responsibility for customer
pricing compliance. Prior to joining the Company, Mr. Taylor held auditor
positions with Bally Manufacturing Corporation, Duchossois Industries and
Amsted Industries, Inc.
WILLIAM R. MURPHY joined the Company in 1984 and was promoted to
Senior Director - MIS Support in 1998. Mr. Murphy has overall management
responsibility for software support for all U.S. system implementations. Mr.
Murphy is also responsible for POS terminal hotline support as well as
operational support for CSP system locations. Mr. Murphy was involved in the
initial development of the Company's original on-line software system and has
been heavily involved in all of the Company's domestic systems installations.
Prior to joining the Company, Mr. Murphy held positions as a systems
engineer/programmer for Consultec, Inc., Data Crown, Inc. and Electronic Data
Systems.
LYNN A. BECKER joined the Company in 1986 and was promoted to Senior
Director, Business Information Systems in 1997. Mr. Becker has overall
management responsibility for all game development efforts, including
programming for instant game development, game auditing and validation. Mr.
Becker is also responsible for the Company's internal computer systems and
applications. Prior to joining the Company, Mr. Becker held a position as
Senior EDP Auditor for the State Auditors Office in Iowa.
JOHN J. WALSH joined the Company in 1986 and was promoted to
Vice-President of Lottery Operations in 1998. Mr. Walsh has overall management
responsibility for coordinating lottery operations for both the Instant Ticket
and Related Services and Systems segments. Prior to joining the Company, Mr.
Walsh held positions with Control Data Corporation and Ticketron's sports and
entertainment division.
JAMES L. NULPH joined the Company in 1996 and was promoted to Senior
Director of Marketing in 1999. Mr. Nulph is responsible for directing the
Company's market research, product development, sales planning and proposal
departments. In addition, Mr. Nulph directs the development of Company wide
marketing plans and sales support programs. Prior to joining Scientific Games
Mr. Nulph served eight years with the Virginia Lottery as Sales and Marketing
Director. In addition, he was the Lottery Sales and Marketing Director for the
Missouri State Lottery, after holding various management positions for the
Colorado State Lottery. Mr. Nulph has also been a consultant to many national
and international advertising agencies.
PETER TINKL joined the Company in 1997 and was promoted to Managing
Director for the Company's subsidiary SG Austria in Vienna, Austria in 1999.
Mr. Tinkl has overall management responsibilities for SG Austria systems
operations. Prior to joining Scientific Games, Mr. Tinkl was Vice President,
Systems Sales and Marketing
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<PAGE> 10
for TeleControl, which was acquired by Scientific Games in 1997. Mr. Tinkl was
one of the founders and held various management positions with TeleControl
since 1983.
EVELYN P. YENSON joined the Company in 1998 and was promoted to Senior
Director of Corporate Communications in 1999. Ms. Yenson has management
responsibility for all corporate communications with the Company's external
partners and customers, the media, contract clients, and others in the lottery
industry. Prior to joining Scientific Games, Ms. Yenson was the Director of
Licensing for the State of Washington from 1997-98. Ms. Yenson has extensive
lottery experience from her position as the Director of the Washington State
Lottery from 1987 through 1997.
THE FOLLOWING DISCUSSION OF ASPECTS OF THE COMPANY'S BUSINESS ALSO
CONSTITUTES A CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, the Company's actual results and could cause the Company's actual
quarterly and annual consolidated results for 2000, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or
on behalf of, the Company:
GOVERNMENTAL REGULATION
Lotteries are not permitted in the various states/jurisdictions of the
United States unless expressly authorized by law. The ongoing operations of
authorized lotteries in the United States typically are extensively regulated.
Applicable legislation varies from jurisdiction to jurisdiction but, in
addition to authorizing the lottery and creating the applicable regulatory
authority, the lottery statutes generally dictate certain broad parameters of
lottery operation, including the percentage of lottery revenues which must be
paid out in prizes. Lottery authorities typically exercise significant control
as to the selection of vendors (such as the Company) and award of lottery
contracts, including ticket prices, types of games played and marketing
strategy, all of which can affect the Company's operating results.
Prior to and after granting a lottery contract, governmental
authorities generally conduct an investigation of the Company and its employees
and such authorities may require removal of an employee deemed to be
unsuitable. The Company has not been disqualified from a lottery contract as a
result of any such investigation. Certain states also require extensive
personal and financial disclosure (including, among other things, submission of
fingerprints, personal financial statements and federal and state income tax
returns) and background checks of control persons and entities beneficially
owning a specified percentage (typically 5% or more) of the Company's
securities. The failure of such beneficial owners to submit to such background
checks and provide such disclosure could jeopardize the award of a lottery
contract to the Company or provide the basis for cancellation of existing
lottery contracts.
Scientific Games from time to time retains governmental affairs
representatives in various states of the United States to advise legislators
and the public concerning its views on lottery legislation, to monitor any such
legislation and to advise the Company in its relations with lottery
authorities. Scientific Games also makes campaign contributions to various
state political parties and state political candidates. The Company believes it
has complied with applicable laws and regulations concerning campaign
contributions and lobbying disclosures.
The award of lottery contracts and ongoing operations of lotteries in
international jurisdictions also are extensively regulated, although this
regulation usually varies from that prevailing in the United States.
Restrictions are frequently imposed on foreign corporations seeking to do
business in such jurisdictions and, as a consequence, the Company has, in a
number of instances, allied itself with a local company when seeking foreign
lottery contracts. Laws and regulations applicable to lotteries in the United
States and foreign jurisdictions are subject to change and the effect of such
changes on the Company's ongoing and potential operations cannot be predicted
with certainty.
10
<PAGE> 11
MARKETS
The Company's operations are international in scope. With 37 states
and the District of Columbia currently operating lotteries in the United
States, the Company's growth in the domestic market depends primarily on
expanded activities of existing lotteries as well as winning new contract
awards, re-bids and contract extensions. The Company has a high percentage of
the U.S. instant ticket market but has only a minimal Systems presence in the
U.S. As a result, we believe the Systems market in the U.S. is a source of
potential revenue growth for the Company. Contrasted with the domestic market,
the international market is far from mature, with various countries viewing
lotteries as a potential source of revenue for a variety of governmental
programs. For a discussion of the Company's net revenues, operating income and
identifiable assets attributable to U.S. production operations, see Note 11 of
the Notes to the Financial Statements set forth elsewhere in this report, which
is incorporated herein by reference thereto. For a discussion of revenues from
lottery agencies and other customers domiciled in foreign countries, also see
Note 11 which is incorporated herein by reference. For a discussion of the
Company's U.S. contracts subject to extension or scheduled to expire during
1999 and 2000, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" on pages 16 and 17 of the Company's 1999
Annual Report to Shareholders, which is incorporated herein by reference.
In 1999, one customer, the Georgia Lottery Corporation, accounted for
approximately 10% of the revenues of the Company. U.S. instant ticket lottery
contracts typically have an initial term of from one to five years and usually
provide the customer with options to extend the contract one or more times
under the same or mutually agreeable terms and conditions for additional
periods generally ranging from one to five years. The average term of a U.S.
on-line contract is five to ten years, with additional extension options, which
limits the number of contracts available for bidding in any given year. The
Company's customers have exercised extension options in the Company's U.S.
instant lottery contracts a majority of the time.
The table included herein lists the United States lottery contracts
for which we had executed agreements as of March 23, 2000 and certain
information with respect thereto. We are the primary instant ticket supplier
unless otherwise noted. The table also includes 1999 instant ticket retail
sales for each state or district.
11
<PAGE> 12
SCIENTIFIC GAMES
UNITED STATES LOTTERY CONTRACTS
<TABLE>
<CAPTION>
1999
INSTANT TICKET COMMENCEMENT EXPIRATION CURRENT RENEWAL
RETAIL SALES DATE OF CURRENT DATE OF CURRENT OPTIONS
STATE/DISTRICT (IN MILLIONS) CONTRACT CONTRACT REMAINING TYPE OF CONTRACT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Arizona 125.0 January 1998 January 2001 2 one-year ITRS
Colorado 240.4 May 1995 June 2000 none ITRS
Connecticut 503.3 August 1998 August 2000 2 one-year ITRS
Delaware 19.7 July 1995 December 2000 none ITRS
District of Columbia 31.5 May 1996 May 2000 1 one-year ITRS
Florida 664.6 April 1997 September 2002 none ITRS
Georgia 900.7 May 1993 April 2003 none ITRS
Idaho 56.9 October 1999 October 2001 2 one-year ITRS*
Illinois 549.4 July 1996 July 2000 2 one-year ITRS
Indiana 337.1 December 1997 December 2000 1 one-year ITRS
Kentucky 252.4 October 1997 October 2002 none ITRS
Maine 107.7 July 1990 June 2000 none ITRS and Systems
Massachusetts 2305.4 August 1999 August 2001 3 one-year ITRS
Minnesota 280.0 January 1999 January 2002 3 one-year ITRS*
Missouri 259.6 June 1997 June 2001 none ITRS and Systems
Nebraska 36.1 July 1993 June 2001 none ITRS and Systems
New Jersey 547.1 November 1996 October 2000 1 one-year ITRS
New Mexico 58.2 March 1997 March 2000 3 one-year ITRS
New York** 937.5 April 1996 July 2000 1 one-year ITRS
New York ** January 2000 March 2002 none ITRS and Systems
Oregon 143.7 June 1998 June 2001 3 one-year ITRS*
Pennsylvania 457.0 April 1997 April 2002 5 one-year ITRS
Rhode Island 59.5 April 1998 April 2001 2 one-year ITRS*
South Dakota 13.1 June 1995 June 2000 none ITRS
Texas 1426.0 March 1999 March 2002 none ITRS
Virginia 372.3 January 1997 July 2002 1 three or five year Systems
Washington 261.3 May 1995 May 2000 none ITRS
W. Virginia 77.0 December 1996 June 2000 none ITRS and Systems
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* secondary printer
** There are separate contracts for the supply of instant tickets and the
supply of warehousing, distribution, telemarketing and systems
ITRS = Instant Ticket and Related Services
The Company's re-entry into the on-line lottery business in 1998 has
and will allow the Company to compete for a share of both the U.S. and
international sales in the future. The Company expects to bid on these U.S.
contracts, while pursuing international on-line opportunities during 2000.
The Company currently provides instant ticket validation systems to
the six states shown in the chart. In addition, the Company currently has
eleven SGI-NET systems installations in Europe and in 1999 added France,
Western Canada and Golden Casket Lottery Corporation in Australia. As a result
of winning the contract to provide on-line lottery services to the Western
Canada Lottery Corp., we believe we are now better positioned to compete for
additional on-line contracts, not only in the remainder of Canada, but also in
the rest of North America. In addition, the sale of SciScan terminals to
Greece, Golden Casket Lottery Corporation, and France better positions the
Company to market its SciScan Technology in Europe. We believe our technical
and marketing expertise, our
12
<PAGE> 13
reputation as a quality instant ticket provider, our financial stability and
our quality on-line products will allow us to obtain an increased percentage of
the U.S. on-line market.
Sales outside the United States may consist of sales of goods and
services exported to customers located overseas, sales of goods and services to
customers in countries in which the Company's foreign subsidiaries have
manufacturing facilities or sales of goods and services by the Company's
foreign subsidiaries located outside the country of production. Although the
Company does business worldwide, a majority of the Company's current foreign
operations are conducted in Europe, and a majority of U.S. export sales are
made to customers located in Europe.
The Company's international lottery contracts are less likely to have
firm contract periods and, historically, international lottery ticket customers
have sought competitive bids for such contracts more frequently than domestic
U.S. customers. The volume and timing of the international contracts fluctuate
from country to country and it is difficult to predict the volume or timing of
sales to these customers from period to period.
INDUSTRY SEGMENT INFORMATION AND CLASSES OF SIMILAR SERVICES
Information with respect to the Company's industry segments,
geographical operations and classes of similar services is set forth in Note 11
to the Consolidated Financial Statements of the Company, which appears on pages
40 through 42 of the Company's 1999 Annual Report to Shareholders, which Note
11 is incorporated herein by reference.
LOTTERY CONTRACTS: PROCUREMENT PROCESS AND REQUIREMENTS
Lotteries in the United States typically select an instant ticket or
on-line supplier by issuing a Request for Proposals ("RFP") which outlines
contractual obligations as well as products and services to be delivered. An
evaluation committee frequently comprised of key lottery staff evaluates
responses based on various criteria. These criteria usually include quality of
product, security plan and features, experience in the industry, quality of
personnel and services to be delivered and price. We believe that the quality
of our personnel, our technical expertise and our manufacturing efficiency give
us many advantages relative to the competition when responding to state lottery
RFPs. However, many lotteries still award the contract to the qualified vendor
with the lowest price, regardless of factors other than price. Contract awards
by lottery authorities in the United States are sometimes challenged by
unsuccessful competitors which can result in protracted legal proceedings.
Domestic lottery contracts, including ours, typically contain
provisions for payment of liquidated damages for late delivery of tickets,
delivery of defective tickets or system non-operability, which in the aggregate
could result in several million dollars or more per day in penalties to the
Company. Although the payment of liquidated damages with respect to on-line
lotteries may not be uncommon, the Company believes it is uncommon for instant
lotteries. Scientific Games has not typically paid liquidated damages in a
material amount under instant ticket lottery contracts, although we have on
occasion negotiated customer allowances which have not had a material effect on
our business.
Lottery contracts to which the Company is party frequently contain
exacting implementation schedules and performance requirements. Failure to meet
these schedules and requirements may result in substantial monetary liquidated
damages, as well as possible contract termination. The Company maintains a
bonding program for its bid bonds, litigation bonds and performance bonds
through various insurance companies. As of December 31, 1999, $87 million was
outstanding in aggregate face amount of surety bonds issued. One or more of
these bonds is generally required by a lottery customer in order to participate
in a lottery procurement or to enter into a contract with the lottery following
successful bid. Failure to provide such bonds would materially and adversely
affect the Company's ability to do business. The Company's bonding program is
backed by a blanket indemnity of the surety.
Our contracts of periodically expire and/or reach optional extension
dates. Upon the expiration of a contract (including any extensions thereof),
lottery authorities may award new contracts through a competitive procurement
process. There can be no assurance that our current contracts will be extended
or that we will be awarded new contracts as a result of competitive procurement
processes in the future. The Company's lottery contracts typically permit a
lottery authority to terminate the contract at any time for failure to perform
and other
13
<PAGE> 14
specified reasons, and many of such contracts permit the lottery authority to
terminate the contract at will without penalty. Depending upon, among other
factors, the amount of revenue we derived thereunder, the termination,
expiration or failure to renew one or more instant lottery contracts could have
a material adverse effect on the our results of operation, business or
prospects.
COMPETITION
The instant and on-line lottery businesses are highly competitive, and
the Company's business faces competition from a number of domestic and foreign
instant ticket manufacturers, on-line lottery system providers and other
competitors.
Scientific Games currently has two primary instant lottery ticket
competitors in the U.S.: Pollard Banknote Limited ("Pollard") and Oberthur
Gaming Technologies ("OGT," a subsidiary of Group Francois-Charles Oberthur of
France). In addition, Creative Games International, Inc. ("Creative Games", a
subsidiary of Canadian Bank Note Company, Ltd.) is a competitor in the U.S. The
Company estimates that the retail sales value of its U.S. customer base was in
excess of 68% of total U.S. instant ticket retail sales in 1999 - approximately
twice as large as its next largest competitor. Except as permitted by the
applicable provisions of the North American Free Trade Act with respect to
Canada and Mexico, it is currently illegal to import lottery tickets into the
United States from a foreign country. The Company's business could be adversely
affected should additional foreign competitors in Canada or Mexico export their
lottery products to the U.S. or should other foreign competitors establish
printing facilities in the U.S., Canada or Mexico to supply the U.S. market.
Internationally, there are many lottery instant ticket vendors which
provide competition to the Company, including, among others, OGT, Pollard,
Creative Games, GPS Honsel and various other vendors.
GTECH Holdings Corporation ("GTECH") is our major competitor in the
on-line market with about 70% of the U.S. market. Other on-line competitors in
the U.S. are Automated Wagering International Inc. ("AWI") a subsidiary of
Anchor Gaming and Autotote Corporation. GTECH is also our major competitor in
the international on-line market with the balance of the market being served by
Scientific Games, AWI, EssNet AB and a few other companies.
Both in the U.S. market and internationally, factors which influence
the award of lottery contracts in addition to price, are believed to include,
among others, the ability to optimize lottery revenues through game design and
technical capability, quality of the product, dependability, production
capacity, marketing experience, financial condition and reputation of the
bidder, the security and integrity of the bidder's production operations,
products and services offered and the satisfaction of various other
requirements and qualifications imposed by specific jurisdictions.
We believe our position as a leading worldwide producer of instant
lottery tickets and our reputation as a developer of state-of-the-art
technology and marketing concepts, as well as our experience in the industry,
are believed to enhance significantly our competitive position. The large
capital investment necessary to purchase, customize and install an instant
ticket printing operation, the high level of security required in the lottery
industry and the fact that all states in the U.S. which have lotteries have
typically required potential suppliers to have prior lottery experience are all
factors which tend to limit the number of firms which are willing to, or are in
the position to, enter the instant lottery ticket production business. Our
business could be adversely affected should our competitors' research and
development activities result in reduced technological differentiation between
our products and their products. Similarly, in the event technological
developments materially reduce the capital investment required to finance
secure lottery ticket printing and systems operations, our business could be
adversely affected by increased competition. We do not anticipate any material
reduction in the level of capital financing required for entry into the lottery
product business in the foreseeable future.
None of our current competitors in the U.S. market produce instant
lottery tickets, provide on-line systems and offer a full range of services to
state lotteries. Our U.S. competitors typically either manufacture only instant
tickets or provide only certain services, such as software for the management
systems, marketing assistance or other specific duties. However, an on-line
vendor in cooperation with an instant ticket supplier may jointly be considered
a competitor or potential competitor. In addition, an on-line vendor not in
cooperation with an instant ticket supplier
14
<PAGE> 15
may nonetheless provide various cooperative services, including data processing
services. Scientific Games has two primary domestic and international
competitors in this regard: AWI and GTECH.
In 1997, we discontinued our charity pull-tab ticket business, which
was produced and distributed by our subsidiary GameTec Inc. ("GameTec"). In
connection with the disposition, we sold substantially all of the assets of
GameTec to International Gamco, Inc. ("Gamco"). We entered into a three-year
extendible marketing agreement with Gamco to provide marketing and related
services to state lotteries for pull-tab tickets. Currently, the Company has 3
contracts with state lotteries for pull-tab tickets. We believe it is desirable
to offer pull-tab tickets to its lottery customers to maintain a full range of
products and services and we continue to provide pull-tab tickets to our
lottery customers through the marketing agreement. The sales of pull-tab
tickets to lottery customers are included in our Instant Ticket and Related
Services segment and accounted for less than 10% of our consolidated gross
revenues in 1999.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Our operating results may vary significantly from period to period.
Revenues and capital expenditures may be difficult to forecast because our
sales cycle may vary and depend upon facts such as the size and timing of
awarded contracts, changes in customer budgets, delays in customer orders,
changes in lottery marketing strategies and ticket ordering patterns and
general economic conditions. Contracts with governmental entities operating
newly authorized instant lotteries tend to generate higher levels of ticket
sales in the initial months.
Our operating results also may be affected by the working capital
requirements associated with preparing facilities and equipment, establishing
the distribution system and printing tickets for a recently awarded contract,
and by the amount of time elapsing before the receipt and/or recognition of
revenues from the sale of Instant Tickets and Related Services. Significant new
customer contracts may require the expenditure of additional resources and the
creation of additional infrastructures before revenues are realized. In
addition, operating results may be affected if we need to utilize overtime
labor or by our ability to smoothly integrate new and/or upgraded production
equipment with our existing production operations. Revenues from the sale of
Instant Tickets and Related Services and Systems may be recognized based upon
ticket shipments, a percentage of the lottery's sales to the public, a
contracted price, a license agreement, an equipment lease agreement or any
combination of the foregoing.
Additionally, circumstances encountered in international markets,
including the substantial amount of time involved in bidding on any
international contract, the evaluation of such bid and the resultant contract
award or rejection can vary significantly from that originally anticipated when
the bid is prepared. All of these factors may make it difficult to forecast
revenues and expenditures related to our operations over extended periods and
may result in fluctuations in our quarterly financial results. Accordingly,
quarter to quarter fluctuations in revenues may be expected.
RELIANCE ON SENIOR MANAGEMENT
We have benefited and continue to benefit substantially from the
skills, experience and efforts of our senior management (See "Executive
Officers"). The loss of the services of members of the Company's senior
management could have a material adverse effect on our business and prospects.
ADDITIONAL RISK FACTORS AND INVESTMENT CONSIDERATIONS
Additional or related factors which could affect our actual results
and could cause our actual consolidated results for the first quarter of 2000,
and beyond, to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company include:
Continued or increased pressure to change the selling prices for our
products, and the resulting effects on margins, our actions in connection with
continued competition in many product areas, including, but not limited to,
price competition and fluctuating demand for certain lottery ticket products by
one or more lottery customers;
15
<PAGE> 16
Difficulties or delays in the development, production, testing and
marketing of products, including, but not limited to, a failure to ship new
products utilizing SGI-NET, SciScan Technology and/or other technologies when
anticipated, the failure of customers to accept these products or technologies
when planned, any defects in products and a failure of manufacturing economies
to develop when planned;
Occurrences affecting the Company's ability to reduce product and
other costs, and to increase productivity;
Inability to offset pricing competition with production efficiencies
and economies of sales; underutilization of the Company's plants and factories
resulting in production inefficiencies and higher costs; start-up expenses and
inefficiencies and delays and increased depreciation costs in connection with
the start of production in new plants and expansions;
The amount, and rate of growth in, the Company's selling, general and
administrative expenses, and the impact of unusual items resulting from the
Company's ongoing evaluation of its business strategies, asset valuations and
organizational structures;
The compromise or breach or perceived compromise or breach of the
Company's production security and integrity or the security and integrity of
its products or services;
Difficulties in obtaining raw materials, supplies, power and natural
resources and any other items needed for production of lottery tickets and
other products;
The acquisition of fixed assets and other assets, including
inventories and receivables, and the making or incurring of any expenditures
and expenses, including, but not limited to, depreciation and research and
development expenses, any revaluation of assets or related expenses and the
amount of, and any changes to, tax rates;
The effects of, and changes in, trade, monetary and fiscal policies,
laws and regulations, other activities of governments, agencies and similar
organizations, and social and economic conditions, such as trade restrictions
or prohibitions, inflation and monetary fluctuations, import and other changes
or taxes, the ability or inability of the Company to obtain, or hedge against,
foreign currency, foreign exchange rates and fluctuations in those rates, loss
of international contracts or lower international revenue resulting from
increased expenses associated with overseas operations, the impact of foreign
labor laws and disputes, adverse effects arising out of political unrest,
terrorist activity, nationalizations and unstable governments and legal
systems, and intergovernmental disputes, as well as actions affecting
frequency, use and availability of lottery products and licensing of lotteries
for business;
The costs and other effects of legal or administrative cases and
proceedings (whether civil, such as environmental and product-related, or
criminal), settlements and investigations, claims, and changes in those items;
developments or assertions by or against the Company relating to intellectual
property rights and intellectual property licenses; adoptions of new, or
changes in, accounting policies and practices and the application of such
policies and practices;
The effects of changes in compensation and benefit levels internally
or in our industry; activities of third parties with which we have an agreement
or understanding, including any issues affecting any investment or joint
venture in which we have an interest; the amount, type and cost of the
financing available to or utilized by us; and
Our ability to integrate acquisitions into our existing operations and
unexpected difficulties or problems with such acquired entities including
inadequate production equipment, inadequate production capacity or quality,
outdated or incompatible technologies or an inability to realize anticipated
synergies and efficiencies, whether within anticipated timeframes or at all.
For a more detailed discussion of certain of these risks see Item 3
"Legal Proceedings" and Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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<PAGE> 17
ITEM 2. PROPERTIES
We currently have four instant ticket manufacturing sites: a 71,000
square foot leased facility in Gilroy, California (the "California Facility");
a 185,000 square foot owned headquarters and manufacturing facility in
Alpharetta, Georgia (the "Georgia Facility"); a 112,000 square foot leased
facility in Leeds, United Kingdom (the "Leeds Facility"); and a 30,000 square
foot leased facility in Bradford, United Kingdom (the "Bradford Facility"). We
are expanding our Georgia Facility by 60,000 square feet to accommodate
additional manufacturing and office space. This expansion is scheduled for
completion in July of 2000. In addition, we are constructing a new 152,000
square foot facility in Leeds, England in order to consolidate our current
Leeds and Bradford facilities in one location. Occupancy is scheduled for
September of 2000. The lease on our existing Leeds Facility expires on October
31, 2000 and we plan to sub-lease our existing Bradford Facility for its
remaining lease term, which expires June 30, 2016. We have also announced our
plans to close the California Facility in June of 2000 and have notified the
landlord of our termination of the lease agreement.
We also have a 10,000 square foot leased facility in Vienna, Austria
(the "Austria Facility"), which is dedicated to software development activities
for our on-line business and a 12,000 square foot leased facility in Suresnes
Cedex (Paris), France (SciGames France), which is dedicated to terminal
hardware and software development. Sales support, research, product
development, U.S. software development and support and graphics are located at
our Georgia Facility where we also lease a 10,000 square foot facility which
houses a portion of our software development and terminal repair operations.
Our employees also may be located at facilities owned or leased by lotteries.
In addition, we lease approximately 193,000 square feet of facilities in
several states in order to provide additional services to our Instant Ticket
and Related Services customers.
At the present time our four manufacturing facilities have a combined
maximum production capacity of approximately 14 billion "standard sized" (2 by
4 inch) tickets per year. However, at maximum production capacity, the Company
incurs overtime expense and can encounter reduced efficiencies . The Leeds
Facility consists of office and production space equipped with five sheet-fed
offset presses. The administrative and game development departments for both
the Leeds and Bradford Facilities are in this location. The Bradford Facility
includes office and production space and is equipped with three separate
printing processes: offset, inkjet and rotary screen. The Austria Facility
consists of office and software development space equipped with
state-of-the-art software development tools. The Austria Facility lease expires
on December 31, 2007. The SciGames France facility consists of office and
hardware/software development space and its lease expires in March of 2008,
with an option to terminate the lease every three years, with the next option
date being March of 2002.
Scientific Games' headquarters and printing facility in Georgia began
operation in February 1992. Our Georgia Facility operates two presses,
including a modern 15 station gravure press. The gravure press is equipped with
a state-of-the-art register control system, designed to reduce overall waste
while achieving high quality. The press has four reversible stations providing
color flexibility including potential four-color back printing in selected
situations and is designed to accommodate alternative printing technology on a
station-by-station basis. The press is designed to dry both water-based and
solvent-based inks at full press speed. Currently, the use of water-based inks
is increasing as the printing industry moves to reduce its output of volatile
organic compounds (VOC's) created as the result of drying solvent based inks.
In 2000, we will be adding a third press to the Georgia Facility as
part of the expansion mentioned above. The press uses flexographic technology
and has 21 stations. The press is scheduled to be commissioned in June of 2000.
The cost of the total expansion of the Georgia Facility is estimated at
approximately $15 million.
The Company has presses at the Leeds and Bradford Facilities located
in the United Kingdom. The Leeds Facility has five sheet-fed offset presses as
well as imaging and silk screen equipment. The Bradford Facility utilizes three
separate printing processes, which are an offset, inkjet and rotary screen. In
1997 we began installation of new imagers, data stations and related equipment
incorporating significantly advanced technology for our existing presses at the
Bradford Facility at a total retail cost of approximately $3.0 million. Such
imagers became fully operational in March 1998 and materially increased the
efficiency and flexibility (and thus capacity) of our existing presses at the
Bradford Facility.
17
<PAGE> 18
In early 2001, we will be adding a new 11 station flexographic press
in the new Leeds Facility which will replace current printing equipment. The
total cost of this new facility and the equipment purchases is estimated at
approximately $24 million.
ITEM 3. LEGAL PROCEEDINGS
As initially reported in July 1993 and periodically reported
thereafter, the Company's Scientific Games Inc. ("SGI") subsidiary owns a
minority interest in Wintech de Colombia S.A. ("Wintech"), which formerly
operated the Colombian national lottery under contract with Empresa Colombiana
de Recursos para la Salud, S.A. ("Ecosalud"), an agency of the Colombian
government. The contract projected that certain levels of lottery ticket sales
would be attained and provided a penalty against Wintech, SGI and the other
shareholders of Wintech of up to $5.0 million if such performance levels of
lottery ticket sales were not achieved. In addition, with respect to a further
guarantee of performance under the contract with Ecosalud, SGI delivered to
Ecosalud a $4.0 million bond issued by a Colombian surety, Seguros del Estado
("Seguros"). Wintech started the instant lottery in Colombia, but, due to
difficulties beyond its control, including, among other factors, social and
political unrest in Colombia, frequently interrupted telephone service and
power outages, and competition from another lottery being operated in a
province of Colombia in violation of Wintech's exclusive license from Ecosalud,
the projected sales level was not met for the year ended June 1993. On July 1,
1993, Ecosalud adopted resolutions declaring, among other things, that the
contract was in default and asserted various claims for compensation and
penalties against Wintech, SGI and other shareholders of Wintech. As the
Company has previously disclosed in its filings with the Commission, litigation
is pending in Colombia concerning various claims among Ecosalud, Wintech and
SGI, relating to the termination of the contracts with Ecosalud (the "Colombian
Litigation"). Ecosalud's claims in the Colombian Litigation were for, among
other things, realization on the full amount of the penalty, plus interest and
costs of the bond.
SGI has consulted with Colombian counsel and been advised that SGI has
various legal defenses to Ecosalud's claims. SGI also has certain cross
indemnities and undertakings from the two other privately held shareholders of
Wintech for their respective shares of any liability to Ecosalud. That
obligation is secured in part by a $1.5 million confirmed letter of credit in
favor of SGI.
The Colombian surety which issued a $4.0 million bond to Ecosalud
under the contract paid $2.4 to Ecosalud under the bond, and made demand upon
SGI for that amount under the indemnity agreement entered into by the surety
and SGI. SGI declined to make or authorize any such payment and notified the
surety that any payment in response to Ecosalud's demand on the bond was at the
surety's risk. No assurance can be given that the other shareholders of Wintech
will, or have sufficient assets to, honor their indemnity undertakings to SGI
when the claims by Ecosalud against SGI and Wintech are finally resolved, in
the event such claims result in any final liability.
On April 2, 1998, Seguros brought suit against SGI in the United
States District Court for the Northern District of Georgia, Atlanta Division,
Civil Action No. 1:98-CV-968-CAM. The plaintiff sought $2.4 million for sums
paid by Seguros to Ecosalud under the surety bond on November 1, 1994, plus
interest at the Colombian bank rate of interest. SGI filed a motion to dismiss
based on the Colombian statute of limitations of two years and, alternatively,
sought that the case be dismissed on other grounds. Seguros filed a motion for
summary judgment with the Court on May 6, 1998 seeking summary judgment on its
claim in the amount of $2.4 million, plus interest.
On September 29, 1999, the District Court issued an order in which it
denied various motions of SGI, including a motion to dismiss, and granted
Seguros' motion for summary judgment. On September 29, 1999, the District Court
also entered judgment for Seguros in the amount of $2.4 million or the
equivalent in Colombian pesos as of the judgment date, plus pre-judgment
interest at a rate of 38.76% per annum, equivalent to approximately $4.6
million.
SGI has appealed the matters covered by the District Court's order and
judgment. SGI has posted an appeal bond in the amount of $7 million through its
existing bonding arrangements. SGI continues to believe that it
18
<PAGE> 19
has meritorious defenses, including that the amount paid by Seguros was
improperly paid because of the default by Ecosalud of its obligations to SGI,
which claims remain the subject of separate litigation in Colombia.
In addition to vigorously prosecuting its appeal of the District
Court's order and judgment, SGI continues to vigorously defend the Colombian
litigation and has been advised by counsel that SGI has various defenses on the
merits as well as procedural defenses to the litigation (which it has
asserted). Nevertheless, it is not possible to determine the exact/ultimate
outcome of the appeal of the order and judgment granted to Seguros or the
outcome of any litigation in Colombia. While it is not feasible to predict or
determine the final outcome of these proceedings, management, based on the
knowledge of the related facts and circumstances does not believe that any
potential losses will result in a materially adverse effect on the Company's
financial position, results of operations, liquidity or capital resources.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders at any time
during the fourth quarter of the year ended December 31, 1999.
19
<PAGE> 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
In July 1997, the Company adopted a shareholders rights plan which
provided for the issuance to each holder of the Company's Common Stock, certain
rights (the "Rights") to purchase shares of the Company's redeemable Series A
Participating Cumulative Preferred Stock pursuant to the terms of a Rights
Agreement. Such rights are exercisable after distribution by holders other than
"Acquiring Persons" as defined in the Rights Agreement in the event of certain
ownership changes and in connection with certain business combinations. The
Rights may have certain anti-takeover effects. The Rights may cause substantial
dilution to a person that attempts to acquire the Company without a condition
to such an offer being that a substantial number of the Rights be acquired or
that the Rights be redeemed or declared invalid. The Rights should not
interfere with any merger or other business combination approved by the Board
of Directors (under some circumstances, with the concurrence of the Continuing
Directors) since the Rights may be redeemed by the Company. A copy of the
Rights Agreement and a more expansive summary of the provisions thereof is set
forth in the Company's Form 8-A/A with respect thereto, filed with the
Commission on August 6, 1997 and in amendment there to is an exhibit to this
annual report.
The information presented under the caption "Corporate Information" on
page 45 of the Company's 1999 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 6 SELECTED FINANCIAL DATA
The information presented under the caption "Five-Year Selected
Financial Data" on page 14 of the Company's 1999 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information presented under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 15
through 22 of the Company's 1999 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the heading "Inflation, Changing
Prices, Foreign Currency Fluctuations and Market Risk" appearing on pages 21
through 22 of our 1999 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information presented under the caption's "Consolidated Statements
of Income", "Consolidated Balance Sheets", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Shareholders' Equity", and "Notes to
Consolidated Financial Statements", on pages 23 - 44 of the Company's 1999
Annual Report to Shareholders is incorporated herein by reference.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
20
<PAGE> 21
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information required by Item 10 is incorporated by reference from
the information in Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Stockholders to be held May 19,
2000, except as to biographical information on Executive Officers which is
contained in Item 1 of this Annual Report on Form 10-K.
ITEM 11 EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the information in Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Stockholders to be held May 19,
2000.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from
the information in Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Stockholders to be held May 19,
2000.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the information in Registrant's proxy statement (filed or to be filed pursuant
to Regulation 14A) for its Annual Meeting of Stockholders to be held May 19,
2000.
21
<PAGE> 22
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Consolidated Financial Statements
The following financial statements and notes thereto of Scientific Games
Holdings Corp. are incorporated in Item 8 by reference from the Company's 1999
Annual Report to Shareholders:
<TABLE>
<CAPTION>
Page in Annual
Report to Shareholders
----------------------
<S> <C>
Consolidated Statements of Income, Years ended December 31, 1999, 1998 and 1997 23
Consolidated Balance Sheets -- December 31, 1999 and 1998 24
Consolidated Statements of Cash Flows -- Years ended December 31, 1999, 1998 and 1997 25
Consolidated Statements of Shareholders' Equity, Years ended December 31, 1999, 1998 and 1997 26-27
Notes to Consolidated Financial Statements -- December 31, 1999 28-43
Report of Independent Auditors 44
</TABLE>
(a)(2) Financial Statement Schedules
Schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
(a)(3) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
(a)(4) Listing of Exhibits
The exhibits listed below are filed with or incorporated by reference
into this annual report on Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
3. 1 -- Second Amended and Restated Certificate of
Incorporation of Scientific Games Holdings Corp. with
Certificate of Designation (12)
3.2 -- Second Amended and Restated By-Laws of Scientific
Games Holdings Corp. (4)
10.2 -- Agreement by and between the Massachusetts State
Lottery Commission and Scientific Games, Inc. dated
December 18, 1987 and extensions thereto (1)
10.6 -- Employment Agreement ("Old Malloy Employment
Agreement") dated as of October 1, 1991 between
Scientific Games Operating Corp. (now known as
Scientific Games Inc.) and William G. Malloy (1)
10.7 -- Employment Agreement ("Behm Employment Agreement")
dated as of October 1, 1991 between Scientific Games
Operating Corp. (now known as Scientific Games Inc.)
and William F. Behm (1)
10.8 -- Employment Agreement ("Little Employment Agreement")
dated as of October 1, 1991 between Scientific Games
Operating Corp. (now known as Scientific Games Inc.)
and Thomas F. Little (1)
10.10 -- Form of Promissory Note evidencing loans to Management
Stockholders (1)
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C>
10.16 -- Second Amendment to Asset Purchase Agreement dated as
of October 1, 1991 between Bally Manufacturing
Corporation and Scientific Games Operating Corp. (now
known as Scientific Games Inc.) (re: earnout) (1)
10.17 -- Stockholders' Agreement dated as of July 1, 1993, as
amended (1)
10.18 -- Amended First 1991 Management Stock Option Plan (1)
10.19 -- Amended Second 1991 Management Stock Option Plan (1)
10.20 -- 1993 Management Stock Option Plan (1)
10.21 -- Industrial Real Estate Lease dated December 4, 1984
between Arroyo One as Landlord and Scientific Games
Inc. as Tenant (Gilroy Lease), as amended (1)
10.22 -- Lease dated April 27, 1987 between Kishimura Bros. and
Scientific Games of California, Inc. (Scientific Games
of California, Inc. assigned its leasehold interest to
Scientific Games Operating Corp., now known as
Scientific Games, Inc.), as amended (1)
10.23 -- Form of Amendment to Old Malloy Employment Agreement (1)
10.24 -- Form of Amendment to Behm Employment Agreement (1)
10.25 -- Form of Amendment to Little Employment Agreement (1)
10.26 -- Instant Ticket and Associated Products and Services
Agreement dated May 4, 1993 by and between Georgia
Lottery Corporation and Scientific Games, Inc. (4)
10.31 -- Form of revised Severance Benefits Agreement (4)
10.32 -- Amendment to Amended First 1991 Management Stock Option
Plan (4)
10.33 -- Amendment to Amended Second 1991 Management Stock Option
Plan (4)
10.34 -- Amendment to 1993 Management Stock Option Plan (4)
10.35 -- First Amended and Restated 1993 Directors' Stock Option
Plan (4)
10.37 -- 1994 Management Stock Option Plan (6)
10.38 -- 1995/1996 Management Stock Option Plan (6)
10.39 -- Key Employee Restricted Stock Option Plan (6)
10.40 -- Severance Benefits Agreement dated as of May 5, 1995,
between Scientific Games Holdings Corp. and Cliff O.
Bickell (7)
10.42 -- Key Employee Restricted Stock Plan (6)
10.43 -- Form of Key Employee Restricted Stock Plan Restricted
Stock Award Agreement (7)
10.45 -- Instant Lottery Tickets Supply Agreement between Thomas
De La Rue Limited, Scientific Games Inc. and Camelot
Group plc, dated June 15, 1995. (3)(8)
10.46 -- Credit Agreement for Line of Credit From First Union
National Bank of Georgia to Scientific Games Holdings
Corp. and Scientific Games Inc. Dated: December 20,
1996 (9)
10.47 -- Rights Agreement dated as of July 10, 1997 between
Scientific Games Holdings Corp. and First Union
National Bank as Rights Agent ("the Rights Agreement")
(11)
10.48 -- Amended Bank Credit Agreement (12)
10.49 -- 1998 Employee Stock Purchase Plan, as amended and
restated (12)
10.50 -- Stock Purchase Agreement dated as of April 15, 1997, by
and between Scientific Games Holdings Corp. and
Autotote Corporation with Respect to All Outstanding
Capital Stock of TeleControl Kommunications - und
Computersysteme Gesellschaft m.b.H. (12)
10.51 -- Form of Amendment to Behm Employment Agreement (12)
10.52 -- Form of Amendment to Little Employment Agreement (12)
10.53 -- Severance Benefits and Employment agreement dated as of
January 1, 1999 between William G. Malloy and
Scientific Games Holdings Corp. (13)
10.54 -- Supply Agreement for Instant Lottery Computer Management
System (14)
10.55 -- First Amendment to the Rights Agreement dated October
15, 1999
10.56 -- 3 Year/$80 million Credit Agreement From First Union
National Bank of Georgia to Scientific Games Holdings
Corp. and Scientific Games Inc. dated November 30, 1999
10.57 -- 364 Day/$25 million Credit Agreement From First Union
National Bank of Georgia to Scientific Games Holdings
Corp. and Scientific Games Inc. dated November 30, 1999
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
11.0 -- Statement re: computation of per share earnings (loss)
13.1 -- 1999 Annual Report to Shareholders pages 14 - 45
21.0 -- List of Subsidiaries of Registrant
23.0 -- Consent of Independent Auditors
27.0 -- Financial Data Schedule (for SEC use only)
</TABLE>
- --------------------
(1) Previously filed with Registration Statement No. 33-65582,
filed on July 2, 1993 or as subsequently amended on July 28,
1993, August 9, 1993 or August 20, 1993.
(2) Previously filed with the Company's Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1993.
(3) Portions of Exhibits 10.45 and 10.54 deemed confidential by
the Company have been omitted, were filed separately with the
Commission and confidential treatment has been granted for
portions of these exhibits.
(4) Previously filed with the Company's Registration Statement
No. 33-75168, filed on February 11, 1994 or as subsequently
amended on March 4, 1994.
(5) Previously filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1993.
(6) Previously filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
(7) Previously filed with the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995.
(8) Previously filed with the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995.
(9) Previously filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
(10) Previously filed with the Company's Current Report on Form
8-K dated April 15, 1997 and filed with the Commission on
June 30, 1997.
(11) Previously filed with the Company's Current Report of Form
8-K 8A/A dated August 6, 1997 and filed with the Commission
on such date.
(12) Previously filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
(13) Previously filed with the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
(14) Previously filed with the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999.
(b) Reports on Form 8-K: none.
(c) Executive Compensation Plans and Arrangements.
(i) Employment Agreement ("Malloy Employment
Agreement") dated as of October 1, 1991 between
Scientific Games Operating Corp. (now known as
Scientific Games Inc.) and William G. Malloy,
Exhibit 10.6 (1)
(ii) Employment Agreement ("Behm Employment
Agreement") dated as of October 1, 1991 between
Scientific Games Operating Corp. (now known as
Scientific Games Inc.) and William F. Behm,
Exhibit 10.7 (1)
(iii) Employment Agreement ("Little Employment
Agreement") dated as of October 1, 1991 between
Scientific Games Operating Corp. (now known as
Scientific Games Inc.) and Thomas F. Little,
Exhibit 10.8 (1)
(iv) Amended First 1991 Management Stock Option
Plan, Exhibit 10.18 (1)
(v) Amended Second 1991 Management Stock Option
Plan, Exhibit 10.19 (1)
(vi) 1993 Management Stock Option Plan, Exhibit
10.20 (1)
(vii) Form of Amendment to Malloy Employment
Agreement, Exhibit 10.23 (1)
24
<PAGE> 25
(viii) Form of Amendment to Behm Employment Agreement,
Exhibit 10.24 (1)
(ix) Form of Amendment to Little Employment
Agreement, Exhibit 10.25 (1)
(x) Form of revised Severance Benefits Agreement,
Exhibit 10.31 (2)
(xi) Amendment to Amended First 1991 Management
Stock Option Plan, Exhibit 10.32 (2)
(xii) Amendment to Amended Second 1991 Management
Stock Option Plan, Exhibit 10.33 (2)
(xiii) Amendment to 1993 Management Stock Option Plan,
Exhibit 10.34 (2)
(xiv) 1994 Management Stock Option Plan, Exhibit
10.37 (3)
(xv) 1995/1996 Management Stock Option Plan, Exhibit
10.38 (3)
(xvi) Severance Benefits Agreement dated as of May 5,
1995, between Scientific Games Holdings Corp
and Cliff O. Bickell, Exhibit 10.40 (4)
(xvii) Key Employee Restricted Stock Plan, Exhibit
10.42 (3)
(xviii) Form of Key Employee Restricted Stock Plan
Restricted Stock Award Agreement, Exhibit 10.43
(4)
(xix) Form of Amendment to Behm Employment Agreement,
Exhibit 10.51 (5)
(xx) Form of Amendment to Little Employment
Agreement, Exhibit 10.52 (5)
(xxi) Severance Benefits and Employment Agreement
dated as of January 1, 1999 between William G.
Malloy and Scientific Games Holding Corp.,
Exhibit 10.53 (6)
- ---------------
(1) Previously filed with Registration Statement No.
33-65582, filed on July 2, 1993 or as subsequently
amended on July 28, 1993, August 9, 1993 or August 20,
1993.
(2) Previously filed with Registration Statement No.
33-75168, filed on February 11, 1994 or as subsequently
amended on March 4, 1994.
(3) Previously filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(4) Previously filed with the Company's Annual Report on
Form 10-Q for the quarter ended June 30, 1995.
(5) Previously filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(6) Previously filed with the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
25
<PAGE> 26
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Scientific Games Holdings Corp. has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Alpharetta, and State of Georgia on this 30th
day of March, 1999.
Scientific Games Holdings Corp.
By: /s/ William G. Malloy
-----------------------------------
William G. Malloy, Chairman
of the Board, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons on behalf of the Registrant,
Scientific Games Holdings Corp. in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William G. Malloy Chairman of the Board, President, March 30, 2000
- ------------------------------------ and Chief Executive Officer
William G. Malloy (Principal Executive Officer)
/s/ Cliff O. Bickell Chief Financial Officer, March 30, 2000
- ------------------------------------ Vice President and Treasurer
Cliff O. Bickell (Principal Financial and Accounting
Officer)
/s/ Paul F. Balser Director March 30, 2000
- ------------------------------------
Paul F. Balser
/s/ William F. Behm Director March 30, 2000
- ------------------------------------
William F. Behm
/s/ Mark E. Jennings Director March 30, 2000
- ------------------------------------
Mark E. Jennings
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
/s/ Frank S. Jones Director March 30, 2000
- ------------------------------------
Frank S. Jones
/s/ Edith K. Manns Director March 30, 2000
- ------------------------------------
Edith K. Manns
/s/ Dennis L. Whipple Director March 30, 2000
- ------------------------------------
Dennis L. Whipple
</TABLE>
27
<PAGE> 1
EXHIBIT 10.55
FIRST AMENDMENT TO
RIGHTS AGREEMENT
by and between
SCIENTIFIC GAMES HOLDINGS CORP.
and
FIRST UNION NATIONAL BANK,
as Rights Agent
This FIRST AMENDMENT TO RIGHTS AGREEMENT ("Amendment") is entered into
as of October 15, 1999 by and between SCIENTIFIC GAMES HOLDINGS CORP., a
Delaware corporation (the "Company"), and FIRST UNION NATIONAL BANK, as rights
agent (the "Rights Agent").
WHEREAS, the parties are parties to a Rights Agreement dated as of July
10, 1997 (the "Rights Agreement"); and
WHEREAS, the parties wish to amend the Rights Agreement as set forth
herein.
NOW, THEREFORE, for good and valid consideration, the parties agree as
follows:
Section 1. Amendment to Definition of "Acquiring Person." The definition
of "Acquiring Person" set out in Section 1 of the Rights
Agreement is hereby deleted in its entirety and the following
is substituted therefor:
"Acquiring Person" means any Person who, together
with all Affiliates and Associates of such Person, shall be
the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding; provided; however, that,
notwithstanding the foregoing, a Person shall not be an
"Acquiring Person" if (i) such Person is an Excluded Person or
(ii) the event which causes such Person, together with all
Affiliates and Associates of such Person, to become the
Beneficial Owner of 20% or more the shares of Common Stock
then outstanding is (A) the acquisition of shares of Common
Stock by such Person pursuant to a Permitted Offer, (B) the
acquisition of shares of Common Stock or securities
convertible into or exchangeable for Common Stock directly
from the Company pursuant to an offer exempt from the
registration requirements of the Securities Act pursuant to
Rule 144 or Rule 144A promulgated thereunder, or (C) a
reduction in the number of shares of Common Stock outstanding
due to the repurchase of shares of Common Stock by the Company
unless and until such Person, after becoming aware that such
Person has become the Beneficial Owner of twenty (20%) or more
(but not more than twenty-two percent (22%)) of the then
outstanding shares of Common Stock, acquires Beneficial
Ownership of any additional shares of Common Stock.
Section 2. Rights Agreement as Amended. The term "Agreement" as used in
the Rights Agreement shall be deemed to refer to the Rights
Agreement as amended by this Amendment. Except as amended
hereby, the Rights Agreement is confirmed and ratified.
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first written above.
SCIENTIFIC GAMES HOLDINGS CORP.
By: /s/ William G. Malloy
------------------------------------------------
William G. Malloy
President and CEO
FIRST UNION NATIONAL BANK, as Rights Agent
By: /s/ Patrick S. Edwards
------------------------------------------------
Name: Patrick S. Edwards
Title: Vice President
1
<PAGE> 1
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 1999
BY AND AMONG
SCIENTIFIC GAMES HOLDINGS CORP.
AND
SCIENTIFIC GAMES INC.
AS CO-BORROWERS,
THE LENDERS REFERRED TO HEREIN,
AND
FIRST UNION NATIONAL BANK,
AS ADMINISTRATIVE AGENT
- --------------------------------------------------------------------------------
<PAGE> 2
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
SECTION 1.1 Definitions.................................................................................1
SECTION 1.2 General....................................................................................17
SECTION 1.3 Accounting Matters.........................................................................17
SECTION 1.4 Other Definitions and Provisions...........................................................18
SECTION 1.5 Exhibits and Schedules.....................................................................18
ARTICLE II
CREDIT FACILITY.........................................................................................18
SECTION 2.1 Revolver Loans.............................................................................18
SECTION 2.2 Procedure for Advances of Revolver Loans...................................................19
SECTION 2.3 Swingline Loan Subfacility.................................................................20
SECTION 2.4 Repayment of Revolver Loans................................................................22
SECTION 2.5 Letters of Credit..........................................................................23
SECTION 2.6 Termination of Revolver Facility...........................................................28
SECTION 2.7 Use of Proceeds............................................................................28
SECTION 2.8 Co-Borrower and Guarantor Liability........................................................28
SECTION 2.9 Subordination of Subrogation and Contribution Claim.......................................28
SECTION 2.10 Foreign Subsidiary Guaranties..............................................................29
ARTICLE III
GENERAL LOAN PROVISIONS ................................................................................29
SECTION 3.1 Interest...................................................................................29
SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans...................................31
SECTION 3.3 Fees.......................................................................................32
SECTION 3.4 Manner of Payment..........................................................................33
SECTION 3.5 Crediting of Payments and Proceeds.........................................................33
SECTION 3.6 Nature of Obligations of Lenders Regarding Loans; Assumption by
Administrative Agent.....................................................................34
SECTION 3.7 Changed Circumstances......................................................................34
SECTION 3.8 Indemnity..................................................................................36
SECTION 3.9 Capital Requirements.......................................................................36
SECTION 3.10 Taxes......................................................................................37
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
CLOSING: CONDITIONS OF CLOSING AND BORROWING............................................................39
SECTION 4.1 Closing....................................................................................39
SECTION 4.2 Conditions to Closing and Initial Loan.....................................................39
SECTION 4.3 Conditions to All Loans....................................................................42
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CO-BORROWERS..........................................................42
SECTION 5.1 Representations and Warranties.............................................................42
SECTION 5.2 Survival of Representations and Warranties, Etc............................................49
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES.......................................................................49
SECTION 6.1 Financial Statements and Projections.......................................................49
SECTION 6.2 Officer's Compliance Certificate...........................................................50
SECTION 6.3 Other Certificates and Reports.............................................................51
SECTION 6.4 Notice of Litigation and Other Matters.....................................................51
SECTION 6.5 Accuracy of Information....................................................................52
SECTION 6.6 Notice of Demand for Reimbursement, etc....................................................52
ARTICLE VII
AFFIRMATIVE COVENANTS...................................................................................53
SECTION 7.1 Preservation of Corporate Existence and Related Matters....................................53
SECTION 7.2 Maintenance of Property....................................................................53
SECTION 7.3 Insurance..................................................................................53
SECTION 7.4 Accounting Methods and Financial Records...................................................53
SECTION 7.5 Payment and Performance of Obligations.....................................................54
SECTION 7.6 Compliance With Laws and Approvals.........................................................54
SECTION 7.7 Environmental Law..........................................................................54
SECTION 7.8 Compliance with ERISA and the Code.........................................................54
SECTION 7.9 Compliance With Agreements.................................................................55
SECTION 7.10 Conduct of Business........................................................................55
SECTION 7.11 Visits and Inspections.......... ..........................................................55
SECTION 7.12 Subsidiaries...............................................................................55
SECTION 7.13 Further Assurances.........................................................................56
SECTION 7.14 Year 2000 Compatibility....................................................................56
ARTICLE VIII
</TABLE>
<PAGE> 4
<TABLE>
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FINANCIAL COVENANTS.....................................................................................56
SECTION 8.1 Leverage Ratio.............................................................................56
SECTION 8.2 Fixed Charge Coverage Ratio................................................................56
ARTICLE IX
NEGATIVE COVENANTS......................................................................................57
SECTION 9.1 Limitations on Debt........................................................................57
SECTION 9.2 Limitations on Contingent Obligations......................................................57
SECTION 9.3 Limitations on Liens.......................................................................57
SECTION 9.4 Limitations on Loans, Advances, Investments and Acquisitions...............................57
SECTION 9.5 Limitations on Mergers and Liquidation.....................................................59
SECTION 9.6 Limitations on Sale of Assets..............................................................60
SECTION 9.7 Transactions with Affiliates...............................................................60
SECTION 9.8 Certain Accounting Changes.................................................................61
SECTION 9.9 Licenses...................................................................................61
SECTION 9.10 Restrictive Agreements....................................................................61
ARTICLE X
DEFAULT AND REMEDIES....................................................................................61
SECTION 10.1 Events of Default.........................................................................61
SECTION 10.2 Remedies..................................................................................64
SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc...........................................64
SECTION 10.4 Set-off...................................................................................64
SECTION 10.5 Adjustments...............................................................................65
SECTION 10.6 Consents..................................................................................65
ARTICLE XI
THE ADMINISTRATIVE AGENT................................................................................65
SECTION 11.1 Appointment...............................................................................65
SECTION 11.2 Nature of Duties..........................................................................66
SECTION 11.3 Exculpatory Provisions....................................................................66
SECTION 11.4 Reliance by Administrative Agent..........................................................66
SECTION 11.5 Non-Reliance on Administrative Agent and Other Lenders....................................67
SECTION 11.6 Notice of Default.........................................................................67
SECTION 11.7 Indemnification...........................................................................68
SECTION 11.8 The Administrative Agent in its Individual Capacity.......................................68
SECTION 11.9 Successor Administrative Agent............................................................68
</TABLE>
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<TABLE>
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ARTICLE XII
MISCELLANEOUS...........................................................................................69
SECTION 12.1 Notices...................................................................................69
SECTION 12.2 Expenses..................................................................................70
SECTION 12.3 Governing Law.............................................................................71
SECTION 12.4 Consent to Jurisdiction...................................................................71
SECTION 12.5 Arbitration...............................................................................72
SECTION 12.6 WAIVER OF JURY TRIAL......................................................................72
SECTION 12.7 Reversal of Payment.......................................................................73
SECTION 12.8 Injunctive Relief.........................................................................73
SECTION 12.9 Successors and Assigns; Participations....................................................73
SECTION 12.10 Amendments, Waivers and Consents: Renewal.................................................75
SECTION 12.11 Performance of Duties....................................................................76
SECTION 12.12 Indemnification..........................................................................76
SECTION 12.13 All Powers Coupled with Interest.........................................................77
SECTION 12.14 Survival of Indemnities..................................................................77
SECTION 12.15 Titles and Captions......................................................................77
SECTION 12.16 Severability of Provisions...............................................................77
SECTION 12.17 Counterparts.............................................................................77
SECTION 12.18 Term of Agreement........................................................................77
SECTION 12.19 Provisions Regarding the Euro............................................................77
</TABLE>
<PAGE> 6
EXHIBITS
Exhibit A-1 - Form of Revolver Note
Exhibit A-2 - Form of Swingline Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Conversion/Continuation
Exhibit D - Form of Officer's Certificate
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Negative Pledge Agreement
Exhibit G - Form of Intercompany Subordination Agreement
Exhibit H - Form of Joinder Agreement
Exhibit I - Form of Foreign Subsidiary Note
Exhibit J - Form of Limited Foreign Guaranty
Exhibit K - Form of Note Pledge Agreement
Exhibit L - Form of Guaranty
Exhibit M - Form of Bid Activity Report
Exhibit N - Form of Contribution Agreement
SCHEDULES
Schedule 1.1 - Lenders and Commitments
Schedule 5.1(a) - Jurisdictions of Organization and Qualification to
Do Business as Foreign Corporation
Schedule 5.1(b) - Subsidiaries and Capitalization
Schedule 5.1(d) - Compliance of Agreement, Loan Documents and
Borrowings with Laws
Schedule 5.1(g) - Environmental Matters
Schedule 5.1(h) - ERISA Plans
Schedule 5.1(1) - Material Contracts
Schedule 5.1(m) - Labor and Collective Bargaining Agreements
Schedule 5.1(o) - Liabilities Not Reflected in Financial Statements
Schedule 5.1(q) - Real Property
Schedule 5.1(s) - Debt and Contingent Obligations
Schedule 5.1(t) - Litigation
Schedule 9.1 - Existing Debt
Schedule 9.2 - Existing Contingent Obligations
Schedule 9.3 - Existing Liens
Schedule 9.4 - Existing Loans, Advances and Investments
<PAGE> 7
CREDIT AGREEMENT, dated as of the 30th day of November, 1999, by and
among SCIENTIFIC GAMES HOLDINGS CORP., a corporation organized under the laws of
Delaware ("Holdings"), SCIENTIFIC GAMES INC. (the "Company"), a corporation
organized under the laws of Delaware and a wholly-owned indirect Subsidiary of
Holdings (Holdings and the Company together are the "Co-Borrowers"), the
financial institutions which may become party hereto (the "Lenders"), and FIRST
UNION NATIONAL BANK, a national banking association, as Administrative Agent for
the Lenders.
STATEMENT OF PURPOSE
The Co-Borrowers have requested that Administrative Agent and the
Lenders provide the credit facilities hereunder. The parties have agreed that
the credit facilities are to be governed by the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
covenants and provisions herein contained and for TEN DOLLARS ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Co-Borrowers, the Lenders and Administrative Agent hereby
agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. In addition to the terms defined above and the
terms defined elsewhere herein, the following terms when used in this Agreement
shall have the meanings assigned to them below:
"Accounts Designation Letter" means the letter executed by each of the
Co-Borrowers, delivered on the Closing Date and from time to time thereafter,
designating the accounts of the Co- Borrowers to which proceeds of Revolver
Loans are to be disbursed and authorizing the Administrative Agent to disburse
such proceeds to such accounts.
"Administrative Agent" means First Union in its capacity as
administrative agent hereunder, and any successor thereto appointed pursuant to
Section 11.9.
"Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of Section
12.1.
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary of such Person) which directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such Person or any Subsidiary of such Person. The term "control" means (i)
the power to vote ten percent (10%) or more of the securities or other equity
interests of a Person having ordinary voting power, or (ii) the possession,
directly or
<PAGE> 8
indirectly, of any other power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced at any time or from time to
time pursuant to this Agreement. On the Closing Date, the Aggregate Commitment
shall be Eighty Million Dollars ($80,000,000).
"Aggregate Revolver Loan Commitment" means the aggregate amount of the
Revolving Loan Commitments of all Lenders in effect from time to time hereunder.
"Agreement" means this Credit Agreement, as amended or supplemented
from time to time.
"Applicable Law" means all applicable provisions of constitutions,
laws, statutes, treaties, rules, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Applicable Margin" shall have the meaning assigned thereto in Section
3.1(c).
"Assigned Dollar Value" shall mean, in respect of any Foreign Currency
Loan or Letter of Credit payable in a Foreign Currency, the Dollar Equivalent
thereof determined based upon the applicable Spot Exchange Rate as of the
Denomination Date for such Loan or Letter of Credit.
"Assigned Dollar Value Excess" shall mean the Dollar amount by which,
at the end of any Interest Period for a Foreign Currency Loan, the Assigned
Dollar Value of all outstanding Foreign Currency Loans, but calculated for all
Foreign Currency Loans as of two Business Days before the end of such Interest
Period, exceeds the Foreign Currency Sublimit.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 12.9(a).
"Bankruptcy Code" means the U.S. Bankruptcy Code, 11 U.S.C. ss. 101 et
seq., as amended.
"Base Rate" means, at any time, the higher of (a) the Prime Rate or (b)
the Federal Funds Rate plus 1/2 of 1%; each change in the Base Rate shall take
effect simultaneously with the corresponding change or changes in the Prime Rate
or the Federal Funds Rate.
"Base Rate Loan" means any loan under the Revolver bearing interest at
a rate determined with reference to the Base Rate.
"Benefitted Lender" shall have the meaning assigned thereto in Section
10.5.
"British pounds sterling" shall mean lawful money of the United
Kingdom.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina, and
-2-
<PAGE> 9
Atlanta, Georgia, are open for the conduct of their commercial banking business,
and (b) with respect to all notices and determinations in connection with, and
payments of principal and interest on, any LIBOR Rate Loan, Foreign Currency
Loan or Letter of Credit that is payable in a Foreign Currency, any day that is
a Business Day described in clause (a) and that is also, with respect to LIBOR
Rate Loans, a day for trading by and between banks in dollar deposits in the
London interbank market, and, with respect to Foreign Currency Loans and Letters
of Credit that are payable in a Foreign Currency, is a day in which the banks in
the capital of the country of the foreign currency are open.
"Capital Lease" means, with respect to any Person, any lease of any
property that would, in accordance with GAAP, be required to be classified and
accounted for as a capital lease on its balance sheet.
"Cash Flow Percentage" means, for any corporation, partnership, or
other entity in which either Co-Borrower has any direct or indirect investment
or other interest, for any period of calculation, the percentage derived by
dividing (A) the product of (i) Consolidated EBITR for such corporation,
partnership, or other entity during the period, multiplied by (ii) the
percentage amount of direct or indirect ownership by either or both Co-Borrowers
of all outstanding capital stock or other ownership interests of the
corporation, partnership, or other entity at the end of the period by (B)
Consolidated EBITR for Holdings and its Subsidiaries during the period.
"Change in Control" means (i) any person or group of persons shall
obtain beneficial ownership or control (within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) in one or more series of
transactions of more than fifty percent (50%) of the common stock of either of
the Co-Borrowers, (ii) any person or group of persons shall obtain more than
fifty percent (50%) of the voting power of shareholders of either of the
Co-Borrowers entitled to vote in the election of members of the Board of
Directors, (iii) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors of Holdings cease for any reason to constitute a majority of the
members of the Board of Directors of such company, or (iv) there shall have
occurred under any indenture or other instrument evidencing any Debt in excess
of $10 million any "change in control" (as defined in such indenture or other
evidence of Debt) obligating either of the Co-Borrowers or any Subsidiary to
repurchase, redeem or repay all or any part of the Debt or capital stock
provided for therein.
"Closing Date" means the date of this Agreement.
"Co-Borrowers" shall have the meaning assigned thereto in the preamble
hereof.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Commitment" means the Commitment of a Lender to make Loans hereunder,
the Issuing Bank to issue Letters of Credit hereunder, and of each Lender to
reimburse the Issuing Bank for unreimbursed drawings under any Letter of Credit.
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<PAGE> 10
"Commitment Percentage" means, with respect to any Lender or the
Issuing Bank, the ratio of (i) the amount of the Commitment of such Lender or
the Issuing Bank at such time to (ii) the aggregate Commitments of all Lenders
and the Issuing Bank at such time.
"Company" shall have the meaning assigned thereto in the preamble
hereof.
"Consolidated" means, when used with reference to financial statements
or financial statement items of Holdings or any of its Subsidiaries, such
statements or items on a consolidated basis in accordance with applicable
principles of consolidation under GAAP.
"Contribution Agreement" means that certain Contribution Agreement,
dated of even date, and providing for certain contribution and indemnity claims
among the Co-Borrowers and Material Subsidiaries with respect to amounts paid in
connection with the Obligations, substantially in the form of Exhibit N attached
hereto.
"Contingent Obligation" means, with respect to Holdings and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other monetary obligation of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of any such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep well, to purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement condition or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other monetary obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided, that the term
Contingent Obligation shall not include endorsements for collection or deposit
in the ordinary course of business. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determinable amount of
the related obligation (unless the Contingent Obligation is limited by its terms
to a lesser amount, in which case to the extent of such amount) or, if not so
stated or determinable, the reasonably anticipated liability thereof.
"Credit Facility" means the several credits to be extended to the
Co-Borrowers pursuant to Article II of this Agreement.
"Debt" means, with respect to Holdings and its Subsidiaries, at any
date and without duplication, the sum, calculated in accordance with GAAP, of
(i) all liabilities, obligations and indebtedness for borrowed money including
but not limited to obligations evidenced by bonds, debentures, notes or other
similar instruments of any such Person, (ii) all obligations to pay the deferred
purchase price of property or services of any such Person, except trade payables
arising in the ordinary course of business not more than ninety (90) days past
due, (iii) the capitalized obligations of any such Person as lessee under
capital leases, (iv) all Debt of any other Person secured by a Lien on any asset
of any such Person, (v) all obligations, contingent or otherwise, of any such
Person relative to the face amount of letters of credit, whether or not drawn,
exclusive of (A) standby letters of credit (other than letters of credit
securing obligations of a type described in clauses (i), (ii), (iii) or (iv))
having a term of one year or less and entered into in the ordinary course of
business to the extent such letters of credit have not been drawn upon, and (B)
bid, performance, litigation and similar bonds or guarantees entered into in the
ordinary course
-4-
<PAGE> 11
of business to the extent the same have not been drawn upon, or if and to the
extent drawn upon, such drawing is reimbursed not later than the 10th Business
Day following receipt by Co-Borrowers or a Subsidiary of a demand for
reimbursement on such bonds or guarantees by the surety or other issuer
thereof), (vi) all Contingent Obligations of such Person for the repayment of
money borrowed or the deferred purchase price of property (including all
earn-out obligations), including, without limitation, all guaranty, surety,
accommodation and like undertakings with respect to such obligations, (vii) all
obligations to redeem, repurchase, exchange, defease or otherwise make payments
in respect of capital stock or securities of such Person and (vii) all
termination payments which would be due and payable by any such Person pursuant
to a hedging agreement.
"Deemed Distribution Event" means the delivery by the Company to the
Administrative Agent of an opinion (reasonably satisfactory to the
Administrative Agent) from the Company's regular outside counsel or its tax
advisors to the effect that a foreign Material Subsidiary's becoming or
continuing to be liable under the Guaranty could reasonably be expected to
create taxable income for Co-Borrowers or any Subsidiary organized in the United
States under Section 956 of the Code.
"Default" means any of the events specified in Section 10.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Denomination Date" means, in determining the Assigned Dollar Value of
any Foreign Currency Loans to be made, continued or converted or any or Letter
of Credit payable in a Foreign Currency, (a) the date that is two Business Days
before the date on which the applicable Foreign Currency Loan is made, continued
or converted or the applicable Letter of Credit payable in a Foreign Currency is
issued, renewed or extended, or (b) from time to time at the discretion of the
Administrative Agent.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"Dollar Equivalent" shall mean, with respect to an amount of any
Foreign Currency or Letter of Credit payable in a Foreign Currency on any date,
the amount of Dollars that may be purchased with such amount of such Foreign
Currency at the Spot Exchange Rate with respect to such Foreign Currency on such
date.
"EBITR" means, with respect to any Person, for any period of
calculation and without duplication, Net Income for such period, plus the sum of
the following items, in each case, to the extent deducted in the computation of
such Net Income (i) Interest Expense paid or accrued but not paid during such
period, plus (ii) income, franchise and other tax expenses paid during such
period, plus (iii) rental expense (exclusive of Capital Leases) paid during such
period.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in excess
of $1,000,000,000, (ii) a commercial bank organized under the laws of any other
country that is a member of the Organization for
-5-
<PAGE> 12
Economic Cooperation and Development or any successor thereto (the "OECD") or a
political subdivision of any such country and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the United States, in the country under the laws of which it is
organized or in another country that is also a member of the OECD, (iii) the
central bank of any country that is a member of the OECD, (iv) a finance
company, insurance company or other financial institution or fund that is
engaged in making, purchasing or otherwise investing in loans in the ordinary
course of its business and having total assets in excess of $1,000,000,000, (v)
any Affiliate of an existing Lender or (vi) any other Person approved by the Co-
Borrowers and the Administrative Agent, which approval shall not be unreasonably
withheld.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (i) is maintained for employees or former
employees of any Co-Borrower or any ERISA Affiliate or (ii) has at any time
within the preceding six years been maintained for the employees or former
employees of any Co-Borrower or any current or former ERISA Affiliate.
"Environmental Law" means any and all applicable federal, state,
provincial and local laws, statutes, ordinances, rules, regulations, permits,
licenses, written approvals and published interpretations, and orders of courts
or Governmental Authorities, relating to the protection of human health or the
environment, including, but not limited to, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Materials.
"Equipment" means as to any Person all of such Person's now owned and
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including, without
limitation, data processing hardware and software, motor vehicles, aircraft,
dies, tools, jigs, and office equipment, as well as all of such types of
property leased by such Person and all of such Persons' rights and interest with
respect thereto under such leases (including, without limitation, options to
purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the
foregoing, and all manuals, drawings, instructions, warranties and rights with
respect thereto; wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA Affiliate" means any Person who together with any Co-Borrower is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"euro" or "euros" shall have the meaning assigned thereto in Section
12.19(a).
"Euro Lending Office" means the office of each Lender that will advance
funds under and receive repayments of each Foreign Currency Loan.
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<PAGE> 13
"Event of Default" means any of the events specified in Section 10.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Judgment" shall have the meaning assigned thereto in Section
10.1(m).
"Existing Letter of Credit and Reimbursement Agreement" means that
certain Letter of Credit and Reimbursement Agreement dated as of August 25,
1999, among First Union, Co- Borrowers, Scientific Games Finance Corporation,
SGIL and Scientific Games Royalty Corporation, as the same may be amended,
modified, restated or supplemented from time to time.
"Expiration Date" means the third anniversary of the Closing Date.
"Federal Funds Rate" means, for any day, a fluctuating interest rate
per annum (rounded upward, if necessary, to the next 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published at 11:00 a.m. (Eastern Standard or Daylight Time) for such day (or, if
such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it in good faith as reasonably representative of
such rate.
"First Union" means First Union National Bank.
"Fiscal Year" means each fiscal year of Holdings and its Subsidiaries
ending on December 31.
"Fixed Charge Coverage Ratio" means, for any period of calculation,
EBITR divided by (i) Interest Expense paid or accrued but not paid during such
period, and (ii) rental expense (exclusive of Capital Leases) paid during such
period.
"Foreign Currency" shall mean French francs, British pounds sterling,
German marks, euros and any other currency (other than Dollars), in each case,
freely transferable and convertible into Dollars in the London Interbank market
requested by a Co-Borrower and acceptable to each of the Lenders.
"Foreign Currency Loan" means any Loan under the Revolver Facility
that is borrowed in, and to be repaid in, a Foreign Currency.
"Foreign Currency Sublimit" means the Assigned Dollar Value of
$70,000,000, plus $7,000,000 subject to the requirements of Section 2.1 with
respect to such Assigned Dollar Value Excess.
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<PAGE> 14
"Foreign Subsidiary Note" means each and every promissory note made to
either Co- Borrower from a foreign Material Subsidiary, whether or not executing
a Limited Foreign Guaranty and made to evidence the loans to be made by either
Co-Borrower to the foreign Material Subsidiary from proceeds of the Loans and
other cash sources.
"French francs" shall mean lawful money of the Republic of France.
"GAAP" means, as of any date of determination, generally accepted
accounting principles, as recognized by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board, consistently
applied and maintained on a consistent basis for Holdings and its Subsidiaries
throughout the period indicated and consistent with the prior financial practice
of Holdings and its Subsidiaries. The term "consistently applied" as used in
connection therewith, means that the accounting principles applied as at a date
or for a period specified are consistent in all material respects to those
applied as at prior dates or for prior periods.
"German marks" means the lawful money of the Federal Republic of
Germany.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing having
jurisdiction over the Person and the subject matter.
"Guaranty" means that certain Guaranty of even date, executed by each
of the Guarantors and by which each of the Guarantors (other than SGIL, which
shall execute a Limited Foreign Guaranty) shall guarantee the payment of the
full amount of the Obligations substantially in the form of Exhibit L attached
hereto, as amended or supplemented from time to time.
"Guarantors" means those Persons who have executed a Guaranty or a
Limited Foreign Guaranty, including, without limitation, Scientific Games
Finance Corporation, a Delaware corporation and a Subsidiary of Holdings,
Scientific Games Royalty Corporation, a Delaware corporation and a Subsidiary of
Holdings, SGIL and all other Material Subsidiaries.
"Hazardous Materials" means any substances or materials (i) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or similar in kind and harmful to human health or the environment and
are or become regulated by any Governmental Authority, (iii) the presence of
which require investigation or remediation under any Environmental Law, (iv) the
discharge or emission or release of which requires a permit or license under any
Environmental Law or other Governmental Approval, (v) which are deemed to
constitute a nuisance, a trespass or pose a health or safety hazard to persons
or neighboring properties, (vi) which are materials consisting of underground or
-8-
<PAGE> 15
aboveground storage tanks, whether empty, filled or partially filled with any
substance, or (vii) which contain, without limitation, asbestos, polychlorinated
biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum
derived substances or waste, crude oil, nuclear fuel, natural gas or synthetic
gas.
"Holdings" shall have the meaning assigned thereto in the preamble
hereof.
"IBOR" means, with respect to each Foreign Currency Loan and for each
Interest Period, a rate of interest equal to the prevailing rate of interest at
which deposits in the applicable Foreign Currency, for a period comparable to
the Interest Period and in an amount comparable to the amount of such Foreign
Currency Loan, are offered, based on relevant information appearing on Telerate
Page 3740 and 3750 (or, if it is unavailable from Telerate for any reason, by
reference to relevant information on the Reuters Screen) as of 11:00 a.m.
(London time) on the day which is two (2) Business Days prior to the first day
of such Interest Period.
"IBOR Rate" means (i) IBOR divided by (ii) one (1) less the Reserve
Percentage (such rate to be rounded upward to the next whole multiple of 1/16 of
1%).
"Intercompany Subordination Agreement" means the Intercompany
Subordination Agreement of even date by and among, certain Subsidiaries of
Co-Borrowers identified therein and the Administrative Agent, for the benefit of
itself and the Lenders, substantially in the form of Exhibit G attached hereto,
as amended or supplemented from time to time.
"Initial Interest Period" means the period during which all Loans shall
be Base Rate Loans, which period shall commence on the Closing Date and end on
the date three (3) Business Days thereafter.
"Interest Expense" means, with respect to Holdings and its Consolidated
Subsidiaries, for any period of calculation and without duplication, gross
interest expense (including without limitation, interest expense attributable in
accordance with GAAP to Capital Leases and all net obligations pursuant to
hedging agreements), determined on a Consolidated basis for such period in
accordance with GAAP.
"Interest Payment Date" means, with respect to Base Rate Loans, the
last Business Day of each calendar quarter commencing with the first calendar
quarter ending after the Closing Date, and with respect to LIBOR Rate Loans or
Foreign Currency Loans, the last day of each Interest Period applicable thereto
(unless such Interest Period extends over three (3) months, in which case
"Interest Payment Date" shall also include the last Business Day of the third
month during such Interest Period).
"Interest Period" shall have the meaning assigned thereto in Section
3.1(b).
"Issuing Bank" means First Union, in its capacity as the issuer of a
Letter of Credit, or any successor to thereto.
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"Joinder Agreement" means a Joinder Agreement substantially in the form
of Exhibit H executed by each Subsidiary in accordance with Section 7.12, as
amended or supplemented from time to time.
"Lender" shall have the meaning assigned thereto in the preamble
hereof, and included each Person executing this Agreement as a Lender set forth
on the signature pages hereto and each Person that hereafter becomes a party to
this Agreement as a Lender pursuant to Section 12.9.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's applicable Commitment Percentage of the Loans,
but, with respect to each Foreign Currency Loan, shall mean the Euro Lending
Office.
"Letter of Credit" means a letter of credit at any time issued by the
Issuing Bank for the account of any Co-Borrower pursuant to Section 2.5 hereof.
"LOC Committed Amount" means, at any time, the lessor of (a) Thirty
Million Dollars ($30,000,000), and (b) the Aggregate Commitment in effect at
such time.
"LOC Fronting Fee" shall have the meaning assigned thereto in Section
2.5(b).
"LOC Issuance Fee" shall have the meaning assigned thereto in Section
2.5(b).
"LOC Obligations" means, as to each Letter of Credit, all liabilities
of the Co-Borrowers or any of their Subsidiaries thereunder or in respect
thereof, whether contingent or otherwise, including (a) the amount available to
be drawn or which may become available to be drawn, (b) all amounts that have
been paid or made available by the Administrative Agent or the Issuing Bank to
the extent not reimbursed, and (c) all unpaid interest, fees and expenses
relating thereto.
"Leverage Ratio" means at any date the ratio of (i) the Consolidated
Debt of Holdings and its Subsidiaries as of such date to (ii) the sum of (A) the
Consolidated Net Worth of Holdings and its Subsidiaries plus (B) the
Consolidated Debt of Holdings and its Subsidiaries, each as of such date.
"LIBOR" means the prevailing rate of interest determined on the basis
of the rate for deposits in dollars for a period equal to the applicable
Interest Period commencing on the first day of such Interest Period appearing on
Telerate Page 3750 as of 11:00 a.m. (London time) two Business Days prior to the
first day of the applicable Interest Period. In the event that such rate does
not appear on Telerate Page 3750, "LIBOR" shall be the rate per annum at which
deposits in Dollars are offered by leading reference banks in the London
interbank market to the Agent at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of the applicable Interest Period for a
period equal to such Interest Period and in an amount substantially equal to the
amount of the applicable Loan.
"LIBOR Market Index Rate" means a LIBOR based rate of interest to be
mutually agreed upon by Co-Borrowers and the Swingline Lender.
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"LIBOR Rate" means (i) LIBOR divided by (ii) one (1) less the Reserve
Percentage (such rate to be rounded upward to the next whole multiple of 1/16 of
1%).
"LIBOR Rate Loan" means any loan under the Revolver bearing interest at
a rate determined with reference to the LIBOR Rate.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Limited Foreign Guaranty" means the Limited Foreign Guaranty executed
by any Material Subsidiary (other than SG Austria) not organized in the United
States of America and for which the Company has established that there is a
Deemed Distribution Event.
"Loan" means any loan or advance made by any Lender pursuant to this
Agreement.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Intercompany Subordination Agreement, any Joinder Agreement, the Guaranty, the
Limited Foreign Guaranty, the Negative Pledge Agreement, the Note Pledge
Agreement, and each other document, instrument and agreement executed and
delivered by either Co-Borrower or any Subsidiary pursuant to and in connection
with this Agreement.
"Loan Year" means the period of twelve (12) consecutive months
commencing on the Closing Date and each succeeding period of twelve (12)
consecutive months commencing on each anniversary of the Closing Date.
"Material Adverse Effect" means, with respect to Holdings and its
Subsidiaries taken as a whole, a material adverse effect on the properties,
business, prospects, operations or condition (financial or otherwise) of any
such Person so as to impair the ability of any such Person to perform its
obligations under the Loan Documents to which it is a party.
"Material Contract" means any contract or other agreement, written or
oral, of Holdings or any of its Subsidiaries involving monetary liability of or
to any such Person in an amount in excess of $1,000,000 per annum.
"Material Judgment Amount" means $1,000,000.
"Material Subsidiary" means Scientific Games Finance Corporation,
Scientific Games Royalty Corporation, SGIL, SG Austria and any other Subsidiary
(i) having, at any time, total assets equal to or greater than ten percent (10%)
of the then total consolidated assets of Holdings or (ii) having at any Fiscal
Year end (or as of the end of any fiscal quarter as may be required pursuant to
6.2(d)), a Cash Flow Percentage, for the consecutive four quarter period ending
on such Fiscal Year
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end (or, as requested by the Administrative Agent, fiscal quarter end), equal to
or greater than ten percent (10%).
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Co-Borrower or any ERISA Affiliate has made, or
accrued an obligation to make, contributions within the preceding six years.
"Negative Pledge Agreement" means the agreement executed by each of the
Co-Borrowers and the Material Subsidiaries and prohibiting the sale or
collateral conveyance of the signatories' assets.
"Net Income" means, with for any period and without duplication, net
income (or loss) of Holdings and its Consolidated Subsidiaries for such period
determined in accordance with GAAP; provided, that other than in the calculation
called for by subsection (ii) of the definition of Material Subsidiary, there
shall be excluded from the calculation of such Net Income the income of any
Subsidiary (other than a Material Subsidiary) if and to the extent that a
Co-Borrower or a Material Subsidiary has not received the income in a cash
distribution.
"Net Worth" means, as of any date, the total of all amounts which
would, in accordance with GAAP, be included on a Consolidated balance sheet of
Holdings and its Consolidated Subsidiaries as of such date as (a) the par or
stated value of all outstanding capital stock of Holdings and its Consolidated
Subsidiaries, (b) paid-in capital or capital surplus relating to such capital
stock, and (c) any retained earnings or earned surplus, less any accumulated
deficit.
"Notes" means the Revolver Notes and the Swingline Note.
"Note Pledge Agreement" means each Note Pledge Agreement taken at the
time of the issuance of a Foreign Subsidiary Note issued by a foreign Material
Subsidiary subject to a Deemed Distribution Event, by which the Co-Borrowers
will grant to the Administrative Agent for the benefit of the Lenders hereunder
and for the benefit of First Union as lender under the 364-Day Credit Agreement,
and to secure equally all of the Obligations hereunder and all of the
obligations of the Co-Borrowers to First Union under the 364-Day Credit
Agreement, a first priority pledge and security interest in the subject Foreign
Subsidiary Note issued to one or more of the Co-Borrowers.
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.2.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (i) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans, (ii)
all LOC Obligations, (iii) all payment and other obligations owing under any
hedging agreement and (iv) all other fees and commissions (including attorney's
fees), charges, indebtedness, loans, liabilities, obligations, covenants and
duties owing to the Lenders, Issuing Bank or to the Administrative Agent, of
every kind, nature and description, direct or indirect, absolute or contingent,
due or to become due, contractual or tortious, liquidated or unliquidated, and
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<PAGE> 19
whether or not evidenced by any note, and whether or not for the payment of
money in each case under or in respect of this Agreement, the Note or any of the
other Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 6.2.
"Original Credit Agreement" means that certain Credit Agreement dated
as of December 20, 1996, by and among Co-Borrowers, First Union in its capacity
as lender and administrative agent on behalf of the other lenders thereunder,
Wachovia Bank, N.A., as lender, and ABN Amro Bank, N.V., as lender.
"Other Taxes" shall have the meaning assigned thereto in Section
3.10(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (i) is maintained for employees or former
employees of any Co-Borrower or any ERISA Affiliates or (ii) has at any time
within the preceding six years been maintained for the employees or former
employees of any Co-Borrower or any of their current or former ERISA Affiliates.
"Permissible Restrictive Agreement" means an agreement entered into by
either or both Co- Borrowers or one or more Subsidiary that restricts the
payment of dividends by the Co-Borrower or Subsidiary party to the agreement,
but only restricts such dividend payment to the extent it, when added to all
other dividend payments since the inception of the agreement, would exceed more
than half of the cumulative net income earned by the Co-Borrower or Subsidiary
since the inception of the agreement.
"Permitted Acquisition" shall have the meaning assigned thereto in
Section 9.4(b)(x).
"Permitted Business" means (i) any business segment of the lottery and
promotional game industry, including, without limitation, the production,
distribution and sale of lottery tickets, game design, inventory management and
distribution, retailer telemarketing, field services, on line lottery or gaming
systems and components, lottery ticket accounting and validation hardware and
software, central site computers and communications hardware, support and
maintenance services or any combination thereof, (ii) any related, ancillary or
complimentary business, including, without limitation, the production,
distribution and sale of prepaid telephone cards, the production, distribution
and sale of hardware, software and support services for sports betting and
credit card processing, the production, distribution and sale of any printed
products utilizing manufacturing processes or equipment similar to the processes
or equipment then employed by the Company or otherwise employed in the lottery
and gaming industry and the production, distribution and sale of products and
services for which a useful or necessary component is the utililization of
concealed, encoded or encrypted information or data.
"Permitted Liens" means (i) Liens for taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA or Environmental
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Law) not yet due or as to which the period of grace, if any, related thereto has
not expired or which are being contested in good faith and by appropriate
proceedings or procedures if adequate reserves are maintained (to the extent
required by GAAP), (ii) the claims of materialmen, mechanics, carriers,
warehousemen, processors or landlords for labor, materials, supplies or rentals
incurred in the ordinary course of business, (A) which are not overdue for a
period of more than thirty (30) days or (B) which are being contested in good
faith and by appropriate proceedings or procedures, (iii) Liens consisting of
deposits or pledges made in the ordinary course of business in connection with,
or to secure payment of, obligations under workers' compensation, unemployment
insurance or similar legislation or obligations under customer service
contracts, (iv) Liens constituting covenants, conditions, encumbrances in the
nature of zoning restrictions and other Applicable Law restricting the right,
use or enjoyment of real property, easements and rights or restrictions of
record on the use of real property, facilities or Equipment which in the
aggregate do not materially detract from the value of such property, facilities
or Equipment or materially impair the use thereof in the ordinary conduct of
business, including, without limitation: (A) easements, exceptions,
reservations, or other agreements for the purpose of pipelines, conduits,
cables, wire communication lines, power lines and substations, streets, trails,
walkways, drainage, irrigation, water, and sewerage purposes, dikes, canals,
ditches, the removal of oil, gas, other minerals, and other like purposes
affecting real property, facilities, or Equipment which, in the aggregate, do
not materially burden or impair the value or use of such property for the
purposes for which it is or may reasonably be expected to be held; (B)
easements, exceptions, reservations, or other agreements for the purpose of
facilitating the joint or common use of property in a development or similar
real property project affecting real property which, in the aggregate, do not
materially burden or impair the value or use of such property for the purposes
for which it is or may reasonably be expected to be held; and (C) rights
reserved to or vested in any Governmental Authority by Applicable Law to control
or regulate, or obligations or duties under Applicable Law to any Governmental
Authority with respect to, the use of any real property; (v) inchoate Liens
incident to construction or maintenance of real property or Liens incident to
construction or maintenance of real property now or hereafter filed of record
for which adequate reserves have been established (to the extent required by
GAAP) and which are being contested in good faith by appropriate proceedings or
procedures and have not proceeded to judgment; (vi) rights reserved to or vested
in any Governmental Authority by Applicable Law to control or regulate or
obligations or duties under Applicable Law to any Governmental Authority with
respect to any right, power, franchise, grant, license, or permit; (vii)
statutory Liens or other Liens which arise by operation of Applicable Law, other
than those described in clauses (i) or (ii) above, arising in the ordinary
course of business with respect to (A) obligations which are not delinquent or
are being contested in good faith by appropriate proceedings or procedures,
provided that adequate reserves have been established (to the extent required by
GAAP) with respect thereto and, by reason of nonpayment, no property is subject
to a material risk of loss or forfeiture; or (B) in favor of unpaid sellers of
goods or prepaying buyers of goods, or Liens in items of any accompanying
documents or proceeds of either arising in favor of a collecting bank; (viii)
Liens of the Administrative Agent for the benefit of the Administrative Agent,
Issuing Bank and the Lenders, including, without limitation, Liens granted in
favor of First Union pursuant to the Note Pledge Agreement to secure the
obligations of Co-Borrowers under this Agreement and under the 364-Day Credit
Agreement and related loan documents; (ix) Existing Liens described on Schedule
9.3; (x) Liens on Debt permitted by Section 9.1, including Real Estate Financing
Debt; and (xi) any judgment Lien in connection with the Existing Judgment so
long as the Existing Judgement is
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discharged or stayed within 10 Business Days after the date of the creation or
imposition of such Lien.
"Person" means an individual, corporation, partnership, association,
trust, business trust, limited liability company, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by the Agent as its prime rate. Each change
in the Prime Rate shall be effective as of the opening of business on the day
such change in the Prime Rate occurs. The parties hereto acknowledge that the
rate announced publicly by the Agent as its Prime Rate is an index or base rate
and shall not necessarily be its lowest or best rate charged to its customers or
other banks.
"Projections" shall have the meaning assigned thereto in Section
6.1(c).
"Real Estate Financing Debt" shall have the meaning assigned thereto in
Section 9.1(x).
"Receivables" means as to any Person any right to payment from or on
behalf of any obligor, whether constituting an account, chattel paper,
instrument, letter of credit, general intangible or otherwise, arising from the
sale or financing by such Person of merchandise or services, and monies due
thereunder, security in the merchandise and services financed thereby, records
related thereto, and the right to payment of any interest or finance charges and
other obligations with respect thereto, proceeds from claims on insurance
policies related thereto, any other proceeds related thereto, and any other
related rights.
"Register" shall have the meaning assigned thereto in Section 12.9(b).
"Required Lenders" means, at any date, any combination of Lenders
holding at least 51% of the combined maximum of the Commitments, or if the
Commitments of the Lenders shall have been terminated, any combination of the
Lenders holding at least 51% of the sum of the aggregate unpaid principal amount
of the Loans and the LOC Obligations.
"Reserve Percentage" means the maximum daily arithmetic reserve
requirement imposed by the Board of Governors of the Federal Reserve System (or
any successor) under Regulation D on Eurocurrency liabilities (as defined in
Regulation D) for the applicable Interest Period as of the first day of such
Interest Period, but subject to any changes in such reserve requirement becoming
effective during the Interest Period. For purposes of calculating the Reserve
Percentage, the reserve requirement shall be as set forth in Regulation D
without benefit of credit for prorations, exemptions or offsets under Regulation
D, and further without regard to whether or not any Lender elects to actually
fund any Loan or portion thereof with Eurocurrency liabilities. Each calculation
by the Agent of the LIBOR Rate or IBOR shall be entitled to a presumption of
correctness, absent manifest error.
"Responsible Officer" of any Person means the chief executive officer,
president, chief financial officer, general counsel or chief accounting officer
of such Person.
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"Revolver Facility" means the revolving credit facility extended to the
Co-Borrowers pursuant to Section 2.1 in the aggregate principal amount not to
exceed at any time EIGHTY MILLION DOLLARS ($80,000,000).
"Revolver Facility Termination Date" means the earliest of the dates
referred to in Section 2.6.
"Revolver Loan" means any loan made to the Co-Borrowers pursuant to
Section 2.1, and all such Loans collectively as the context requires.
"Revolver Loan Commitment" means, as to any Lender, the obligation of
such Lender to make Revolver Loans to the Co-Borrowers hereunder in an aggregate
principal amount at any time outstanding not to exceed the amount set forth
opposite such Lender's name on Schedule 1.1, as the same may be reduced or
modified at any time or from time to time pursuant to Sections 2.4 and 12.9.
"Revolver Loan Commitment Percentage" means, as to any Lender at any
time, the ratio of (i) the amount of the Revolver Loan Commitment of such Lender
to (ii) the Aggregate Revolver Loan Commitments.
"Revolver Notes" means the separate Revolving Credit Notes made by the
Co-Borrowers payable to the order of each Lender, substantially in the form of
Exhibit A-1 hereto, evidencing the Revolver Facility, and any amendments and
modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part; "Revolver
Note" means any of such Notes.
"SEC" means the Securities and Exchange Commission.
"SG Austria" means Scientific Games International GmbH, a limited
liability company organized under the laws of the Republic of Austria.
"SGIL" means Scientific Games International Limited.
"Solvent" means, with respect to Co-Borrowers and each of their
Subsidiaries, that such Person (i) has capital sufficient to carry on its
business and transactions and all business and transactions in which it is about
to engage and is able to pay its debts as they mature, (ii) owns property having
a value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay its probable liabilities (including contingencies),
and (iii) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
"Spot Exchange Rate" shall mean, on any day, (i) with respect to any
Foreign Currency, the spot rate at which Dollars are offered on such day by
First Union National Bank (London Branch), in London, for such Foreign Currency
at approximately 11:00 a.m. (Atlanta time), and (ii) with respect to Dollars in
relation to any specified Foreign Currency, the spot rate at which such
specified Foreign Currency is offered on such day by First Union National Bank
(London Branch) in London for Dollars at approximately 11:00 a.m. (Atlanta
time). For purposes of determining the Spot
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Exchange Rate in connection with a Foreign Currency Loan, such Spot Exchange
Rate shall be determined as of the Denomination Date for such Loan with respect
to transactions in the applicable Foreign Currency that will settle on the date
of such Loan.
"Subsidiary" means any corporation, partnership or other entity of
which more than fifty percent (50%) of the outstanding capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation, partnership or other
entity is at the time, directly or indirectly, owned by either of the
Co-Borrowers or the management is otherwise controlled by such Person
(irrespective of whether, at the time, capital stock or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening of
any contingency).
"Swingline Committed Amount" means $5,000,000.
"Swingline Lender" means First Union National Bank, as the Lender with
respect to Swingline Loans.
"Swingline Loans" shall have the meaning assigned thereto in Section
2.3.
"Swingline Note" shall have the meaning assigned thereto in Section
2.3.
"Taxes" shall have the meaning assigned thereto in Section 3.10(a).
"Termination Event" means: (i) a "Reportable Event" described in
Section 4043 of ERISA (other than a Reportable Event as to which the provision
of 30 days' notice has been waived by the PBGC under applicable regulations or
is not subject to the provision for 30 days notice to the PBGC); (ii) the
withdrawal of any Co-Borrower or any ERISA Affiliate from a Pension Plan during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (iii) the termination of a Pension Plan, the filing of a
notice of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a distress termination under Section 4041(c) of ERISA; (iv) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; (v) any other event or condition which
is reasonably expected to constitute grounds under Section 4042(a) of ERISA for
the termination of, or the appointment of a trustee to administer, any Pension
Plan; (vi) the partial or complete withdrawal of any Co-Borrower or any ERISA
Affiliate from a Multiemployer Plan; (vii) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA; (viii) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA; or (ix) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"364-Day Revolving Credit Agreement" means that certain 364-Day Credit
Agreement dated as of the date hereof, by and among Co-Borrowers and First Union
National Bank, as lender, as the same may be amended, modified, restated or
supplemented from time to time, together with any replacement 364-day credit
agreement entered into by and among Co-Borrowers and one or more
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of the Lenders, as the same may be amended, modified, restated or supplemented
from time to time, provided that any such replacement 364-day credit agreement
shall not contain any covenants more restrictive than the covenants set forth in
the 364-Day Credit Agreement as in effect on the date hereof.
"United States" means the United States of America.
SECTION 1.2 General. All terms of an accounting nature not specifically
defined herein shall have the meanings assigned thereto by GAAP. Unless
otherwise specified, a reference in this Agreement to a particular section,
subsection, Schedule or Exhibit is a reference to that section, subsection,
Schedule or Exhibit of this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include the
singular and plural, and pronouns stated in the masculine, feminine or neuter
gender shall include the masculine, the feminine and the neuter. Any reference
herein to "Atlanta time" shall refer to the applicable time of day in Atlanta,
Georgia.
SECTION 1.3 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including without limitation, all computations utilized by
Co-Borrowers or any Subsidiary thereof to determine compliance with any covenant
contained herein, shall, except as otherwise expressly contemplated hereby or
unless there is an express written direction by the Administrative Agent to the
contrary agreed to by the Co- Borrowers, be performed in accordance with GAAP.
In the event that changes in GAAP (as in effect on the Closing Date) shall be
mandated by the Financial Accounting Standards Board or any similar accounting
body of comparable standing or shall be recommended by the Co-Borrowers'
certified public accountants, to the extent that such changes would modify such
accounting terms or the interpretation or computation thereof, such changes
shall be followed in defining such accounting terms only from and after the date
the Co-Borrowers, the Lenders and the Administrative Agent shall have entered
into an amendment of this Agreement to the extent necessary to reflect any such
changes in the financial covenants and other terms and conditions of this
Agreement and to conform the covenants for evaluating Co-Borrowers financial
condition to substantially the same criteria as were in effect prior to such
change in GAAP.
SECTION 1.4 Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents and any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
SECTION 1.5 Exhibits and Schedules. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time be
supplemented, modified, or amended
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are incorporated herein by reference. A matter disclosed on any Schedule shall
be deemed disclosed on all Schedules. The disclosure of any matter, if such
matter constitutes a Default or an Event of Default, will not cure any such
Default or Event of Default.
ARTICLE II
CREDIT FACILITY
SECTION 2.1 Revolver Loans. Subject to the terms and conditions of this
Agreement, each Lender severally but not jointly agrees to make Revolver Loans
to the Co-Borrowers jointly and severally from time to time from the Closing
Date through the Revolver Facility Termination Date as requested by the Company,
on behalf of Co-Borrowers, in accordance with the terms of Section 2.2; provided
that, after giving effect to the amount requested, (i) the sum of the aggregate
principal amount of all outstanding Revolver Loans (including the Assigned
Dollar Value of all Foreign Currency Loans) shall not exceed the Aggregate
Commitment less the sum of (A) the aggregate principal amount of all outstanding
Swingline Loans, and (B) the sum of the principal amount of any drawings not
reimbursed under Letters of Credit pursuant to Section 2.5(d) and the undrawn
amount of outstanding Letters of Credit (including the Assigned Dollar Value of
such unreimbursed drawings made in a Foreign Currency or such undrawn amount of
any Letters of Credit payable in a Foreign Currency), (ii) the sum of (A) the
principal amount of Revolver Loans (including the Assigned Dollar Value of all
Foreign Currency Loans) from any single Lender, plus (B) the principal amount of
such Lender's share of any required participations in outstanding Swingline
Loans, as required pursuant to Section 2.3, plus (C) such Lender's share of any
required participations in the outstanding amount of any Letters of Credit
(including the Assigned Dollar Value of such unreimbursed drawings made in a
Foreign Currency or such undrawn amount of any Letters of Credit payable in a
Foreign Currency), as required pursuant to Section 2.5, shall not at any time
exceed such Lender's Commitment, and (iii) in the case of a Revolving Loan to be
made as a Foreign Currency Loan, the Assigned Dollar Value of any requested
Foreign Currency Loan, when added to the Assigned Dollar Value of all other then
outstanding Foreign Currency Loans (with the Denomination Date for each of such
outstanding Foreign Currency Loans for the purposes of this proviso to be the
Denomination Date for each such requested Foreign Currency Loan), shall not
exceed the Foreign Currency Sublimit. Each Revolver Loan by a Lender shall be in
a principal amount equal to such Lender's Revolver Loan Commitment Percentage of
the aggregate principal amount of Revolver Loans requested on such occasion, up
to a principal amount at any time outstanding under the Revolver Facility equal
to such Lender's Revolver Loan Commitment Percentage. If at any time the Lenders
shall make Revolver Loans to the Co-Borrowers such that the aggregate amount of
Revolver Loans outstanding hereunder exceeds the aggregate Revolver Loan
Commitments, such Revolver Loans shall nonetheless constitute Obligations
hereunder. Subject to the terms and conditions hereof, the Co-Borrowers may
borrow, repay and reborrow Revolver Loans hereunder until the Revolver Facility
Termination Date.
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SECTION 2.2 Procedure for Advances of Revolver Loans.
(a) Requests for Borrowing. The Company, on behalf of the Co-Borrowers,
shall give the Administrative Agent irrevocable prior written notice in the form
attached hereto as Exhibit B (a "Notice of Borrowing") not later than 11:00 a.m.
(Atlanta time) (i) on the date of borrowing with respect to each Base Rate Loan
(ii) at least three (3) Business Days before each LIBOR Rate Loan, and (iii) at
least four (4) Business Days before each Foreign Currency Loan, of its intention
to borrow, specifying (A) the date of such borrowing, which shall be a Business
Day, (B) the amount of such borrowing, which shall, with respect to LIBOR Rate
Loans, be in an aggregate principal amount of $5,000,000 or a whole multiple of
$1,000,000 in excess thereof, with respect to Foreign Currency Loans, be
denominated in the applicable Foreign Currency and be in increments of 100,000
units of such Foreign Currency (such amount to have an approximate minimum
Assigned Dollar Value of $1,000,000), and, with respect to Base Rate Loans, be
in an aggregate principal amount of $500,000 and or a whole multiple of $100,000
in excess thereof, (C) whether the Loans are to be LIBOR Rate Loans, Base Rate
Loans, or Foreign Currency Loans, and (D) in the case of a LIBOR Rate Loan or a
Foreign Currency Loan, the duration of the Interest Period applicable thereto.
Notices received after 11:00 a.m. (Atlanta time) shall be deemed received on the
next Business Day. The Administrative Agent shall promptly notify the Lenders of
each Notice of Borrowing.
(b) Disbursement of Revolver Loans. Not later than 1:00 p.m. (Atlanta
time) on the proposed borrowing date for any Revolver Loan other than a Foreign
Currency Loan, and in the case of any Foreign Currency Loan, not later than 1:00
p.m. local time in the country having such Foreign Currency as its lawful
currency ), each Lender will make available to the Administrative Agent, for the
account of the Co-Borrowers, at the appropriate Lending Office in Dollars or the
applicable Foreign Currency and funds immediately available to the
Administrative Agent, such Lender's Revolver Loan Commitment Percentage of the
Revolver Loans requested. The proceeds of each borrowing requested pursuant to
this Section 2.2(b) shall be disbursed in immediately available funds by
crediting such proceeds to the account of Co-Borrowers designated in the
Accounts Designation Letter. Subject to Section 3.6 hereof, the Administrative
Agent shall not be obligated to disburse the proceeds of any Revolver Loan
requested pursuant to this Section 2.2 until each Lender shall have made
available to the Administrative Agent its applicable Revolver Loan Commitment
Percentage of such Revolver Loan; provided, however, that the failure of a
Lender to make available to the Administrative Agent such Revolver Loan
Commitment Percentage shall not affect the obligation of the Administrative
Agent to disburse the proceeds of any Revolver Loan with respect to that portion
of such loan as to which the Administrative Agent shall have received the
applicable Revolver Loan Commitment Percentage.
SECTION 2.3 Swingline Loan Subfacility.
(a) Swingline Commitment. Subject to the terms and conditions of this
Agreement, Administrative Agent, in its individual capacity as Swingline Lender,
agrees to make certain revolving credit loans requested by the Co-Borrowers in
Dollars to the Co-Borrowers (each a "Swingline Loan" and, collectively, the
"Swingline Loans") from time to time from the Closing Date
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until the Revolver Facility Termination Date for the purposes hereinafter set
forth; provided, however, that at any time (i) the aggregate principal amount of
Swingline Loans outstanding shall not exceed the Swingline Committed Amount, and
(ii) the sum of the aggregate principal amount of outstanding Revolver Loans
(including the Assigned Dollar Value of all Foreign Currency Loans) plus the
aggregate principal amount of outstanding Swingline Loans plus the sum of the
principal amount of any drawings under Letters of Credit not reimbursed pursuant
to Section 2.5(d) and the undrawn amount of outstanding Letters of Credit, shall
not exceed the Aggregate Revolving Loan Commitment. Swingline Loans hereunder
may be repaid and reborrowed in accordance with the provisions hereof.
(b) Swingline Loan Advances.
(i) Notices; Disbursement. Whenever the Co-Borrowers desire a
Swingline Loan advance hereunder, the Company, on behalf of the Co-Borrowers,
shall give written notice (or telephone notice promptly confirmed in writing) to
the Swingline Lender not later than 11:00 a.m. (Atlanta time) on the Business
Day of the requested Swingline Loan advance; provided, however, that in lieu of
any advance procedure otherwise set forth in this Section 2.3, Co-Borrowers may
borrow automatically under the Swingline subfacility through Swingline Loans
pursuant to the Sweep Plus Cash Management Arrangement for so long as such
service is made available by the Swingline Lender. Each such notice shall be
irrevocable, shall constitute a reaffirmation of the accuracy of the
representations and warranties as of such date (except where such representation
or warranty is expressly stated as of a specific date) and of the absence of any
Default or Event of Default and shall specify (A) that a Swingline Loan advance
is requested, (B) the date of the requested Swingline Loan advance (which shall
be a Business Day) and (C) the principal amount of the Swingline Loan advance
requested. Each Swingline Loan shall have such maturity date as may be
determined at the discretion of the Administrative Agent.
(ii) Repayment of Swingline Loans. The principal amount of all
Swingline Loans shall be due and payable on the earlier of (A) 11:00 a.m. on the
maturity date specified by the Administrative Agent or (B) the Revolver Facility
Termination Date. The Swingline Lender may, at any time, in its sole discretion,
by written notice to the Co-Borrowers and the Lenders not later than 11:00 a.m.
on the date of the repayment, demand repayment of its Swingline Loans by way of
an advance under the Revolver Facility, in which case the Co-Borrowers shall be
deemed to have requested a Revolver Loan comprised solely of Base Rate Loans in
the amount of such Swingline Loans; provided, however, that any such demand
shall be deemed to have been given one Business Day prior to the Revolver
Facility Termination Date and on the date of the occurrence of any Event of
Default described in Section 10.1 and upon acceleration of the Obligations
hereunder and the exercise of remedies in accordance with the provisions of
Section 10.2. Each Lender hereby irrevocably agrees to make its pro rata share
of each such Revolver Loan in the amount, in the manner and on the date
specified in the preceding sentence notwithstanding (I) the amount of such
borrowing may not comply with the minimum amount for advances of Revolver Loans
otherwise required hereunder, (II) whether any conditions specified in Section
4.3 are then satisfied, (III) whether a Default or an Event of Default then
exists, (IV) failure of any such request or deemed request for Revolver Loan to
be made by the time otherwise required hereunder, (V) whether the date of such
borrowing is a date on which Revolver Loans are otherwise permitted to be made
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hereunder or (VI) any termination of the Revolver Facility relating thereto
immediately prior to or contemporaneously with such borrowing. In the event that
any Revolver Loan cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code with respect to any Co-Borrower or any
Subsidiary of any Co-Borrower), then each Lender hereby agrees that it shall
forthwith purchase (as of the date such borrowing would otherwise have occurred,
but adjusted for any payments received from such Co-Borrower on or after such
date and prior to such purchase) from the Swingline Lender such participations
in the outstanding Swingline Loans as shall be necessary to cause each such
Lender to share in such Swingline Loans ratably based upon its Revolver Loan
Commitment Percentage of the aggregate Revolver Loan Commitments (determined
before giving effect to any termination of the Revolver Facility pursuant to
Section 2.6), provided that (A) all interest payable on the Swingline Loans
shall be for the account of the Swingline Lender until the date as of which the
respective participation is purchased and (B) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Lender
shall be required to pay to the Swingline Lender, to the extent not paid to the
Swingline Lender by the Co-Borrowers in accordance with the terms of subsection
(c) hereof, interest on the principal amount of participation purchased for each
day from and including the day upon which such borrowing would otherwise have
occurred to but excluding the date of payment for such participation, at the
rate equal to the Federal Funds Rate. Without fee or penalty, the Co-Borrowers
may at any time and from time to time repay the outstanding Swingline Loan
amounts, in whole or in part, upon irrevocable notice to the Administrative
Agent not later than 11:00 a.m. Atlanta time on the date of payment, specifying
the date and amount of repayment.
(c) Interest on Swingline Loans. Subject to the provisions of Section
3.1, each Swingline Loan shall bear interest at the option of Co-Borrowers at
either (i) the Base Rate or (ii) LIBOR Market Index Rate plus the Applicable
Margin for LIBOR Rate Loans.
(d) Payment of Interest. Interest on Swingline Loans shall be payable
in arrears at the end of each calendar quarter.
(e) Swingline Note. The Swingline Loans shall be evidenced by a duly
executed promissory note (the "Swingline Note") of the Co-Borrowers to the
Swingline Lender in substantially the form of Exhibit A-2.
SECTION 2.4 Repayment of Revolver Loans.
(a) Repayment on Revolver Facility Termination Date. The Co-Borrowers
shall repay the outstanding principal amount of all Revolver Loans made to such
Co-Borrowers in full, together with all accrued but unpaid interest thereon, on
the Revolver Facility Termination Date.
(b) Mandatory Repayment of Excess Loans. If at any time the sum of the
outstanding principal amount of all Revolver Loans (including the Assigned
Dollar Value of all Foreign Currency Loans) plus the outstanding amount of all
Swingline Loans plus the sum of the principal amount of any drawings under
Letters of Credit not reimbursed pursuant to Section 2.5(d) and the undrawn
amount of outstanding Letters of Credit exceeds the Aggregate Commitment, the
Co-
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Borrowers shall repay such excess, and such payment shall be applied in the
following order: (i) first, to Swingline Loans; (ii) secondly, to Revolver Loans
which are Base Rate Loans; (iii) thirdly, to LIBOR Loans; and (iv) lastly, to
Foreign Currency Loans. Each such repayment shall be accompanied by accrued
interest on the amount repaid and any amount required to be paid pursuant to
Section 3.8 hereof.
(c) Optional Repayments and Commitment Reductions. Without fee or
penalty, the Co-Borrowers may at any time and from time to time repay the
Revolver Loans made hereunder, in whole or in part, upon irrevocable notice to
the Administrative Agent not later than 11:00 a.m. (Atlanta time) on the date of
repayment with respect to Base Rate Loans, at least four (4) Business Days
before with respect to Foreign Currency Loans, and at least three (3) Business
Days before with respect to LIBOR Rate Loans, specifying the date and amount of
repayment and whether the repayment is of Base Rate Loans, LIBOR Rate Loans, or
Foreign Currency Loans, or a combination thereof, and, if of a combination
thereof, the amount allocable to each. Upon receipt of such notice, the
Administrative Agent shall promptly notify each Lender. If any such notice is
given, the amount specified in such notice shall be due and payable on the date
set forth in such notice. Partial repayments shall be in an aggregate amount of
$5,000,000 or a whole multiple of $1,000,000 in excess thereof with respect to
LIBOR Rate Loans, $1,000,000 of Assigned Dollar Value or a whole multiple of
$1,000,000 of Assigned Dollar Value in excess thereof with respect to Foreign
Currency Loans, and $500,000 or a whole multiple of $100,000 in excess thereof
with respect to Base Rate Loans. Each such repayment shall be accompanied by any
amount required to be paid pursuant to Section 3.8. Upon the repayment of any
Loan, the Co-Borrowers, without fee or penalty, upon irrevocable notice to the
Administrative Agent at least five (5) Business Days prior to the proposed
commitment reduction, may reduce the Revolver Loan Commitment for more or less
than the repaid Loan amount, but with such commitment reduction to be in a
minimum amount of $10,000,000 or a whole multiple of $1,000,000 in excess
thereof.
(d) Limitation on Repayment of Foreign Currency Loans and LIBOR Rate
Loans. No Co-Borrower may repay any Foreign Currency Loan or LIBOR Rate Loan
hereunder on any day other than on the last day of the Interest Period
applicable thereto unless such repayment is accompanied by any amount required
to be paid pursuant to Section 3.8.
SECTION 2.5 Letters of Credit.
(a) Issuance of Letters of Credit. Issuing Bank shall from time to time
issue, extend or renew Letters of Credit that are payable in Dollars or Foreign
Currency for the account of each of the Co-Borrowers, upon such terms and
conditions as Issuing Bank may then require under its standard letter of credit
documentation; provided that (i) the sum of the principal amount of any drawings
under Letters of Credit not reimbursed pursuant to Section 2.5(d) and the
undrawn amount of outstanding
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Letters of Credit (including the Assigned Dollar Value of such unreimbursed
drawings made in a Foreign Currency or such undrawn amount of any Letters of
Credit payable in a Foreign Currency) shall at no time exceed the LOC Committed
Amount, and (ii) the sum of (A) the aggregate principal amount of Revolving
Loans outstanding (including the Assigned Dollar Value of all Foreign Currency
Loans), (B) the sum of the principal amount of any drawings under Letters of
Credit not reimbursed pursuant to Section 2.5(d) and the undrawn amount of
outstanding Letters of Credit (including the Assigned Dollar Value of such
unreimbursed drawings made in a Foreign Currency or such undrawn amount of any
Letters of Credit payable in a Foreign Currency), (C) the aggregate principal
amount of outstanding Swingline Loans shall all at no time exceed the Aggregate
Commitment, and (D) the face amount of each Letter of Credit shall not be less
than the Assigned Dollar Value of $5,000,000. No Letter of Credit shall have an
original expiration date that extends beyond the Revolving Facility Termination
Date. The joint and several reimbursement obligations of the Co-Borrowers under
any such Letters of Credit are to be Obligations hereunder, and the coming due
of any reimbursement obligation under any such Letter of Credit shall be deemed
to be a request for a Revolving Loan in the amount of such Obligation. If an
Event of Default occurs or exists, or, if at the Revolving Facility Termination
Date, there is outstanding a Letter of Credit that as originally issued or as
extended had an expiry date extending beyond the Revolving Facility Termination
Date, Co-Borrowers, on demand by the Issuing Bank, are to deliver to the
Administrative Agent good funds equal to 100% of the maximum stated liability
under all outstanding Letters of Credit, which funds are to be deposited in a
separate, blocked account (the "Cash Collateral Account") maintained by
Co-Borrowers with the Administrative Agent and are to be held in the Cash
Collateral Account for the benefit of the Lenders as cash collateral for the Co-
Borrowers' joint and several reimbursement obligations and the other LOC
Obligations. Without limiting any other provisions in this Agreement, including
the restrictions on the issuance, extension or renewal of Letters of Credit set
forth in Section 2.5(a) hereof, the parties hereto hereby agree that if at any
time the sum of the undrawn amount of outstanding Letters of Credit exceeds the
LOC Committed Amount, Co-Borrowers, on demand by the Issuing Bank, are to
deliver to the Administrative Agent good funds equal to 100% of the amount of
such excess, which funds are to be deposited in the Cash Collateral Account
maintained by Co-Borrowers with the Administrative Agent and are to be held in
the Cash Collateral Account for the benefit of the Lenders as cash collateral
for the Co-Borrowers' joint and several reimbursement obligations and the other
LOC Obligations.
(b) Letter of Credit Fees. Upon the issuance, renewal or extension of a
Letter of Credit on or after the Closing Date, the Co-Borrowers jointly and
severally agree to pay to the Administrative Agent, for the account of the
Lenders as set forth below, a non-refundable, fully- earned fee (the "LOC
Issuance Fee") with respect to the face amount of the Letter of Credit and such
fee shall be paid by the Co-Borrowers in arrears on the last Business Day of
each calendar quarter commencing December 31, 1999, and on the Revolving
Facility Termination Date, based upon the face amount of such Letter of Credit
multiplied by the Applicable Margin for LIBOR Rate Loans in effect on the last
day of immediately preceding calender quarter (irrespective of whether any LIBOR
Rate Loans are then outstanding). Each Lender, upon the issuance, renewal or
extension of a Letter of Credit on or after the Closing Date, shall share in the
LOC Issuance Fee which shall be computed on the basis of a year of 360 days and
assessed for the actual number of days elapsed. The Co-Borrowers jointly and
severally further agree to (I) pay to the Issuing Bank, for its own account, a
non-refundable, fully-earned fee equal to 0.125% per annum of the face amount of
each Letter of Credit issued, renewed or extended by the Issuing Bank (the "LOC
Fronting Fee"), which shall be computed on the basis of a year of 360 days and
assessed for the actual number of days elapsed and payable by the Co-Borrowers
in arrears on the last Business Day of each calendar quarter commencing December
31, 1999, and on the Revolving Facility Termination Date, and (II) pay the to
the Issuing Bank, for its own account, such administrative and operational fees,
charges,
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and expenses customarily charged by the Issuing Bank with respect to the
issuance, handling, and administration of payment under Letters of Credit,
including, without limitation, any draw fees payable to correspondent banks upon
each drawing under any Letter of Credit. Co-Borrowers shall pay to and reimburse
Issuing Bank for any charges levied by foreign banks in connection with the
issuance of any Letters of Credit.
(c) Participation. To the extent that Issuing Bank has not been
reimbursed as required hereunder or under any such Letter of Credit, the
Administrative Agent shall notify each of the Lenders, and each such Lender
shall pay to the Administrative Agent for the Issuing Bank such Lender's
Commitment Percentage of the Revolving Loan made to pay such unreimbursed
drawing in same day funds on the day of notification by Issuing Bank of an
unreimbursed drawing pursuant to the provisions of subsection (d) hereof. The
obligation of each Lender to fund any Revolving Loan as provided above shall be
absolute and unconditional and shall not be affected by any dispute over the
propriety of payment under any Letter of Credit, the occurrence of a Default, an
Event of Default or any other occurrence or event. Any such reimbursement shall
not relieve or otherwise impair the joint and several obligations of the
Co-Borrowers to reimburse Issuing Bank under any Letter of Credit, together with
interest on such reimbursement amounts as provided in subsection (d) hereof.
(d) Reimbursement. Issuing Bank will promptly notify the Co-Borrowers
of any drawing under any Letter of Credit. Unless Holdings, on behalf of the
Co-Borrowers, shall immediately notify Issuing Bank that the Co-Borrowers intend
to reimburse Issuing Bank for such drawing other than from proceeds of Revolving
Loans, the Co-Borrowers shall be deemed to have requested that the Lenders make
Revolving Loans in the amount of such drawing as provided in subsection (e)
hereof on the related Letter of Credit, the proceeds of which will be used to
satisfy the related reimbursement obligations to Issuing Bank. The Co-Borrowers
jointly and severally agree to reimburse Issuing Bank on the date of drawing
under any Letter of Credit (either with the proceeds of Revolving Loans or
otherwise) in immediately available funds. If the conditions for making a
Revolving Loan deemed requested pursuant to this Section 2.5(d) to reimburse any
Letter of Credit drawing have not been satisfied as provided in Section 2.5(e)
hereof, and the Administrative Agent in its sole discretion has not waived the
unsatisfied conditions for making the Revolving Loan but has not accelerated the
payment date of the Obligations pursuant to Section 10.2 hereof because of the
Co-Borrowers' failure to reimburse such drawing, the Co-Borrowers shall pay the
Letter of Credit drawing in full, or the unreimbursed amount of such drawing
shall bear interest at a rate per annum equal to the Base Rate plus two percent
(2%). The Co-Borrowers' reimbursement obligations hereunder shall be absolute
and unconditional under all circumstances irrespective of any rights of setoff,
counterclaim or defense to payment any Co-Borrower may claim or have against
Issuing Bank, the Administrative Agent, the Lenders, the beneficiary of such
Letter of Credit or any other Person, including without limitation any defense
based on any failure of any Co-Borrower or any Subsidiary of any Co-Borrower to
receive consideration or the legality, validity or unenforceability of the
Letter of Credit. Issuing Bank will promptly notify the other Lenders of the
amount of any unreimbursed drawing and each Lender shall promptly pay to the
Administrative Agent for the account of Issuing Bank, in Dollars or, in the case
of any Letter of Credit drawing made in a Foreign Currency, the applicable
Foreign Currency, and in immediately available funds, the amount of such
Lender's Commitment Percentage of such unreimbursed drawing and such
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payment shall be made or deemed made pursuant to clause (e) below. Such payment
shall be made on the day such notice is received by such Lender from Issuing
Bank if such notice is received at or before 3:00 P.M. (Atlanta time);
otherwise, such payment shall be made at or before 1:00 P.M. (Atlanta time) on
the Business Day next succeeding the day such notice is received. If such Lender
does not pay such amount to Issuing Bank in full upon such request, such Lender
shall, on demand, pay to the Administrative Agent for the account of Issuing
Bank interest on the unpaid amount during the period from the date of such
drawing until such Lender pays such amount to Issuing Bank in full at a rate per
annum equal to, if paid within two (2) Business Days of the date that such
Lender is required to make payments of such amount pursuant to the preceding
sentence, the Federal Funds Rate and thereafter at a rate equal to the Domestic
Base Rate. Each Lender's obligation to make such payment to Issuing Bank, and
the right of Issuing Bank to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and without
regard to the termination of this Agreement or the Commitments hereunder, the
existence of a Default or Event of Default or the acceleration of the
obligations of the Co-Borrowers hereunder and shall be made without any offset,
abatement, withholding or reduction whatsoever. Simultaneously with the making
of each such payment by a Lender to Issuing Bank, such Lender shall,
automatically and without any further action on the part of Issuing Bank or such
Lender, acquire a participation in an amount equal to such payment (excluding
the portion of such payment constituting interest owing to Issuing Bank) in the
related unreimbursed drawing portion of the LOC Obligation and in the interest
thereon, and shall have a claim against Co-Borrowers with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Co-Borrowers shall have requested, or been deemed to have requested as provided
in clause (d) above, a Revolving Loan advance to reimburse a drawing under a
Letter of Credit, the Administrative Agent shall give notice to the Lenders that
a Revolving Loan has been requested or deemed requested by the Co-Borrowers to
be made in connection with a drawing under a Letter of Credit, in which case
Lenders shall severally make Revolving Loans to the Co-Borrowers jointly and
severally in a principal amount for each Lender equal to such Lender's
Commitment Percentage of such Revolving Loan requested or deemed to be requested
by the Co-Borrowers. Each Lender shall make available to the Administrative
Agent, at the office of the Administrative Agent in Dollars or, in the case of
any Letter of Credit drawing made in a Foreign Currency, the applicable Foreign
Currency, in funds immediately available to the Administrative Agent, such
Lender's Commitment Percentage of the Revolving Loans requested, and the
proceeds thereof shall be paid directly to Issuing Bank for application to the
respective LOC Obligations. Each such Lender hereby irrevocably agrees to make
its Commitment Percentage of each such Revolving Loan immediately upon any such
request or deemed request in the amount, in the manner and on the date specified
in the preceding sentence notwithstanding (i) the amount of such borrowing may
not comply with the minimum amount for advances of Revolving Loans otherwise
required hereunder, (ii) whether any conditions specified Section 4.2 are then
satisfied, (iii) whether a Default or an Event of Default then exists, (iv)
failure for any such request or deemed request for Revolving Loans to be made by
the time otherwise required hereunder, (v) whether the date of such borrowing is
a date on which Revolving Loans are otherwise permitted to be made hereunder or
(vi) any termination of the Commitments relating thereto immediately prior to or
contemporaneously with such borrowing. In the event that any Revolving Loan
cannot for any reason be made on the date otherwise required above (including,
without limitation, as a result of the commencement of a proceeding under the
Bankruptcy Code
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with respect to any Co-Borrower or any other Person obligated upon the
Obligations), then each such Lender hereby agrees that it shall forthwith
purchase (as of the date such borrowing would otherwise have occurred, but
adjusted for any payments received from the Co-Borrowers on or after such date
and prior to such purchase) from Issuing Bank such participation in the
outstanding LOC Obligations as shall be necessary to cause each such Lender to
share in such LOC Obligations ratably (based upon the respective Commitment
Percentages of the Lenders (determined before giving effect to any termination
of the Commitments pursuant to Section 2.6)), provided that at the time any such
purchase of a participation is actually made, the purchasing Lender shall be
required to pay to Issuing Bank, to the extent not paid to the Issuing Bank by
the Co-Borrowers in accordance with the terms of subsection (d) hereof, interest
on the principal amount of participation purchased for each day from and
including the day upon which such borrowing would otherwise have occurred to but
excluding the date of payment for such participation, if paid within two (2)
Business Days of the date of the Revolving Loan, at the Federal Funds Rate, and
thereafter at the Domestic Base Rate.
(f) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated (without duplication) in all
respects the same as the issuance of a new Letter of Credit hereunder.
(g) Uniform Customs and Practices. Unless the parties agree otherwise
in writing, the Letters of Credit shall be subject to the Uniform Customs and
Practice for Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (the "UCP") that shall be specified in the
Letter of Credit, and the UCP shall be incorporated therein and deemed in all
respects to be a part thereof.
(h) Indemnification; Nature of Issuing Bank's Duties.
(A) In addition to its other obligations under this Section,
subject to the UCP and the terms of the Letter of Credit, each
Co-Borrower shall and does hereby protect, indemnify, pay and save
Issuing Bank harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that Issuing Bank may incur or be subject
to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit or (ii) the failure of Issuing Bank to honor a drawing
under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto
government or governmental authority (all such acts or omissions,
herein called "Government Acts").
(B) As between the Co-Borrowers and Issuing Bank, subject to
the UCP and the terms of the Letter of Credit, the Co-Borrowers shall
assume all risks of the acts, omission or misuse of any Letter of
Credit by the beneficiary thereof, and Issuing Bank shall not be
responsible (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any Letter of
Credit, even if any such document should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged,
(ii) for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or
the rights or benefits thereunder or proceeds thereof, in whole or in
part, that may
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<PAGE> 34
prove to be invalid or ineffective for any reason, (iii) for errors,
omissions, interruptions or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not
they be in cipher, (iv) for any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under a
Letter of Credit or of the proceeds thereof, and (v) for any
consequences arising from causes beyond the control of Issuing Bank,
including, without limitation, any Government Acts. None of the above
shall affect, impair, or prevent the vesting of Issuing Bank's rights
or powers hereunder.
(C) In furtherance and extension and not in limitation of the
specific provisions of the foregoing, any action taken or omitted by
Issuing Bank or any Lender, under or in connection with any Letter of
Credit or the related certificates, if taken or omitted in good faith
and in accordance with this Agreement, shall not put such Issuing Bank
or such Lender under any resulting liability to the Co-Borrowers or any
of their Subsidiaries. Issuing Bank and the Lender shall not, in any
way, be liable for any failure by Issuing Bank or anyone else to pay
any drawing under any Letter of Credit as a result of any Government
Acts or any other cause beyond the control of Issuing Bank.
(D) Nothing in this subsection (h) is intended to limit the
joint and several reimbursement obligations of the Co-Borrowers
contained in subsection (d) above. The joint and several obligations of
the Co-Borrowers under this subsection (h) shall survive the
termination of this Agreement. No act or omissions of any current or
prior beneficiary of a Letter of Credit shall in any way affect or
impair the rights of Issuing Bank or any Lender to enforce any right,
power or benefit under this Agreement.
(E) Notwithstanding anything to the contrary contained in this
Section 2.5, the Co-Borrowers shall not have an obligation to indemnify
Issuing Bank in respect of any liability incurred by Issuing Bank (i)
arising solely out of the gross negligence or willful misconduct of
Issuing Bank, or the failure of Issuing Bank to comply with its
obligations under the UCP, or (ii) caused by Issuing Bank's failure to
pay under any Letter of Credit after presentation to it of a request
complying with the terms and conditions of such Letter of Credit,
unless such payment is prohibited by law, regulation, court order or
decree.
(i) Responsibility of Issuing Bank. It is expressly understood and
agreed that the obligations of Issuing Bank to the Lenders are only those
expressly set forth in this Agreement and that Issuing Bank shall be entitled to
assume with respect to any Revolving Loans requested or deemed to be requested
hereunder that the conditions precedent to borrowings set forth in Section 4.3
have been satisfied; provided, however, that nothing set forth in this Section
2.5 shall be deemed to prejudice the right of any Lender to recover from Issuing
Bank any amounts made available by such Lender to Issuing Bank pursuant to this
Section 2.5 in the event that it is determined by a court of competent
jurisdiction that the payment with respect to a Letter of Credit constituted
gross negligence or willful misconduct on the part of Issuing Bank.
(j) Conflict with Letter of Credit Documents. All documents and
instruments executed in connection with the issuance of any Letter of Credit
(other than the subject Letter of Credit) shall be interpreted in a manner to be
consistent with, and not in conflict of, this Agreement and the other
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Loan Documents, but in the event of any conflict between the provisions of this
Agreement and any document or instrument executed in connection with the
issuance of any Letter of Credit (including any letter of credit application,
but excluding the subject Letter of Credit), the terms and provisions of this
Agreement shall control.
SECTION 2.6 Termination of Revolver Facility. The Lenders' Revolver
Loan Commitments under Sections 2.1 and 2.3 shall terminate on the earlier of
(i) the Expiration Date or (ii) the date of termination by the Administrative
Agent on behalf of the Lenders pursuant to Section 10.2(a).
SECTION 2.7 Use of Proceeds. The Co-Borrowers shall use the proceeds of
the Loans (a) to refinance the existing Debt of the Borrowers outstanding under
the Original Credit Agreement on the Closing Date, and (b) for working capital
and general corporate requirements of the Co- Borrowers, including, without
limitation, stock repurchases in respect of Holding's capital stock and
Permitted Acquisitions.
SECTION 2.8 Co-Borrower and Guarantor Liability. With respect to the
respective liabilities for the Obligations, the Co-Borrowers and Guarantors have
executed with the Administrative Agent that certain Contribution Agreement, of
even date, providing for certain contribution and other rights among the
Co-Borrowers and Guarantors.
SECTION 2.9 Subordination of Subrogation and Contribution Claim. Each
Co-Borrower and each Guarantor hereby subordinates, to the collection and
payment in full of the Obligations and to the fullest extent possible, and
irrevocably agrees to delay until full and final payment of the Obligations any
enforcement of, any and all rights, whether at law, in equity, by agreement or
otherwise, to subrogation, indemnity, reimbursement, contribution, or any other
similar claim, cause of action or remedy that otherwise would arise out of such
Co-Borrower's or Guarantor's payment or performance of the Obligations,
including, without limitation, any and all claims under the Contribution
Agreement.
SECTION 2.10 Foreign Subsidiary Guaranties. If at any time and from
time to time the Company shall establish for any foreign Material Subsidiary
(other than SG Austria) a Deemed Distribution Event, the foreign Material
Subsidiary shall execute a Limited Foreign Guaranty, and, upon such execution,
be relieved of liability under the Guaranty.
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ARTICLE III
GENERAL LOAN PROVISIONS
SECTION 3.1 Interest.
(a) Interest Rate Options. Loans made on the Closing Date and during
the Initial Interest Period shall be Base Rate Loans and shall bear interest at
the Base Rate plus the Applicable Margin (the "Applicable Margin") as set forth
below in this Section 3.1. Thereafter, Foreign Currency Loans shall bear
interest at the IBOR Rate plus the Applicable Margin, Base Rate Loans shall bear
interest at the Base Rate plus the Applicable Margin, Swingline Loans shall bear
interest at the LIBOR Market Index Rate plus the Applicable Margin for LIBOR
Rate Loans, and, LIBOR Rate Loans shall bear interest at the LIBOR Rate plus the
Applicable Margin. On behalf of the Co-Borrowers, the Company shall determine
whether a Revolving Loan is to be a Base Rate Loan, LIBOR Rate Loan, or Foreign
Currency Loan and select the Interest Period, if any, applicable to any
Revolving Loan at the time a Notice of Borrowing is given pursuant to Section
2.2 or at the time a Notice of Conversion/Continuation is given pursuant to
Section 3.2. Any Loan or any portion thereof as to which the Company has not
duly specified an interest rate as provided herein shall be deemed a Base Rate
Loan, and, if it is a LIBOR Rate Loan or a Foreign Currency Loan for which an
Interest Period has ended, shall, so long as no Event of Default has occurred
and shall be continuing, be deemed renewed as a Base Rate Loan and, in each
case, no Event of Default shall arise as a result thereof.
(b) Interest Periods. In connection with each Foreign Currency Loan and
LIBOR Rate Loan, the Company, on behalf of the Co-Borrowers, by giving notice at
the times described in Section 3.1(a), shall elect an interest period (each, an
"Interest Period") to be applicable to such Loan, which Interest Period shall be
a period of one, two, three or six months; provided that:
(i) the Interest Period shall commence on the date of advance
of or conversion to any Foreign Currency Loan or LIBOR Rate Loan and,
in the case of immediately successive Interest Periods, each successive
Interest Period shall commence on the date on which the next preceding
Interest Period expires;
(ii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided, that, with respect to any
Foreign Currency Loan or LIBOR Rate Loan, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of
the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iii) with respect to any Foreign Currency Loan or LIBOR Rate
Loan, any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period;
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(iv) no Interest Period for Revolver Loans shall extend beyond
the Revolver Facility Termination Date;
(v) there shall be no more than eight Types of LIBOR Rate
Loans (including Foreign Currency Loans) outstanding at any time; for
purposes of this provision, a "Type" of Loan shall refer to Loans with
Interest Periods beginning and ending on the same date;
(vi) such right of election is subject to Section 3.1(e)(i);
and
(vii) no Interest Period of six months shall be available for
Foreign Currency Loans.
(c) Applicable Margin. On and after the Closing Date until adjustments,
if any, pursuant to Section 3.1(d) below after receipt by the Administrative
Agent of financial statements for Holdings and Subsidiaries for the quarter
ended September 30, 1999, the Applicable Margin for LIBOR Rate Loans and Foreign
Currency Loans will be 0.75% and for Base Rate Loans be 0.00%, and, thereafter,
the Applicable Margin with respect to Base Rate Loans, LIBOR Rate Loans and
Foreign Currency Loans shall be determined as provided below by reference to the
Leverage Ratio at the end of each fiscal quarter of Holdings as follows:
<TABLE>
<CAPTION>
Applicable Margin
------------------------------------------------------
Leverage LIBOR Base
Ratio or IBOR Rate
Margin Margin
------------------------------------------------------
<S> <C> <C>
Less than or equal to 0.75% 0.00%
25%
------------------------------------------------------
Greater than 25%, but 1.00% 0.00%
less than or equal to
40%
------------------------------------------------------
Greater than 40% 1.25% 0.25%
------------------------------------------------------
</TABLE>
(d) Adjustments to Applicable Margin. Adjustments, if any, in the
Applicable Margin shall be made by the Administrative Agent ten (10) Business
Days after receipt by the Administrative Agent of quarterly financial statements
for Holdings and its Subsidiaries and the accompanying Officer's Compliance
Certificate setting forth the Leverage Ratio for Holdings and its Subsidiaries
as of the most recent fiscal quarter end. In the event Holdings fails to deliver
such financial statements and certificate within the time required by Sections
6.1(a) or (b) and Section 6.2 hereof, the Applicable Margin shall be the highest
Applicable Margin set forth above until five (5) Business Days after the
delivery of such financial statements and certificate.
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(e) Default Rate. Upon the occurrence and during the continuance of an
Event of Default, (i) the Co-Borrowers shall no longer have the option to
request LIBOR Rate Loans or Foreign Currency Loans, (ii) (A) prior to the
acceleration of any of the Obligations pursuant to Section 10.2, the amount of
any overdue Loan or other Obligation shall bear interest at a rate per annum two
percent (2.0%) in excess of the highest rate otherwise then applicable to the
Loans, and (B) after the acceleration of any of the Obligations pursuant to
Section 10.2, all of the Obligations shall bear interest at a rate per annum two
percent (2.0%) in excess of the highest rate otherwise then applicable to the
Loans, and (iii) all Foreign Currency Loans and LIBOR Rate Loans at the end of
their applicable Interest Period shall be converted to Base Rate Loans. Interest
shall continue to accrue on the Notes after the filing by or against either or
both Co-Borrowers of any petition seeking any relief in bankruptcy or under any
act or law pertaining to insolvency or debtor relief, whether state, federal or
foreign.
(f) Interest Payment and Computation. Interest on each Loan shall be
payable in arrears on each Interest Payment Date. Interest on Base Rate Loans
and Foreign Currency Loans made in British pounds sterling shall be computed on
the basis of a year of 365 or 366 days, as the case may be, and assessed for the
actual number of days elapsed, and interest on all other Loans shall be computed
on the basis of a year of 360 days and assessed for the actual number of days
elapsed.
(g) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by Applicable Law and the Lenders shall at the Administrative
Agent's option promptly refund to the applicable Co-Borrower or Co-Borrowers
any interest received by Lenders in excess of the maximum lawful rate or shall
apply such excess to the principal balance of the Obligations. It is the intent
hereof that the Co-Borrowers not pay or contract to pay, and that neither the
Administrative Agent nor any Lender receive or contract to receive, directly or
indirectly in any manner whatsoever, interest in excess of that which may be
paid by the Co-Borrowers under Applicable Law.
SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans.
After the Initial Interest Period, provided that no Default or Event of Default
has occurred and is then continuing, the Co-Borrowers shall have the option to
(i) convert at any time all or any portion of their outstanding Base Rate Loans
in a principal amount equal to $5,000,000 or any whole multiple of $1,000,000 in
excess thereof into LIBOR Rate Loans, (ii) upon the expiration of any Interest
Period, convert all or any part of their outstanding LIBOR Rate Loans in a
principal amount equal to $500,000 or a whole multiple of $100,000 in excess
thereof into Base Rate Loans, (iii) upon the expiration of its Interest Period,
continue any LIBOR Rate Loan in a principal amount of $5,000,000 or any whole
multiple of $1,000,000 in excess thereof as a LIBOR Rate Loan, and (iv) upon the
expiration of its Interest Period, continue any Foreign Currency Loan in
increments of 100,000 units of such Foreign Currency (such amount to have an
approximate minimum Assigned Dollar Value of $1,000,000) as a Foreign Currency
Loan in the same Foreign Currency; provided, that the
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Co-Borrowers shall not be entitled to continue, but shall repay, such portion of
the Foreign Currency Loan that equals the Assigned Dollar Value Excess as of the
end of the Interest Period. Whenever the Co-Borrowers desire to convert or
continue Loans as provided above, the Company, on behalf of the Co-Borrowers,
shall give the Administrative Agent irrevocable prior written notice in the form
attached hereto as Exhibit C (a "Notice of Conversion/Continuation") not later
than 11:00 a.m. (Atlanta time) three (3) Business Days before the Business Day,
in the case of a conversion to or a continuation of a LIBOR Rate Loan, four (4)
Business Days before the Business Day, in the case of a continuation of a
Foreign Currency Loan, and the same Business Day, in the case of a conversion to
a Base Rate Loan, on which a proposed conversion or continuation of such Loan is
to be effective specifying (i) the Loans to be converted or continued and, with
respect to any LIBOR Rate Loan to be converted or continued, the last day of the
current Interest Period therefor, (ii) the effective date of such conversion or
continuation (which shall be a Business Day), (iii) the principal amount of such
Loans to be converted or continued and (iv) with respect to a continuation of
Foreign Currency Loan, the Foreign Currency and the Interest Period to be
applicable thereto. The Administrative Agent shall promptly notify the Lenders
of such Notice of Conversion/Continuation.
SECTION 3.3 Fees.
(a) Unused Revolver Fee. Commencing on the Closing Date and continuing
through and including the Revolver Facility Termination Date, the Co-Borrowers
shall pay to the Administrative Agent, for the account of the Lenders, a
non-refundable unused revolver fee at a rate per annum (based on a 360 day year)
equal to 0.20% multiplied by the average daily unused portion of the Aggregate
Commitment (excluding outstanding Swingline Loans). The fee shall be payable in
arrears on the last Business Day of each calendar quarter commencing December
31, 1999, and on the Revolver Facility Termination Date. Such commitment fee
shall be distributed by the Administrative Agent among the Lenders pro rata in
accordance with the Lenders' respective Commitment Percentages. For purposes of
calculating the unused revolver fee, Swingline Loans shall be excluded from
usage.
(b) Administrative Agent's and Other Fees. In order to compensate the
Administrative Agent for its obligations hereunder and First Union Securities
Inc. for acting as arranger of this Credit Facility, the Co-Borrowers jointly
and severally agree to pay to the Administrative Agent and First Union
Securities Inc., for their own account, the fees set forth in the Commitment and
Term Sheet between Administrative Agent, First Union Securities Inc. and the
Co-Borrowers, dated September 21, 1999, and the Fee Letter executed by the
Co-Borrowers in connection therewith (collectively, the "Term Sheet").
(c) Letter of Credit Fees. Co-Borrowers jointly and severally agree to
pay the Letter of Credit fees as set forth in Section 2.5(b) hereof.
(d) Fee and Cost Determination Detail. The Administrative Agent, any
Lender and Issuing Bank, shall provide reasonable detail to Co-Borrowers
regarding the manner in which the amount of any payment to the Lenders, or that
Lender or the Issuing Bank, under this Agreement has been computed.
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SECTION 3.4 Manner of Payment.
(a) Each payment (including repayments described in Article II) by any
Co-Borrower on account of the principal of or interest on the Loans other than
Foreign Currency Loans or of any fee, commission or other amounts payable to the
Lenders under this Agreement or any Note shall be made not later than 1:00 p.m.
(Atlanta time) on the date specified for payment under this Agreement to the
Administrative Agent for the account of the Lenders to be distributed pro rata
among the Revolver Loans and among such Lenders in accordance with their
respective Revolver Loan Commitment Percentage (except for payment of Swingline
Loans, which are for the account of the Swingline Lender and other than fees
payable to the Account of the Issuing Bank in connection with any Letter of
Credit), at the Administrative Agent's Office, in immediately available funds,
and shall be made without any set-off, counterclaim or deduction whatsoever. Any
payment received after such time but before 2:00 p.m. (Atlanta time) on such day
shall be deemed a payment on such date for the purposes of Section 10.1, but for
all other purposes shall be deemed to have been made on the next succeeding
Business Day. Any payment received after 2:00 p.m. (Atlanta time) shall be
deemed to have been made on the next succeeding Business Day for all purposes.
All Loans other than Foreign Currency Loans shall be repayable in Dollars, and
each Foreign Currency Loan shall be repayable in the Foreign Currency in which
the Loan was made and at the Euro Lending Office of the Administrative Agent
before 11:00 a.m. London time.
(b) Pro Rata Treatment. Upon receipt by the Administrative Agent of
each such payment for the account of the Lenders, the Administrative Agent shall
credit each Lender's account with its pro rata share of such payment in
accordance with such Lender's Revolver Loan Commitment Percentage and shall wire
advice of the amount of such credit to each Lender. Each payment to the
Administrative Agent of its fees or on the Swingline Loans shall be made in like
manner, but for the account of the Administrative Agent or the Swingline Lender,
as the case may be. Each payment to the Issuing Bank of its fees shall be made
in like manner, but for the account of the Issuing Bank Subject to Section 3.1
(b), if any payment under this Agreement or any Note shall be specified to be
made upon a day which is not a Business Day, it shall be made on the next
succeeding day which is a Business Day and such extension of time shall in such
case be included in computing any interest if payable along with such payment.
SECTION 3.5 Crediting of Payments and Proceeds. In the event that
Co-Borrowers shall fail to pay any of the Obligations when due and the
Obligations have been accelerated pursuant to Section 10.2, all payments
received by the Lenders upon the Notes and the other Obligations and all net
proceeds from the enforcement of the Obligations shall be distributed pro rata
among the Revolver Facility and shall be further applied among the
Administrative Agent, Issuing Bank and such Lenders first, to all Administrative
Agent's fees and expenses then due and payable, then to all other expenses then
due and payable by the Co-Borrowers hereunder, then to all indemnity obligations
then due and payable by the Co-Borrowers hereunder, then to all commitment and
other fees and commissions then due and payable, then to accrued and unpaid
interest on the Notes (pro rata in accordance with all such amounts due), then
to the principal amount of the Notes, in that order.
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SECTION 3.6 Nature of Obligations of Lenders Regarding Loans;
Assumption by Administrative Agent. The obligations of the Lenders under this
Agreement to make the Loans are several and are not joint or joint and several.
Unless the Administrative Agent shall have received notice from a Lender prior
to the applicable time period specified in Section 2.2 (b) on a proposed
borrowing date that such Lender will not make available to the Administrative
Agent such Lender's ratable portion of the amount to be borrowed on such date
(which notice shall not release such Lender of its obligations hereunder), the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the proposed borrowing date in accordance with
Section 2.2 and the Administrative Agent may, in reliance upon such assumption,
make available to the Co-Borrowers on such date a corresponding amount. If such
amount is made available to the Administrative Agent on a date after such
borrowing date, such Lender shall pay to the Administrative Agent on demand an
amount, until paid, equal to such Lender's applicable Revolver Loan Commitment
Percentage of such borrowing and interest thereon at a rate per annum equal to
the daily average Federal Funds Rate during such period as determined by the
Administrative Agent. A certificate of the Administrative Agent with respect to
any amounts owing under this Section shall be conclusive, absent manifest error.
If such Lender's applicable Revolver Loan Commitment Percentage of such
borrowing is not made available to the Administrative Agent by such Lender
within three (3) Business Days of such borrowing date, the Administrative Agent
shall be entitled to recover such amount made available by the Administrative
Agent with interest thereon at the rate per annum then applicable to such Loan
hereunder, on demand, from the applicable Co-Borrower or Co-Borrowers. The
failure of any Lender to make its applicable Revolver Loan Commitment Percentage
of any Loan available shall not relieve it or any other Lender of its
obligation, if any, hereunder to make its applicable Revolver Loan Commitment
Percentage of such Loan available on such borrowing date or prejudice any rights
of Co-Borrowers against such Lender, but no Lender shall be responsible for the
failure of any other Lender to make its applicable Revolver Loan Commitment
Percentage of such Loan available on the borrowing date.
SECTION 3.7 Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate or IBOR Rate Availability. If
with respect to any Interest Period the Administrative Agent or any Lender
(after consultation with Administrative Agent) shall determine that by reason of
circumstances affecting the foreign exchange and interbank markets generally,
deposits in Eurodollars in the applicable amounts are not being offered (through
Telerate Page 3750 or otherwise) to the Administrative Agent or such Lender for
such Interest Period, then the Administrative Agent shall forthwith give notice
thereof to the Co-Borrowers. Thereafter, until the Administrative Agent notifies
the Co-Borrowers that such circumstances no longer exist, the obligation of the
Lenders to make Foreign Currency Loans and Foreign Currency Loans, and the right
of the Co-Borrowers to convert any Loan to or continue any Loan as a LIBOR Rate
Loan or Foreign Currency Loans, shall be suspended, and the applicable
Co-Borrower or Co-Borrowers shall repay in full (or cause to be repaid in full)
the then-outstanding principal amount of each such LIBOR Rate Loan and Foreign
Currency Loan, together with accrued interest thereon, on the last day of the
then current Interest Period applicable to such LIBOR Rate Loan or Foreign
Currency Loan or convert the then outstanding principal amount of each such
LIBOR Rate Loan and Foreign Currency Loan to a Base Rate Loan, if available, as
of the last day of such Interest Period.
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(b) Laws Affecting LIBOR Rate or IBOR Rate Availability. If, after the
date hereof, the introduction of, or any change in, any Applicable Law or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any of their respective
Lending offices) with any request or directive (whether or not having the force
of law) of any such Governmental Authority, central bank or comparable agency,
shall make it unlawful or impossible for any of the Lenders (or any of their
respective Lending Offices) to honor its obligations hereunder to make or
maintain any LIBOR Rate Loan or Foreign Currency Loan, such Lender shall
promptly give notice thereof to the Administrative Agent and the Administrative
Agent shall promptly give notice to the Co-Borrowers and the other Lenders.
Thereafter, until the Administrative Agent notifies the Co-Borrowers that such
circumstances no longer exist (which notification shall be given promptly, but
in any event within thirty (30) days after the Administrative Agent obtains
actual knowledge that such circumstances no longer exist), (i) the obligations
of the Lenders to make LIBOR Rate Loans or Foreign Currency Loans and the right
of the Co-Borrowers to convert any Loan or continue any Loan as a LIBOR Rate
Loan shall be suspended and thereafter the Co-Borrowers may select only Base
Rate Loans hereunder, and (ii) if any of the Lenders may not lawfully continue
to maintain a Foreign Currency Loan or LIBOR Rate Loan to the end of the then
current Interest Period applicable thereto, the applicable Loan shall
immediately be converted to a Base Rate Loan for the remainder of such Interest
Period, and the applicable Co-Borrower or Co-Borrowers shall pay any amount
required to be paid pursuant to Section 3.8.
(c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Governmental
Authority, central bank or comparable agency:
(i) shall subject any of the Lenders (or any of their
respective Lending Offices) or the Issuing Bank to any tax, duty or other charge
with respect to any LIBOR Rate Loan, Foreign Currency Loan, any Letter of Credit
or any Note or shall change the basis of taxation of payments to any of the
Lenders (or any of their respective Lending Offices) of the principal of or
interest on any LIBOR Rate Loan, Foreign Currency Loan or any Note or any other
amounts due under this Agreement in respect thereof (except for changes in the
rate of tax on the overall net income or franchises of any of the Lenders, the
Issuing Bank or any of their respective Lending Offices imposed by the
jurisdiction in which such Lender or the Issuing Bank is organized or is or
should be qualified to do business or such Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance or capital or similar
requirement against assets of, deposits with or for the account of, or credit
extended by any of the Lenders (or any of their respective Lending Offices) or
shall impose on any of the Lenders (or any of their respective Lending Offices)
or the foreign exchange and interbank markets any other condition affecting any
LIBOR Rate Loan, Foreign Currency Loan, any Letter of Credit or any Note;
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<PAGE> 43
and the result of any of the foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Rate Loan, Foreign Currency Loan or Letter of
Credit or to reduce the yield or amount of any sum received or receivable by any
of the Lenders under this Agreement or under the Notes in respect of a LIBOR
Rate Loan, Letter of Credit or a Foreign Currency Loan, then such Lender shall
promptly notify the Administrative Agent, and the Administrative Agent shall
promptly notify the Co-Borrowers of such fact and demand compensation therefor
and, within fifteen (15) days after such notice by the Administrative Agent, the
Co-Borrowers shall pay to such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction. The Administrative
Agent will promptly notify the Co-Borrowers of any event of which it has
knowledge that will entitle such Lender to compensation pursuant to this Section
3.7(c); provided, that the Administrative Agent shall incur no liability
whatsoever to the Lenders or the Co-Borrowers in the event it fails to do so. A
certificate of the Administrative Agent setting forth the basis for determining
such additional amount or amounts necessary to compensate such Lender or Lenders
shall be conclusively presumed to be correct absent manifest error. If any
Lender claims compensation under this Section, a Co-Borrower may at any time,
upon at least four (4) Business Days' prior notice to the Administrative Agent
and such Lender and upon payment through the date of such payment plus any
prepayment fee required or charges imposed under Section 3.8 hereof, pay in full
the affected LIBOR Rate Loans and Foreign Currency Rate Loans of such Lender or
request that such LIBOR Rate Loans and Foreign Currency Rate Loans be converted
to Base Rate Loans.
SECTION 3.8 Indemnity. Each Co-Borrower jointly and severally shall and
hereby do indemnify each of the Lenders against any loss or expense (including
without limitation any foreign exchange costs) which may arise or be
attributable to each Lender's obtaining, liquidating or employing deposits or
other funds acquired to effect, fund or maintain the Loans or the Issuing Bank's
issuance or honor of a Letter of Credit (i) as a consequence of any failure by
the Co-Borrowers to make any payment when due of any amount due hereunder in
connection with a LIBOR Rate Loan or a Foreign Currency Loan, (ii) due to any
failure of the Co-Borrowers to borrow on a date specified therefor in a Notice
of Borrowing or Notice of Continuation/Conversion with respect to any LIBOR Rate
Loan or Foreign Currency Loan or (iii) due to any payment, prepayment or
conversion of any LIBOR Rate Loan or Foreign Currency Loan on a date other than
the last day of the Interest Period therefor. Each Lender's calculations of any
such loss or expense shall be furnished to the Co-Borrowers and shall be
presumed to be correct, absent manifest error.
SECTION 3.9 Capital Requirements. If either (i) the introduction of, or
any change in, or in the interpretation of, any Applicable Law or (ii)
compliance with any guideline or request from any central bank or comparable
agency or other Governmental Authority (whether or not having the force of law),
has or would have the effect of reducing the rate of return on the capital of,
or has affected or would affect the amount of capital required to be maintained
by, any Lender or any corporation controlling such Lender as a consequence of,
or with reference to the Commitments and other commitments of this type, below
the rate which such Lender or such other corporation could have achieved but for
such introduction, change or compliance, then within five (5) Business Days
after written demand by any such Lender, the Co-Borrowers shall pay to such
Lender from time to time as specified by such Lender additional amounts
sufficient to compensate such Lender or other corporation for such reduction. A
certificate as to such amounts submitted to the Co-Borrowers and
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the Administrative Agent by such Lender, shall, in the absence of manifest
error, be presumed to be correct and binding for all purposes.
SECTION 3.10 Taxes.
(a) Payments Free and Clear. Any and all payments by the Co-Borrowers
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholding, and all liabilities with respect thereto excluding, (i)
in the case of each Lender, Issuing Bank and the Administrative Agent, income
and franchise taxes imposed by the jurisdiction under the laws of which such
Lender, the Issuing Bank or the Administrative Agent (as the case may be) is
organized or is or should be qualified to do business or any political
subdivision thereof and (ii) in the case of each Lender or the Issuing Bank,
income and franchise taxes imposed by the jurisdiction of such Lender's or
Issuing Bank's Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If any Co- Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Lender, Issuing Bank or the Administrative
Agent, (A) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 3.10) such Lender, the Issuing Bank or the
Administrative Agent (as the case may be) receives an amount equal to the amount
such party would have received had no such deductions been made, (B) such
Co-Borrower shall make such deductions, (C) such Co-Borrower shall pay the full
amount deducted to the relevant taxing authority or other authority in
accordance with Applicable Law, and (D) such Co-Borrower shall deliver to the
Administrative Agent evidence of such payment to the relevant taxing authority
or other authority in the manner provided in Section 3.10(d). Notwithstanding
the foregoing, "Taxes" shall not include any taxes, levies, imposts, duties,
deductions, fees, charges or withholdings which are the result of any one or
more of the following events: (A) the failure of the applicable Lenders or the
Issuing Bank to properly or timely file any tax return required to be filed by
such Lenders or the Issuing Bank, (B) any transfer of the Lender's Commitment
Percentage or the Notes, or any part thereof, or any participation therein, by
the Lenders, or (C) the gross negligence or willful misconduct of the applicable
Lenders or the Issuing Bank or any Affiliate of any of them or any breach by
such Lenders or the Issuing Bank of their obligations hereunder.
(b) Stamp and Other Taxes. In addition, the Co-Borrowers shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the other Loan Documents, or the perfection of any rights in respect
thereto (hereinafter referred to as "Other Taxes").
(c) Indemnity. The Co-Borrowers jointly and severally shall and do
hereby indemnify each Lender and the Administrative Agent for the full amount of
Taxes and Other Taxes (including, without limitation, any Taxes and Other Taxes
imposed by any jurisdiction on amounts payable under this Section 3.10) paid by
such Lender, Issuing Bank or Agent (as the case may be) and any
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liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Such indemnification shall be made within thirty (30) days
from the date such Lender, Issuing Bank or the Administrative Agent (as the case
may be) makes written demand therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the affected Co-Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 12.1, the original
or a certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Administrative Agent.
(e) Survival. Without prejudice to the survival of any other agreement
of the Co-Borrowers hereunder, the agreements and obligations of the
Co-Borrowers contained in this Section 3.10 shall survive the payment in full of
the Obligations and the termination of the Commitments.
(f) Failure to Pay in Foreign Currency. If any Co-Borrower is unable
for any reason to effect payment of a Foreign Currency Loan in the Foreign
Currency in which borrowed as required by this Agreement or if any Co-Borrower
shall default in any Foreign Currency Loan, each Bank may, through the
Administrative Agent, require such payment to be made in Dollars in the Dollar
Equivalent amount of such payment. In any case in which any Co-Borrower shall
make such payment in Dollars, such Co-Borrower agrees to hold the Lenders
harmless from any loss incurred by the Lenders arising from any change in the
value of Dollars in relation to such Foreign Currency between the date such
payment became due and the date of payment thereof. Without limiting the
generality of the foregoing, if any Co-Borrower is unable for any reason to
effect payment of a Foreign Currency Loan in the Foreign Currency in which
borrowed as required by this Agreement or if any Co-Borrower shall default in
any Foreign Currency Loan, then Agent shall be authorized, without notice to
either of the Co-Borrowers or the other Lenders, to extend Base Rate Loans under
the Revolver Facility in an amount sufficient to purchase an amount of the
Foreign Currency sufficient to repay the Foreign Currency Loan in full.
(g) Judgment Currency. If for the purpose of obtaining judgment in any
court or enforcing any such judgment it is necessary to convert any amount due
in any Foreign Currency into any other currency, the rate of exchange used shall
be the Administrative Agent's spot rate of exchange for the purchase of the
Foreign Currency with such other currency at the close of business on the
Business Day preceding the date on which judgment is given or any order for
payment is made. The obligation of the relevant Co-Borrower in respect of any
amount due from it hereunder shall, notwithstanding any judgment or order for a
liquidated sum or sums in respect of amounts due hereunder or under any judgment
or order in any other currency or otherwise, be discharged only to the extent
that on the Business Day following receipt by the Administrative Agent of any
payment in a currency other than the relevant Foreign Currency the
Administrative Agent is able (in accordance with normal banking procedures) to
purchase the relevant Foreign Currency with such other currency. If the amount
of the relevant Foreign Currency that the Administrative Agent is able to
purchase with such other currency is less than the amount due in the relevant
Foreign Currency, notwithstanding any judgment or order, such Co-Borrower shall
indemnify the Lenders for the shortfall.
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ARTICLE IV
CLOSING: CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1 Closing. The closing shall take place at the offices of
Sutherland, Asbill & Brennan, L.L.P., at First Union Plaza, 999 Peachtree
Street, N.E., 23rd Floor, Atlanta, Georgia at 10:00 a.m. on the Closing Date or
at such other time and place as the parties shall agree.
SECTION 4.2 Conditions to Closing and Initial Loan. The obligations of
the Lenders to make the initial Loans and the Issuing Bank to issue, extend or
renew any Letters of Credit on the Closing Date are subject to the satisfaction
of each of the following conditions:
(a) Executed Loan Documents. (i) This Agreement, (ii) the Notes, (iii)
the Guaranty executed by each Material Subsidiary existing on the Closing Date
(other than foreign Material Subsidiaries for which the Company shall have
established a Deemed Distribution Event), (iv) the Limited Foreign Guaranty
executed by SGIL and any other foreign Material Subsidiary existing on the
Closing Date (other than SG Austria) for which the Company shall have
established a Deemed Distribution Event, (v) the Negative Pledge Agreement, (vi)
the Note Pledge Agreement with respect to the Foreign Subsidiary Notes executed
by SGIL, SG Austria and each other foreign Material Subsidiary for which the
Company shall have established a Deemed Distribution Event, and the other Loan
Documents shall have been duly authorized and executed by the parties thereto in
form and substance satisfactory to the Administrative Agent, shall be in full
force and effect and no Default or Event of Default shall exist hereunder or
thereunder, and the Co-Borrowers shall have delivered original counterparts
thereof to the Administrative Agent.
(b) Closing Certificates; etc.
(i) Officer's Certificate. The Administrative Agent shall have
received a certificate from the chief executive officer or chief financial
officer of, on behalf of the Co-Borrowers, in form and substance reasonably
satisfactory to the Administrative Agent, to the effect that, to the best
knowledge and belief of such officer, all representations and warranties of the
Co-Borrowers contained in this Agreement and the other Loan Documents are true
and correct in all material respects; that the Co-Borrowers are not in violation
of any of the covenants contained in this Agreement and the other Loan
Documents; that, after giving effect to the transactions contemplated by this
Agreement, no Default or Event of Default has occurred and is continuing; that
the Co- Borrowers have satisfied each of the closing conditions to be satisfied
thereby; and that the Co- Borrowers have filed all required tax returns and owe
no delinquent taxes.
(ii) Officer's Compliance Certificate. The Administrative
Agent shall have received an Officer's Compliance Certificate stating that no
Default or Event of Default exists and setting forth the calculations required
to establish whether or not the Co-Borrower and their Subsidiaries are in
compliance with the financial covenants set forth in Article VIII hereof as of
the Closing Date, in form and substance reasonably satisfactory to the
Administrative Agent.
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(iii) Certificate of Secretary of each Co-Borrower. The
Administrative Agent shall have received a certificate of the secretary or
assistant secretary (or, in the case of any Person organized or incorporated
other than pursuant to the laws of the United States or any state thereof, a
director or such other officer as such Person may reasonably designate) of each
Co-Borrower and Guarantor certifying, as applicable, that attached thereto is a
true and complete copy of the articles of incorporation or other charter
documents of such Co-Borrower or Guarantor and all amendments thereto, certified
as of a recent date by the appropriate Governmental Authority in its
jurisdiction of incorporation; that attached thereto is a true and complete copy
of the bylaws of such Co-Borrower or Guarantor as in effect on the date of such
certification; that attached thereto is a true and complete copy of resolutions
duly adopted by the Board of Directors of such Co-Borrower, authorizing the
borrowings or guarantee contemplated hereunder or thereunder and the execution,
delivery and performance of this Agreement and the other Loan Documents to which
it is a party; and as to the incumbency and genuineness of the signature of each
officer of such Co-Borrower or Guarantor executing Loan Documents to which such
Co-Borrower or Guarantor is a party, provided, however, that in the case of any
foreign Guarantor, the secretary's certificate shall be limited solely to
matters concerning the incumbency and genuineness of the signature of each
officer of such foreign Guarantor so long as the Administrative Agent shall have
received a favorable opinion of counsel as provided in clause (vi) below.
(iv) Certificates of Good Standing. The Administrative Agent
shall have received certificates as of a recent date of the good standing or
valid existence of each Co-Borrower and Guarantor (exclusive of any Guarantor
incorporated under the laws of any jurisdiction located outside the United
States) under the laws of Delaware and Georgia.
(v) Accounts Designation Letter. The Accounts Designation
Letter to be delivered by the Co-Borrowers pursuant to Section 2.2, dated as of
the Closing Date.
(vi) Opinions of Counsel. The Administrative Agent shall have
received favorable opinions of outside counsel to the Co-Borrowers and
Guarantors (including each foreign Guarantor) and addressed to the
Administrative Agent and Lenders with respect to the Co-Borrowers and the
Guarantors, the Loan Documents, the transactions contemplated thereby,
regulatory matters and such other matters as the Administrative Agent and the
Lenders may reasonably request, reasonably satisfactory in form and substance to
the Administrative Agent and Lenders. Such opinions, with respect to United
States law matters, may be rendered by its regular outside counsel or
combination thereof without regard to whether such counsel is admitted to or
authorized to practice in any jurisdiction other than the State of Georgia.
(c) Consents; No Adverse Change.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any be required, of any Person and of
all Governmental Authorities and courts having jurisdiction with respect to the
execution and delivery of this Agreement and the other Loan Documents shall have
been obtained.
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(ii) Permits and Licenses. All material permits and licenses,
including material permits and licenses required under Applicable Law, necessary
to the conduct of business by the Co- Borrowers and their Subsidiaries as
currently conducted shall have been obtained.
(iii) No Injunction, Etc. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any Governmental Authority to enjoin, restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby, or which, in the Administrative
Agent's reasonable discretion, would make it inadvisable to consummate the
transactions contemplated by this Agreement and such other Loan Documents.
(iv) No Material Adverse Change. Since December 31, 1998,
there shall not have occurred any event or condition (other than matters of
general economic or political nature) that has had or is reasonably likely to
have a Material Adverse Effect.
(v) No Event of Default. No Default or Event of Default shall
have occurred and be continuing.
(d) Financial Matters.
(i) Financial Statements. The Administrative Agent and each
Lender shall have received recent annual and interim financial statements and
other financial information with respect to Holdings and its Subsidiaries
prepared in accordance with GAAP. Without limitation of the foregoing, the
Administrative Agent and each Lender shall have received audited financial
statements for Holdings and Subsidiaries for the Fiscal Year ended December 31,
1998 and unaudited financial statements for Holdings and Subsidiaries for the
nine month period ended September 30, 1999.
(ii) Payment at Closing. There shall have been paid by the
Co-Borrowers to the Administrative Agent and the Lenders the fees set forth or
referenced in Section 3.3 and any other accrued and unpaid fees or commissions
due hereunder (including, without limitation, legal fees and expenses), and to
any other Person such amount as may be due thereto in connection with the
transactions contemplated hereby, including all taxes, fees and other charges in
connection with the execution and delivery of any of the Loan Documents.
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(e) Miscellaneous.
(i) Refinanced Facilities. The Administrative Agent shall have
received a pay proceeds letter, in form and substance reasonably satisfactory to
the Administrative Agent, specifying that the Debt outstanding under the
Original Credit Agreement will be refinanced with proceeds of the initial Loans.
(ii) Notice of Borrowing. The Administrative Agent shall have
received written instructions from the Company, on behalf of the Co-Borrowers,
directing the payment of any proceeds of Loans made under this Agreement that
are to be made on the Closing Date.
(iii) Proceedings and Documents. All opinions, certificates
and other instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Lenders. The Lenders shall have received copies of all other
instruments and other evidence as the Lenders may reasonably request, in form
and substance reasonably satisfactory to the Lenders, with respect to the
transactions contemplated by this Agreement and the taking of all actions in
connection therewith.
(iv) Due Diligence and Other Documents. The Co-Borrowers and
Material Subsidiaries shall have delivered to the Administrative Agent such
other documents, certificates and opinions as the Administrative Agent
reasonably request.
SECTION 4.3 Conditions to All Loans. The obligations of the Lenders to
make any Loan and the Issuing Bank to issue, extend or renew any Letters of
Credit are subject to the satisfaction of the following conditions precedent on
the relevant borrowing date:
(i) Continuation of Representations and Warranties. The
representations and warranties contained in Article V shall be true and correct
in all material respects on and as of such borrowing date with the same effect
as if made on and as of such date except any of which speak as of a specific
date, in which event such representations and warranties shall be true and
correct in all material respects on and as of such specific date.
(ii) No Existing Default. No Default or Event of Default shall
have occurred and be continuing hereunder on the borrowing date with respect to
such Loan or after giving effect to the Loans to be made on such date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CO-BORROWERS
SECTION 5.1 Representations and Warranties. To induce the
Administrative Agent and the Lenders to enter into this Agreement and to induce
the Lenders to make the Loans and the Issuing Bank to issue, extend and renew
the Letters of Credit, the Co-Borrowers hereby jointly and severally represent
and warrant to the Administrative Agent, the Issuing Bank and the Lenders that:
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(a) Organization; Power; Qualification. Each Co-Borrower, their
Material Subsidiaries and each Guarantor is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
formation, has the power and authority to own its properties and to carry on its
business as now being conducted. Each Co-Borrower, their Material Subsidiaries
and each Guarantor is duly qualified and authorized to do business in each
jurisdiction where its business requires such qualification and authorization,
except where the failure to be so qualified and authorized to do business could
not reasonably be expected to have a Material Adverse Effect. The jurisdictions
in which the Co-Borrowers and its Material Subsidiaries are organized and
qualified to do business as of the Closing Date are described on Schedule
5.1(a). On the Closing Date the only Subsidiaries of the Co-Borrowers that are
Material Subsidiaries are Scientific Games Finance Corporation, Scientific Games
Royalty Corporation, SGIL and SG Austria.
(b) Ownership. Each Subsidiary of the Co-Borrowers as of the Closing
Date is listed on Schedule 5.1(b). As of the Closing Date, the capitalization of
the Co-Borrowers and each of its Subsidiaries consists of the number of shares,
authorized, issued and outstanding, of such classes and series, with or without
par value, described on Schedule 5.1(b). All outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. As of the
Closing Date, the shareholders of the Company and each of its Subsidiaries of
the Co-Borrowers and the number of shares owned by each are described on
Schedule 5.1(b). As of the Closing Date, there are no outstanding stock purchase
warrants, subscriptions, options, securities, instruments or other rights of any
type or nature whatsoever, which are convertible into, exchangeable for or
otherwise provide for or permit the issuance of capital stock of the
Co-Borrowers, or any of its Subsidiaries, except as described on Schedule
5.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. Each of
the Co- Borrowers and Guarantors has the right, power and authority and has
taken all necessary corporate and other action to authorize the execution,
delivery and performance of this Agreement and each of the other Loan Documents
to which it is a party in accordance with their respective terms. This Agreement
and each of the other Loan Documents have been duly executed and delivered by
the duly authorized officers of the Co-Borrowers and Guarantors and each such
Loan Document executed and delivered by a Co-Borrower or a Guarantor constitutes
the legal, valid and binding obligation of the Co-Borrowers or the Guarantor, as
the case may be, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar state or federal debtor relief laws from time to time in effect which
affect the enforcement of creditors' rights in general or by general principles
of equity.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by the Co-Borrowers and each
Guarantor of the Loan Documents to which each such Person is a party in
accordance with their respective terms, the borrowings hereunder and the
transactions contemplated hereby do not and will not, by the passage of time,
the giving of notice or otherwise, (i) except as set forth on Schedule 5.1(d)
hereto, require any Governmental Approval or violate any Applicable Law relating
to Co-Borrower or any of its Subsidiaries, (ii) conflict with, result in a
breach of or constitute a default under the articles of incorporation, bylaws or
other organizational documents of Co-Borrower or any of its Subsidiaries or any
Material Contract to which such Person is a party or by which any of its
properties may be
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bound or any Governmental Approval relating to such Person or (iii) result in or
require the creation or imposition of any Lien upon or with respect to any
material property now owned or hereafter acquired by such Person.
(e) Compliance with Law; Governmental Approvals. Each of the
Co-Borrowers and each Subsidiary (i) has all material Governmental Approvals
required by any Applicable Law for it to conduct its business and (ii) is in
material compliance with each Governmental Approval applicable to it and in
compliance with all other Applicable Law relating to it or any of its respective
properties because of the conduct of its business. Each such material
Governmental Approval is in full force and effect, is final and not subject to
review on appeal and is not the subject of any pending or, to the best knowledge
of the Co-Borrowers, threatened attack by direct or collateral proceeding,
except for such failures to be in full force and effect that could not
reasonably be expected to have a Material Adverse Effect.
(f) Tax Returns and Payments. Each of Co-Borrowers and their
Subsidiaries has duly filed or caused to be filed all federal, state, local and
other tax returns required by Applicable Law to be filed, and has paid, or made
adequate provision for the payment of, all federal, state, local and other
taxes, assessments and governmental charges or levies upon it and its property,
income, profits and assets which are due and payable, except where the payment
of such tax is being disputed in good faith and adequate reserves have been
established (if and to the extent required by GAAP). No Governmental Authority
has asserted any Lien or other claim against Co-Borrowers or any Subsidiary
thereof with respect to the payment of all material state and federal taxes
which has not been discharged or resolved or is not being disputed in good
faith. The charges, accruals and reserves on the books of Co-Borrowers and any
of its Subsidiaries in respect of federal, state, local and other taxes for all
Fiscal Years and portions thereof are in the judgment of the Co-Borrowers
adequate, and the Co-Borrowers do not anticipate any additional material taxes
or assessments for any of such years.
(g) Environmental Matters. Except as set forth on Schedule 5.1(g), the
properties of each Co-Borrower and all Subsidiaries are in compliance in all
respects with all applicable Environmental Law, and there is no contamination
at, under or about such properties or such operations which could interfere in
any respect with the continued operation of such properties or impair in any
respect the fair saleable value thereof, except for such failures to comply and
contamination that could not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 5.1(g), neither Co-Borrower nor any of
their Subsidiaries has received any written notice of material violation,
alleged violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Law with regard to any of
its properties or the operations conducted in connection therewith, nor does
either Co-Borrower nor any of its Subsidiaries have knowledge that any such
notice will be received or is being threatened.
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(h) ERISA.
(i) Neither Co-Borrower nor any ERISA Affiliate maintains or
contributes to, or has any obligation under, any Employee Benefit Plans other
than those identified on Schedule 5.1(h);
(ii) Each Co-Borrower and each ERISA Affiliate is in material
compliance with all applicable provisions of ERISA and all other laws applicable
to any Employee Benefit Plans and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans except for any required
amendments for which the remedial amendment period as defined in Section 401(b)
of the Code has not yet expired. Each Employee Benefit Plan that is intended to
be qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified, and each trust related to such plan
has been determined to be exempt under Section 501(a) of the Code. Each such
Employee Benefit Plan has been operated in a manner to preserve such
qualification. No liability has been incurred by any Co-Borrower or any ERISA
Affiliate which remains unsatisfied for any taxes or penalties with respect to
any Employee Benefit Plan or any Multiemployer Plan;
(iii) No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code) been
incurred (without regard to any waiver granted under Section 412 of the Code),
nor has any funding waiver from the Internal Revenue Service been received or
requested with respect to any Pension Plan, nor has either Co-Borrower or any
ERISA Affiliate failed to make any contributions or to pay any amounts due and
owing as required by Section 412 of the Code, Section 302 of ERISA or the terms
of any Pension Plan prior to the due dates of such contributions under Section
412 of the Code or Section 302 of ERISA, nor has there been any event requiring
any disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to
any Pension Plan;
(iv) Neither any Co-Borrower nor any ERISA Affiliate has: (A)
engaged in a nonexempt prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Code; (B) incurred any liability to the PBGC which
remains outstanding other than the payment of premiums and there are no premium
payments which are due and unpaid; (C) failed to make a required contribution or
payment to a Multiemployer Plan; or (D) failed to make a required install ment
or other required payment under Section 412 of the Code;
(v) The execution and delivery by Co-Borrowers of this
Agreement and the borrowings hereunder will not involve any prohibited
transaction under ERISA or the Code;
(vi) No Termination Event has occurred or is reasonably
expected to occur; and
(vii) No material proceeding, claim, lawsuit and/or
investigation is existing or, to the best knowledge of Co-Borrowers, threatened
concerning or involving any (A) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) maintained or contributed to by any Co-Borrower or any
ERISA Affiliate, (B) Pension Plan or (C) Multiemployer Plan.
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(i) Margin Stock. Neither Co-Borrower nor any Subsidiary thereof is
engaged principally or as one of its activities in the business of extending
credit other than in connection with any employee benefit plan for the purpose
of "purchasing" or "carrying" any "margin stock" (as each such term is defined
or used in Regulations G and U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of any of the Loans will be used for purchasing
or carrying margin stock or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation G, T, U or X of such Board of
Governors.
(j) Government Regulation. Neither Co-Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company" (as each such term is defined or used in the Investment Company Act of
1940, as amended) and neither Co-Borrower nor any Subsidiary thereof is, or
after giving effect to any Loan will be, a "Holding Company" or a "Subsidiary
Company" of a "Holding Company" or an "affiliate" of a "Holding Company" within
the respective meanings of each of the quoted terms of the Public Utility
Holding Company Act of 1935 as amended, or any other Applicable Law which
materially limits its ability to incur or consummate the transactions
contemplated hereby.
(k) Patents, Copyrights and Trademarks. Co-Borrowers and their Material
Subsidiaries own or possess all patent, copyright and trademark rights which are
required to conduct their business without infringing upon any validly asserted
rights of others. To the best knowledge and belief of Co-Borrowers, no event has
occurred which permits, or after notice or lapse of time or both would permit,
the revocation or termination of any such rights which revocation or termination
constitutes a Material Adverse Effect. Neither Co-Borrower nor any of their
Subsidiaries has been threatened with any litigation regarding patents,
copyrights or trademarks that would present a material impediment to the
business of any such Person.
(l) Material Contracts. Schedule 5.1(1) sets forth a complete and
accurate list of all contracts or other agreements, written or oral, of Holdings
or any of its Subsidiaries involving monetary liability of or to any such Person
in an amount in excess of $5,000,000 per annum in effect as of the Closing Date
not listed on any other Schedule hereto; other than as set forth in Schedule
5.1(1), each Co-Borrower and any Subsidiary thereof party thereto has performed
or is performing all of its material obligations under all Material Contracts
and, to the best knowledge of the Co-Borrowers, each other party thereto is in
substantial compliance with each Material Contract, and each Material Contract
is, and after giving effect to the consummation of the transactions contemplated
by the Loan Documents will be, in full force and effect in accordance with the
terms thereof. Each Co-Borrower and its Subsidiaries have made available on a
confidential basis for inspection by the Administrative Agent a true and
complete copy of each written contract or agreement of Holdings or any of its
Subsidiaries required to be listed on Schedule 5.1(1).
(m) Employee Relations. As of the Closing Date, each of Co-Borrowers
and their Subsidiaries is not, except as set forth on Schedule 5.1(m), party to
any collective bargaining agreement nor has any labor union been recognized as
the representative of its employees. Except as set forth on Schedule 5.1(m),
each Co-Borrower knows of no pending, threatened or contemplated strikes, work
stoppage or other collective labor disputes involving their employees or those
of its Subsidiaries that reasonably could be expected to have a Material Adverse
Effect.
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(n) Burdensome Provisions. Neither Co-Borrower nor any Subsidiary
thereof is a party to any indenture, agreement, lease or other instrument, or
subject to any corporate or partnership restriction, Governmental Approval or
Applicable Law which is so unusual or burdensome as in the foreseeable future
could reasonably be expected to have a Material Adverse Effect. Neither Co-
Borrower or its Subsidiaries presently anticipate that future expenditures
needed to meet the provisions of any statutes, orders, rules or regulations of a
Governmental Authority will be so burdensome as to have a Material Adverse
Effect.
(o) Financial Statements. All balance sheets, statements of income,
retained earnings, stockholders' equity and cash flows, and all other financial
information of Co-Borrowers and their Subsidiaries (exclusive of any financial
projection under Section 6.1(c) or otherwise) which have been furnished by each
Co-Borrower to the Administrative Agent and the Lenders for the purposes of or
in connection with this Agreement, including without limitation the financial
statements described in Section 4.2 (d), have been prepared in all material
respects in accordance with GAAP consistently applied throughout the periods
involved and present fairly in accordance with GAAP in all material respects the
matters reflected therein subject, in the case of unaudited statements, to
changes resulting from normal year-end audit adjustments and items that would be
disclosed in footnotes to the audited statements. As of the Closing Date, except
as set forth on Schedule 5.1(o), neither Co-Borrower nor any of its Subsidiaries
has any contingent liability or liability for taxes, long-term leases or unusual
forward or long-term commitments which are not reflected in the financial
statements described above or in the notes thereto.
(p) Solvency. As of the Closing Date and after giving effect to each
Loan made hereunder, each Co-Borrower and each of their Material Subsidiaries
will be Solvent.
(q) Titles to Properties. Each Co-Borrower and their Subsidiaries has
such title to the real property owned or leased by it as is necessary or
desirable to the conduct of its business and good and valid title to all of its
personal property sufficient to carry on its business as presently conducted,
except such property as has been disposed of by either Co-Borrower or its
Subsidiaries subsequent to such date which dispositions have been in the
ordinary course of business or as otherwise expressly permitted hereunder.
Schedule 5.1(q) hereto sets forth the address of all real property owned or
leased by a Borrower (and if leased, the record owner thereof).
(r) Liens. None of the properties and assets of either Co-Borrower or
any Subsidiary thereof is subject to any Lien, except in each case Permitted
Liens. No financing statement under the Uniform Commercial Code of any state
which names either Co-Borrower or any Subsidiary thereof or any of their
respective trade names or divisions as debtor and which is still in effect, has
been filed in any state or other jurisdiction and neither Co-Borrower nor any
Subsidiary thereof has signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, except to perfect Permitted Liens.
(s) Debt and Contingent Obligations. Schedule 5.1(s) is a complete and
correct listing as of the Closing Date of all Debt and Contingent Obligations of
Co-Borrowers and their Subsidiaries exceeding individually the amount of
$500,000. Each Co-Borrower and their Subsidiaries have performed and are in
material compliance with all of the terms of such Debt and
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Contingent Obligations and all instruments and agreements relating thereto, and
no default or event of default, or event or condition which with notice or lapse
of time or both would constitute such a default or event of default on the part
of either Co-Borrower or their Subsidiaries exists with respect to any such Debt
or Contingent Obligation. Schedule 5.1(s) sets forth a complete and correct
listing of all bid, performance, litigation and similar bonds or guarantees
entered into by Holdings or any of its Subsidiaries as in effect on the Closing
Date.
(t) Litigation. Except as set forth on Schedule 5.1(t), there are no
actions, suits or proceedings pending nor, to the knowledge of the Co-Borrowers,
threatened against or in any other way relating adversely to or affecting either
Co-Borrower or any Subsidiary thereof or any of their respective properties in
any court or before any arbitrator of any kind or before or by any Governmental
Authority which, if adversely determined, is reasonably likely to have a
Material Adverse Effect. Except as set forth on Schedule 5.1(t), there is no
attachment, judgment, lien, levy or order exceeding the Material Judgment Amount
that has been placed upon or assessed against either Co-Borrower or any of their
Subsidiaries and remains undischarged or unstayed.
(u) Franchise and License Fees. Each Co-Borrower and each of its
Subsidiaries have paid all material franchise, license or other fees and charges
which have become due pursuant to any Governmental Approval in respect of its
business and has made appropriate provisions as is required by GAAP for any such
fees and charges which have accrued.
(v) Absence of Defaults. No event has occurred or is continuing which
constitutes a Default or an Event of Default, or which constitutes, or which
with the passage of time or giving of notice or both would constitute, a default
or event of default by either Co-Borrower or any Subsidiaries thereof under any
Material Contract or material judgment, decree or order of a court of competent
jurisdiction to which either Co-Borrower or its Subsidiaries is a party or by
which either Co-Borrower or their Subsidiaries or any of their respective
properties may be bound or which would require either Co-Borrower or their
Subsidiaries to make any payment thereunder prior to the scheduled maturity date
therefor.
(w) Accuracy and Completeness of Information. All written information,
reports and other papers and data produced by or on behalf of either Co-Borrower
or any of their Subsidiaries thereof and furnished to the Lenders were, at the
time the same were so furnished, complete and correct in all material respects.
No document furnished or written statement made to the Administrative Agent or
the Lenders by either Co-Borrower or any Subsidiary thereof in connection with
the negotiation, preparation or execution of this Agreement or any of the Loan
Documents contains or will, when considered as a whole, contain any untrue
statement of a fact material to the creditworthiness of Co-Borrower or its
Subsidiaries or omits or will omit to state a material fact necessary in order
to make the statements contained therein not misleading. Neither Co-Borrower is
aware of any facts which it has not disclosed in writing to the Administrative
Agent having a Material Adverse Effect, or insofar as either Co-Borrower can now
foresee, could reasonably be expected to have a Material Adverse Effect.
(x) Year 2000. The Co-Borrowers have (i) undertaken a sufficient
inventory, review and assessment of all areas within their business and
operations that could be adversely affected by the
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failure of the Co-Borrowers to be Year 2000 Compliant on a timely basis, (ii)
developed a plan and timeline for becoming Year 2000 Compliant on a timely
basis, (iii) to date, implemented that plan in accordance with that timeline in
all material respects, and (iv) made inquiry of its key suppliers, vendors and
customers as to whether such person(s) will, on a timely basis, be Year 2000
Compliant in all material respects and on the basis of such inquiry reasonably
believes that all such person(s) will be Year 2000 Compliant. "Year 2000
Compliant" shall means that, in all material respects, all computer and software
related applications shall be able to recognize and perform properly, date
sensitive functions involving dates prior to and after December 31, 1999. The
Co-Borrowers shall take all action reasonably necessary to ensure that the
Borrowers shall be Year 2000 Compliant and that no material adverse change will
arise in the Co-Borrowers' financial condition as a result of its efforts or
failure to be Year 2000 Compliant.
(y) No Material Adverse Change. Since December 31, 1998, there shall
not have occurred any event or condition (other than matters of general economic
or political nature) that has had or is reasonably likely to have a Material
Adverse Effect.
SECTION 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate or in any of the
Loan Documents (including without limitation, any such representation or
warranty made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement (a) shall be made or deemed to be made
at and as of the Closing Date, as of each borrowing date and as of the date of
the issuance, renewal or extension of each Letter of Credit with the same effect
as if made on and as of the Closing Date, except to the extent that such
representations and warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct on and as
of such earlier date, and (b) shall survive the Closing Date and shall not be
waived by the execution and delivery of this Agreement, any investigation made
by or on behalf of the Lenders or any borrowing hereunder.
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES
Until payment in full of the Obligations and termination of the
Commitments, unless consent has been obtained in the manner set forth in Section
12.10 hereof, the Co-Borrowers will furnish or cause to be furnished to the
Administrative Agent and each Lender at their respective addresses set forth in
Section 12.1 hereof, or such other address as may be designated by such
Administrative Agent or Lenders from time to time:
SECTION 6.1 Financial Statements and Projections.
(a) Quarterly Financial Statements. As soon as practicable and in any
event no later than forty-five (45) days after the end of each fiscal quarter,
an unaudited Consolidated and consolidating balance sheet of each Holdings and
the Subsidiaries as of the close of such fiscal quarter and
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unaudited Consolidated and consolidating statements of income, retained earnings
and cash flows for the fiscal quarter then ended and that portion of the Fiscal
Year then ended, including the notes thereto, all in reasonable detail setting
forth in comparative form the corresponding budgeted figures for the portion of
the Fiscal Year then ended and the corresponding figures for the preceding
Fiscal Year for the portion of the Fiscal Year then ended and prepared by in
accordance with GAAP, and certified by the chief financial officer of Holdings
to present fairly in all material respects the financial condition of Holdings
and its Subsidiaries as of their respective dates and the results of operations
of Holdings and its Subsidiaries for the respective periods then ended.
(b) Annual Financial Statements. As soon as practicable and in any
event no later than ninety (90) days after the end of each Fiscal Year, an
unaudited consolidating balance sheet of Holdings and Subsidiaries and an
audited Consolidated balance sheet of Holdings and Subsidiaries as of the close
of such Fiscal Year and audited Consolidated statements of income, retained
earnings and cash flows for the Fiscal Year then ended, including the notes
thereto, all in reasonable detail setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and prepared by an
independent certified public accounting firm of nationally recognized standing
in accordance with GAAP, and accompanied by a report thereon by such certified
public accountants that is not qualified with respect to scope limitations
imposed by either Co-Borrower or any of their Subsidiaries or with respect to
accounting principles followed by Co-Borrowers or any of their Subsidiaries not
in accordance with GAAP.
(c) Annual Business Plan and Financial Projections. As soon as
practicable and in any event within sixty (60) days after the beginning of each
Fiscal Year, a business plan of Co-Borrowers and their Material Subsidiaries for
the ensuring four fiscal quarters, such plan to include, on a quarterly basis,
the following: a quarterly operating and capital budget, a projected income
statement, statement of cash flows and balance sheet and a report containing
management's discussion and analysis of such projections (such business plan and
projections, the "Projections"), accompanied by a certificate from the chief
financial officer of each Co-Borrowers to the effect that, to the best of such
officer's knowledge, the Projections are good faith estimates of the financial
condition and operations of each Co-Borrowers and their Subsidiaries for such
four quarter period.
SECTION 6.2 Officer's Compliance Certificate At each time financial
statements are delivered pursuant to Sections 6.1(a) or (b), a certificate of
the chief financial officer of each Co- Borrower in the form of Exhibit D
attached hereto (an "Officer's Compliance Certificate"):
(a) stating that such officers have reviewed such financial statements
and such statements fairly present the financial condition of each Co-Borrower
and their Subsidiaries as of the dates indicated and the results of their
operations and cash flows for the periods indicated;
(b) stating that to such officer's knowledge, based on a reasonable
examination, no Default or Event of Default exists, or, if such is not the case,
specifying such Default or Event of Default and its nature, when it occurred,
whether it is continuing and the steps being taken by the Co-Borrowers with
respect to such Default or Event of Default;
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(c) setting forth as at the end of such fiscal quarter or Fiscal Year,
as the case may be, the calculations required to establish whether or not each
Co-Borrower and their Subsidiaries were in compliance with the financial
covenants set forth in Article VIII hereof as at the end of each respective
period and the Applicable Margin pursuant to Section 3.1(c) as at the end of
each respective period;
(d) setting forth as at the end of such Fiscal Year (or, upon the
request of the Administrative Agent in its sole discretion, as at the end of
such fiscal quarter), for each corporation, partnership, or other entity in
which either or both Co-Borrowers has any ownership interest at the end of such
period, the Cash Flow Percentage for such entity for the consecutive four
quarter period ending on such Fiscal Year end (or, as requested by the
Administrative Agent, fiscal quarter end); and
(e) stating all amounts outstanding under each outstanding Foreign
Subsidiary Note, as of the end of such fiscal quarter or Fiscal Year, as the
case may be.
SECTION 6.3 Other Certificates and Reports
(a) At each time financial statements are required to be delivered
pursuant to Sections 6.1 (a) or (b), a certificate of the chief financial
officer in such form as the Administrative Agent may require setting forth the
Assigned Dollar Value as of the end of the fiscal quarter (but calculated using
the Spot Exchange Rate as of such date) of all Foreign Currency Loans
outstanding at such fiscal quarter end;
(b) Promptly upon receipt thereof, copies of any management report and
any management responses thereto submitted to any Co-Borrower or their Board of
Directors by their independent public accountants in connection with their
auditing function;
(c) Promptly after a request therefor, such other information regarding
the operations, business affairs and financial condition of each Co-Borrower or
any of their Subsidiaries as the Administrative Agent or any Lender may
reasonably request;
(d) Promptly upon filing or receipt of any filing made with the SEC by
or with respect to Holdings or any of its Subsidiaries pursuant to Section 13 or
15(d) of the Exchange Act, copies of the same, and copies of all notices and
proxy and other information provided by Holdings to its shareholders;
(e) At each time financial statements are required to be delivered
pursuant to Section 6.1(b) a listing setting forth as of the end of such Fiscal
Year all Material Contracts constituting lottery or promotional game customer
contracts; and
(f) At each time financial statements are required to be delivered
pursuant to Section 6.1(a), a report setting forth bid activity (and specifying
bids won and lost) in respect of all lottery and promotional game contracts or
other agreements, written or oral, bid upon by Co-Borrowers or any of their
Subsidiaries and involving revenue to Co-Borrowers or any of their Subsidiaries
of
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$5,000,000 or more over the stated life of such contract or agreement,
substantially in the form of Exhibit M.
SECTION 6.4 Notice of Litigation and Other Matters. Promptly (but in no
event later than ten (10) days after a Responsible Officer of any Co-Borrower or
Guarantor obtains actual knowledge thereof) give telephonic and written notice
of:
(a) the commencement of all material proceedings and investigations by
or before any Governmental Authority and all material actions and proceedings in
any court or before any arbitrator against or involving either Co-Borrower or
any Subsidiary thereof or any of their respective properties, assets or
businesses;
(b) any notice of any material violation received by either Co-Borrower
or any Subsidiary thereof from any Governmental Authority, including without
limitation, any notice of a material violation of Environmental Law;
(c) any labor controversy that has resulted in, or could reasonably be
expected to result in, a strike or other work action against either Co-Borrower
or any Subsidiary thereof;
(d) any attachment, judgment, lien, levy or order exceeding the
Material Judgment Amount that may be placed upon or assessed against either
Co-Borrower or any of their Subsidiaries;
(e) any Default or Event of Default, or any event, of which a
Responsible Officer has actual knowledge, which constitutes or which with the
passage of time or giving of notice or both would constitute a default or event
of default under any Material Contract to which either Co-Borrower or any of
their Subsidiaries is a party or by which either Co-Borrower or any Subsidiary
thereof or any of their respective properties may be bound;
(f) (i) the failure of either Co-Borrower or any ERISA Affiliate to
make a required installment or payment under Section 302 of ERISA or Section 412
of the Code by the due date, (ii) any Termination Event or "prohibited
transaction," as such term is defined in Section 406 of ERISA or Section 4975 of
the Code, in connection with any Employee Benefit Plan or any trust created
thereunder, along with a description of the nature thereof, what action such
Co-Borrower has taken, is taking or proposes to take with respect thereto and,
when known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, (iii) all notices received
by either Co-Borrower or any ERISA Affiliate of the PBGC's intent to terminate
any Pension Plan or to have a trustee appointed to administer any Pension Plan,
(iv) all notices received by any Borrower or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA, (v) any Borrower obtaining
knowledge or reason to know that either Co-Borrower or any ERISA Affiliate has
filed or intends to file a notice of intent to terminate any Pension Plan under
a distress termination within the meaning of Section 4041(c) of ERISA, and (vi)
the requirement to file any notice with the Internal Revenue Service, Department
of Labor, PBGC or any plan participant, beneficiary or alternate payee required
under Sections 101(d), 302(f)(4), 303 and 307 of ERISA or
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under Section 401(a)(29) of the Code with respect to any Employee Benefit Plan
of either Co- Borrower or any ERISA Affiliate; or
(g) any event which makes any of the representations set forth in
Section 5.1 inaccurate in any material respect.
SECTION 6.5 Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of either
Co-Borrower to the Administrative Agent or any Lender whether pursuant to this
Article VI or any other provision of this Agreement, or any of the Loan
Documents, shall be, at the time the same is so furnished, complete and correct
in all material respects based on the applicable Co-Borrower's knowledge
thereof.
SECTION 6.6 Notice of Demand for Reimbursement, etc. Promptly (but in
no event later than three (3) Business Days) after any demand or request is made
against any Co-Borrower or any of its Subsidiaries for reimbursement or
repayment of any drawing or payments under or pursuant to any bid, performance,
litigation and similar bonds or guarantees entered into in the ordinary course
of business that individually, or in the aggregate for all such bonds or
guarantees, exceeds $5,000,000, Co-Borrowers shall give the Administrative Agent
written notice of each such request for reimbursement or repayment thereof,
together with (i) pro forma financial statements prepared based upon the most
recent quarterly or annual financial statements required to be delivered to the
Administrative Agent pursuant to Section 6.1 hereof and adjusted to reflect the
financial impact of the reimbursement of such bonds and guarantees and, if
unreimbursed, such unreimbursed portion of such bonds and guarantees shall be
counted as Debt, and (ii) an Officer's Compliance Certificate demonstrating on a
pro forma basis, after giving effect to the adjustments as required in the
immediately preceding clause (i), compliance with the financial covenants set
forth in Article VIII hereof as of the date of required delivery of said
certificate.
ARTICLE VII
AFFIRMATIVE COVENANTS
Until payment in full of the Obligations and termination of the
Commitments, unless consent has been obtained in the manner provided for in
Section 12.10, each Co-Borrower will, and will cause each of their Subsidiaries
to:
SECTION 7.1 Preservation of Corporate Existence and Related Matters.
Except as permitted by Section 9.5, preserve and maintain its separate corporate
existence and all material rights, franchises, licenses and privileges necessary
to the conduct of its business, and qualify and remain qualified as a foreign
corporation and authorized to do business in each jurisdiction where it is doing
business so as to require such qualification and authorization.
SECTION 7.2 Maintenance of Property. Take commercially reasonable
actions to protect and preserve all material properties useful in and material
to its business, including material copyrights, patents, trade names and
trademarks; maintain in good working order and condition (reasonable wear and
tear excepted) all buildings, equipment and other tangible real and personal
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property; and from time to time make or cause to be made all renewals,
replacements and additions to such property necessary in the reasonable
judgement of such Co-Borrower for the conduct of its business, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
SECTION 7.3 Insurance. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law, and on the Closing Date and from time to time thereafter deliver
on a confidential basis to the Administrative Agent upon its request a detailed
list of the insurance then in effect, stating the names of the insurance
companies, the amounts and rates of the insurance, the dates of the expiration
thereof and the properties and risks covered thereby.
SECTION 7.4 Accounting Methods and Financial Records. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete in all material respects) as may be required or as may be necessary
to permit the preparation of financial statements in accordance with GAAP and in
compliance with the regulations of any Governmental Authority having
jurisdiction over it or any of its properties.
SECTION 7.5 Payment and Performance of Obligations. Pay and perform all
Obligations under this Agreement and the other Loan Documents, subject to notice
and cure provisions, and pay or perform (i) all taxes, assessments and other
governmental charges that may be levied or assessed upon it or any of its
property, and (ii) all other indebtedness, obligations and liabilities in
accordance with customary trade practices; provided, however, that each
Co-Borrower and its Subsidiaries may contest or dispute any item described in
clauses (i) and (ii) hereof in good faith so long as adequate reserves are
maintained with respect thereto in accordance with GAAP.
SECTION 7.6 Compliance With Laws and Approvals. In jurisdictions where
doing business, observe and remain in material compliance with all Applicable
Law and maintain in full force and effect all material Governmental Approvals,
in each case applicable or necessary to the conduct of its business.
SECTION 7.7 Environmental Law. In addition to and without limiting the
generality of Section 7.6, (i) comply in all material respects with, and use
commercially reasonable efforts to ensure such compliance by all of its tenants
and subtenants, if any, with, all applicable Environmental Law and obtain and
comply with and maintain, and use commercially reasonable efforts to ensure that
all of its tenants and subtenants obtain and comply with and maintain, any and
all material licenses, approvals, notifications, registrations or permits
required by applicable Environmental Law, provided, that allegations of
noncompliance may be contested in good faith by reasonable procedures so long as
the failure to comply would not reasonably be expected to result in a Material
Adverse Effect; (ii) conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Law, and timely comply with all lawful orders and directives of
any Governmental Authority regarding Environmental Law; and (iii) defend,
indemnify and hold harmless the Administrative Agent and the Lenders, and their
respective parents, Subsidiaries, Affiliates, employees, agents, officers and
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directors, from and against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to the
violation of, noncompliance with or liability under any Environmental Law
applicable to the operations of such Co-Borrower or its Subsidiaries, or any
orders, requirements or demands of Governmental Authorities related thereto,
including, without limitation, reasonable attorney's and consultant's fees,
investigation and laboratory fees, response costs, court costs and litigation
expenses, except to the extent that any of the foregoing arise out of or relate
to the breach of law, gross negligence or willful misconduct of any party who
would otherwise be entitled to indemnification therefor.
SECTION 7.8 Compliance with ERISA and the Code. In addition to and
without limiting the generality of Section 7.6, make timely payment of
contributions required to meet the minimum funding standards set forth in ERISA
or the Code with respect to any Employee Benefit Plan; not take any action or
fail to take action the result of which could be a material liability to the
PBGC or to a Multiemployer Plan; not participate in any prohibited transaction
that could result in any material civil penalty under ERISA or material tax
under the Code; furnish to the Administrative Agent upon the Administrative
Agent's request such additional information about any Employee Benefit Plan as
may be reasonably requested by the Administrative Agent; and operate each
Employee Benefit Plan in such a manner that such plan would not reasonably be
expected to incur any material tax liability under Section 4980B of the Code or
any material liability to any qualified beneficiary as defined in Section 4980B
of the Code.
SECTION 7.9 Compliance With Agreements. Comply in all material respects
with each term, condition and provision of all material leases, agreements and
other instruments entered into in the conduct of its business including, without
limitation, any Material Contract in each instance in which failure to comply
could reasonably be expected to have a Material Adverse Effect, provided, that
whether or not failure to comply could reasonably be expected to have a Material
Adverse Effect, each Co-Borrower and its Subsidiaries shall always attempt in
good faith to comply in all material respects with all such leases, agreements,
and other instruments.
SECTION 7.10 Conduct of Business. The Company will not, and will not
permit any Material Subsidiary to, engage in any business other than a Permitted
Business, except to such extent as would not be material to the Company and its
Material Subsidiaries, taken as a whole, provided, however, that the Company and
any Material Subsidiary also may engage in a business other than a Permitted
Business, so long as such non-Permitted Business is acquired in connection with
the acquisition of a Permitted Business and such non-Permitted Business is held
for disposition and disposed of within 365 days of its acquisition.
SECTION 7.11 Visits and Inspections. Upon reasonable prior notice
therefrom and during normal business hours, permit representatives of any of the
Administrative Agent or Lenders, from time to time, in each case subject to
reasonable security procedures, (i) to visit and inspect its properties; (ii)
inspect, audit and make extracts from its books, records and files, including,
but not limited to, management letters prepared by independent accountants; and
(iii) discuss with its principal officers, and its independent accountants, its
business, assets, liabilities, financial condition, results of operations and
business prospects.
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SECTION 7.12 Subsidiaries. Co-Borrowers and their Subsidiaries may
acquire new Subsidiaries or form new Subsidiaries and use such Subsidiaries to
acquire any business permitted under Section 7.10 or a substantial portion of
the assets of any Person or to enter into and perform any contract involving the
conduct of business permitted by Section 7.10, subject to the provisions of this
Section 7.12 and to the other terms of this Agreement and so long as any such
acquisition is a Permitted Acquisition under Section 9.4(x). Unless a new
Subsidiary is, as a part of an acquisition transaction, merged upon the
consummation thereof into one of the Co-Borrowers with such Co-Borrower being a
surviving entity, then the Co-Borrowers shall cause each new Subsidiary, which
is a Material Subsidiary or a Guarantor, to cause to be executed and delivered
to the Administrative Agent: (i) unless the new Subsidiary is a foreign
Subsidiary for which the Company has established that there is a Deemed
Distribution Event, in which case the Subsidiary will execute a Limited Foreign
Guaranty, a Joinder Agreement and the documents referred to therein, (ii) such
other documents reasonably requested by the Administrative Agent consistent with
the terms of this Agreement which provide that such Subsidiary shall become
bound by all of the terms, covenants and agreements contained in the Loan
Documents and (iii) such other documents as the Administrative Agent shall
reasonably request, including without limitation, officers' certificates,
financial statements, opinions of counsel, board resolutions, charter documents,
certificates of existence and authority to do business and any other closing
certificates and Loan Documents described in Section 4.2.
As soon as practicable upon any corporation, partnership or other
entity's becoming a Material Subsidiary, the corporation, partnership, or other
entity, unless it is an entity for which the Company has established that there
is a Deemed Distribution Event, in which case the entity will execute a Limited
Foreign Guaranty, will execute (i) a Joinder Agreement and the documents
referred to therein, (ii) such other documents reasonably requested by the
Administrative Agent consistent with the terms of this Agreement which provide
that such entity shall become bound by all of the terms, covenants and
agreements contained in the Loan Documents and (iii) such other documents as the
Administrative Agent shall reasonably request, including without limitation,
officers' certificates, financial statements, favorable opinions of counsel,
board resolutions, charter documents, certificates of existence and authority to
do business and any other closing certificates and Loan Documents described in
Section 4.2.
SECTION 7.13 Further Assurances. Make, execute and deliver all such
additional and further acts, things and instruments as any Agent or Lender may
reasonably require to and consummate the transactions contemplated hereby and to
vest completely in and insure each Agent and the Lenders their respective rights
under this Agreement, the Notes and the other Loan Documents.
SECTION 7.14 Year 2000 Compatibility. Promptly and in no event later
than December 31, 1999, take all action necessary to ensure that Co-Borrowers'
computer based systems are able to operate and effectively process data
including dates on and after December 31, 1999. At the request of the
Administrative Agent, Co-Borrowers shall provide the Administrative Agent and
Lenders assurances in form and substance satisfactory to the Administrative
Agent and Lenders of Co-Borrowers' year 2000 compatibility.
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ARTICLE VIII
FINANCIAL COVENANTS
Until payment in full of the Obligations and termination of the
Commitments, unless consent has been obtained in the manner set forth in Section
12.10 hereof, Holdings and its Subsidiaries on a Consolidated basis will not:
SECTION 8.1 Leverage Ratio. As of any fiscal quarter end and as of the
date that any Officer's Compliance Certificate is required to be delivered
pursuant to Section 6.6 hereof, permit the Leverage Ratio to exceed fifty
percent (50%).
SECTION 8.2 Fixed Charge Coverage Ratio. At each fiscal quarter end and
as of the date that any Officer's Compliance Certificate is required to be
delivered pursuant to Section 6.6 hereof, permit the Fixed Charge Coverage Ratio
for Holdings and its Subsidiaries for the four quarter period consisting of such
quarter and the immediately preceding three quarters to be less than 3.00 to
1.00.
ARTICLE IX
NEGATIVE COVENANTS
Until payment in full of the Obligations and termination of the
Commitments, unless consent has been obtained in the manner set forth in Section
12.10 hereof, each Co-Borrower will not and will not permit any of their
Subsidiaries to:
SECTION 9.1 Limitations on Debt. Create, incur, assume or suffer to
exist any Debt except (i) the Obligations, (ii) Debt set forth on Schedule 9.1,
and renewals, refinancings or extensions thereof in principal amount not in
excess of that outstanding as of the date of such renewal, refinancing or
extension and having the terms, collateral and guarantors not materially less
favorable to Co-Borrowers, taken as a whole, than as the renewed Debt, (iii)
Debt consisting of Contingent Obligations permitted by Section 9.2, (iv) Debt of
any Co-Borrower or Guarantor to any other Co-Borrower or Guarantor, but only if
such Debt is subordinated to the Obligations pursuant to the terms and
conditions of the Intercompany Subordination Agreement, (v) Debt that may be
payable with respect to hedging agreements entered into in order to manage
existing or anticipated interest rate, exchange rate or commodity price risks
and not for speculative purposes; (vi) Debt and obligations owing under
documentary letters of credit generally; (vii) Debt in the principal amount of
up to $25,000,000 incurred by Co-Borrowers under the 364-Day Revolving Credit
Agreement, (viii) Debt incurred by Co-Borrowers under the Existing Letter of
Credit and Reimbursement Agreement, (ix) Debt not in excess of Fifteen Million
Dollars ($15,000,000), constituting real estate financing incurred in connection
with the construction of certain new facilities of Scientific Games
International Limited so long as the scheduled maturity of such Debt is after
the Revolver Facility Termination Date ("Real Estate Financing Debt"), and (x)
other Debt that, together with any Real Estate Financing Debt permitted to be
incurred pursuant to clause (ix) above, is not in excess of
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twenty Million Dollars ($20,000,000). Each of the categories of Permitted Debt
referred to in clauses (i) through (x) above is cumulative and independent of
each other category.
SECTION 9.2 Limitations on Contingent Obligations. Other than as
provided in Schedule 9.2, or as otherwise permitted by Section 9.1 (including
any guarantee by Holdings or any of its Subsidiaries of (i) any Real Estate
Financing Debt, (ii) any obligations of any Co-Borrower or any of their
Subsidiaries under the 364-Day Credit Agreement or the Existing Letter of Credit
and Reimbursement Agreement), create, incur, assume or suffer to exist any
Contingent Obligations, except Contingent Obligations arising under hedging
agreements entered into in order to manage existing or anticipated interest
rate, exchange rate or commodity price risks and not for speculative purposes.
SECTION 9.3 Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties (including
shares of capital stock), real or personal, whether now owned or hereafter
acquired, except Permitted Liens, including those set forth on Schedule 9.3.
SECTION 9.4 Limitations on Loans, Advances, Investments and
Acquisitions.
(a) Allow its aggregate loans, investments (measured at the time of
the making of the investments), and interests (measured at the time of obtaining
the interests) in other than Material Subsidiaries that are Guarantors to exceed
at any time an amount equal to ten percent (10%) of the then Consolidated
shareholders equity of Holdings.
(b) Except as provided in subsections (i) through (xi) below,
purchase, own, invest in or otherwise acquire, directly or indirectly, any
capital stock, interests in any partnership or joint venture, evidence of Debt
or other obligation or security, substantially all or a material portion of the
business or assets of any other Person or any other investment or interest
whatsoever in any other Person; or make or permit to exist, directly or
indirectly, any loans, advances or extensions of credit to, or any investment in
cash or by delivery of property in, any Person; or enter into, directly or
indirectly, any commitment or option in respect of the foregoing:
(i) investments in Material Subsidiaries that are Guarantors and
the other existing loans, advances and investments described
on Schedule 9.4 (other than existing loans, advances and
investments in SG Austria, which shall be permitted only to
the extent provided for in clause (xi) below);
(ii) investments in (A) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or
any agency thereof (or if the investment is made by a foreign
Subsidiary, by the government or agency thereof of the country
in which such funds, instruments or obligations are
denominated) ("Government Securities") maturing within one
(1) year from the date of acquisition thereof, (B) commercial
paper maturing no more than 120 days from the date of creation
thereof and currently having the highest rating obtainable
from either Standard & Poor's Corporation, Moody's Investors
Service, Inc., or Fitch's Investors
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Services, Inc., (C) certificates of
deposit issued by bankers' acceptances of, and reverse
repurchase agreements covering Government Securities issued
by, any Lender or any other commercial bank incorporated under
the laws of the United States of America or any state thereof
(or, if the investment is made by a foreign Subsidiary, by the
government or agency thereof in which such funds, instruments
or obligations, as the case may be are denominated, if any),
each having combined capital, surplus and undivided profits of
not less than $500,000,000 and having, in the case of
institutions organized in the United States, a rating of "A"
or better by a nationally recognized rating agency; provided,
that the aggregate amount invested in such certificates of
deposit shall not at any time exceed $5,000,000 for any one
such certificate of deposit and $10,000,000 for any one such
bank, or (D) demand or time deposits maturing no more than one
year from the date of creation thereof with commercial banks
or savings banks or savings and loan associations each having
membership either in the Federal Deposit Insurance Corporation
("FDIC") or the deposits of which are insured by the FDIC and
in amounts not exceeding the maximum amounts of insurance
thereunder;
(iii) investments in either Co-Borrowers or Material Subsidiaries
created or acquired after the Closing Date; provided, that
such Material Subsidiaries become Guarantors hereunder
pursuant to the requirements of Section 7.12 hereof;
(iv) loan and advances to officers, directors and employees of one
or more of the Co-Borrowers or their Subsidiaries in an
aggregate amount not to exceed $2 million at any time
outstanding;
(v) deposits for utilities, security deposits, leases and similar
prepaid expenses incurred in the ordinary course of business;
(vi) trade accounts created in the ordinary course of business;
(vii) shares of money market funds, including those of one or more
of the Lenders, that invest solely in permitted investments of
the kinds described in clause (ii) above;
(viii) investments consisting of hedging agreements as permitted
under Section 9.1;
(ix) investments received in connection with the settlement of
litigation or in settlement of delinquent obligations of, and
other disputes with, customers and suppliers arising in the
ordinary course of business or in connection with the
bankruptcy or reorganization of any Person;
(x) investments by either Co-Borrower or any Subsidiary in the
form of acquisitions of all or substantially all of the
business or a line of business (whether by the acquisition of
capital stock, assets or any combination thereof) of any other
Person so long as each of the following conditions are met:
(A) (I) the acquisition does not result in Holdings or any of
its Material Subsidiaries engaging in any business other
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than a Permitted Business, except as otherwise permitted
pursuant to Section 7.10 hereof, (B) no Default or Event of
Default is in existence at the time of such acquisition or
would be created as a consequence of such acquisition, (C)
Co-Borrowers shall have furnished to the Administrative Agent
an Officer's Compliance Certificate demonstrating, on a pro
forma basis after giving effect to the consummation of the
subject acquisition, compliance with the financial covenants
contained in Article VIII of this Agreement, and (D)
Co-Borrowers shall promptly deliver to the Administrative
Agent such other documents and information as the
Administrative Agent shall reasonably request. Each
acquisition consummated in accordance with the provisions of
this subsection 9.4(b)(x) shall be referred to as a "Permitted
Acquisition"; and
(xi) investments in the form of loans, advances or extensions of
credit by either Co-Borrower to SG Austria so long as (i) the
aggregate amount of all such investments does not at any time
exceed $12,000,000, and (ii) each such loan, advance or
extension of credit is evidenced by a promissory note which
has been duly executed by SG Austria and pledged to the
Administrative Agent pursuant to the Note Pledge Agreement.
SECTION 9.5 Limitations on Mergers and Liquidation. Merge, consolidate
or enter into any similar combination with any other Person or liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution) except (i)
any Co-Borrowers or any Material Subsidiary of either Co-Borrower that is a
Guarantor may merge with either Co-Borrower or any other Material Subsidiary of
either Co-Borrower that is a Guarantor and (ii) any Material Subsidiary may
merge with or into any other Person for the purpose of consummating any
acquisition permitted by Section 9.4 as long as either a Co-Borrower or a
Material Subsidiary that is a Guarantor is the surviving Person and no Default
or Event of Default shall have occurred before and after giving effect to such
merger.
SECTION 9.6 Limitations on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:
(i) the sale of inventory in the ordinary course of business;
(ii) the sale of investments in the ordinary course of business;
(iii) the sale of obsolete or surplus assets no longer used or usable
in the business of either Co-Borrower or any of its Subsidiaries or as
otherwise permitted by Section 7.2;
(iv) the sale or discount without recourse of Receivables arising in
the ordinary course of business in connection with the compromise or collection
thereof;
(v) the sale by any Co-Borrower or any Subsidiary of any of its
property to any Co-Borrower or to any Subsidiary which is or becomes a
Guarantor; or
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(vi) the sale of property and assets not contemplated by the foregoing
clauses, which, when added to other sales of property and assets in the same
Loan Year, were not conveyed for total gross consideration of more than twenty
million Dollars ($20,000,000) and which, when added to other sales of property
and assets since the Closing Date, were not for total gross consideration
payable of more than twenty-five million Dollars ($25,000,000).
SECTION 9.7 Transactions with Affiliates. Except as otherwise permitted
by Section 9.4(b)(iv), directly or indirectly: (i) make any loan or advance to,
or purchase or assume any note or other obligation to or from, any of its
officers, directors, shareholders or other Affiliates, or to or from any member
of the immediate family of any of its officers, directors, shareholders or other
Affiliates, or (ii) enter into, or be a party to, any transaction with any of
its Affiliates, except (A) upon fair and reasonable terms that are fully
disclosed to the Required Lenders and are no less favorable to it than it would
obtain in a comparable arm's length transaction with a Person not its Affiliate,
or (B) transactions between Co-Borrowers and any Material Subsidiary or other
Guarantor or between Material Subsidiaries or Guarantors, or (C) any employee or
director compensation arrangement of the Co-Borrowers or their Subsidiaries
which has been approved by a majority of Holdings' disinterested directors. No
director shall be deemed not to be a "disinterested director" by reason of his
or her receipt of normal directors fees or participation in director benefit
plans, including, without limitation, director stock grant or stock option
plans, deferred compensation plans or other forms of director remuneration as
shall be reasonable and customary.
SECTION 9.8 Certain Accounting Changes. Change its Fiscal Year end, or
make any material change in its accounting treatment and reporting practices
except as required by GAAP.
SECTION 9.9 Licenses. Terminate any Governmental Approval or any
Material Contract unless the Board of Directors of the Co-Borrower or Subsidiary
proposing to effect the termination has determined that such termination would
not have a Material Adverse Effect.
SECTION 9.10 Restrictive Agreements. Except as to any Debt permitted by
clauses (vii), (viii) and (x) of Section 9.1 of this Agreement, enter into (i)
any agreement providing for Debt of either Co-Borrower or their Subsidiaries
which contains any negative pledge on assets or any covenants materially more
restrictive than the provisions of this Agreement hereof, or which restricts,
limits or otherwise encumbers its ability to incur Liens on or with respect to
any of its assets or properties other than the assets or properties securing
such Debt, or (ii) any agreement other than a Permissible Restrictive Agreement
which shall restrict, limit or otherwise encumber (by covenant or otherwise) the
ability to make any payment to either Co-Borrower or any of their Subsidiaries,
in the form of dividends, intercompany advances or otherwise.
ARTICLE X
DEFAULT AND REMEDIES
SECTION 10.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be
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effected by operation of law or pursuant to any judgment or order of any court
or any order, rule or regulation of any Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans. Either Co-Borrower shall
default in any payment of principal of any Loan or Note when and as due (whether
at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. Either Co-Borrower shall fail to pay
interest on any Loan or Note or any fee or any other Obligation within five
Business Days of the date the same shall be due.
(c) Misrepresentation. Any representation or warranty made or deemed to
be made by either Co-Borrower or any of its Subsidiaries under this Agreement,
any Loan Document or any amendment hereto or thereto, shall at any time prove to
have been incorrect or misleading in any material respect when made or deemed
made.
(d) Default in Performance of Certain Covenants. There shall be a
default in the performance or observance of any covenant or agreement contained
in Sections 6.4, 7.1, 7.11, 7.12 or Articles VIII or IX of this Agreement (other
than a default caused by a reduction or downgrade in the ratings required for
investments under Section 9.4(b)(ii) after the investments have been made, so
long as the investments have been fully disposed of within ten (10) Business
Days after the reduction or downgrade).
(e) Default in Performance of Other Covenants and Conditions. Either
Co-Borrower or Subsidiary thereof shall default in the performance or observance
of any term, covenant, condition or agreement contained in this Agreement (other
than as specifically provided for otherwise in this Section 10.1) or any other
Loan Document and such default shall continue for a period of ten (10) days
after written notice thereof has been given to such Co-Borrower or Subsidiary by
the Administrative Agent.
(f) Debt Cross-Default. Either Co-Borrower or any of its Subsidiaries
shall (i) default in the payment of any Debt (exceeding five million
($5,000,000) in outstanding principal amount) beyond the period of grace, if
any, provided in the instrument or agreement under which such Debt was created;
or (ii) default in the observance or performance of any other agreement or
condition relating to any Debt (exceeding five million ($5,000,000) in
outstanding principal amount) or contained in any instrument or agreement
evidencing, securing or relating thereto or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Debt (or a trustee or agent on
behalf of such holder or holders) to cause, with the giving of notice if
required, any such Debt to become due prior to its stated maturity (any
applicable grace period having expired).
(g) Other Cross-Defaults. Either Co-Borrower or any of their
Subsidiaries shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any Material Contract the breach
of which could reasonably be expected to have a Material Adverse Effect unless,
but only as long as, the existence of any such default is being contested by
such Co-
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Borrower or such Subsidiary in good faith by appropriate proceedings and
adequate reserves in respect thereof have been established on the books of or
such Subsidiary to the extent required by GAAP. There shall have occurred an
event of default under either (i) the 364-Day Revolving Credit Agreement and
such event of default shall not have been waived by the requisite lenders under
Co-Borrower's 364-Day Revolving Credit Agreement, or (ii) the Existing Letter of
Credit and Reimbursement Agreement and such event of default shall not have been
waived by the issuing bank under the Existing Letter of Credit and Reimbursement
Agreement.
(h) Change in Control. A Change in Control shall occur.
(i) Voluntary Bankruptcy Proceeding. Either Co-Borrower or any
Subsidiary thereof shall (i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect); (ii) file a petition seeking to
take advantage of any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition for adjustment of debts;
(iii) consent to or fail to contest within sixty (60) days of the filing thereof
any petition filed against it in an involuntary case under such bankruptcy laws
or other laws; (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial part
of its property; (v) fail or admit in writing its failure or inability to pay
its debts as they become due; (vi) make a general assignment for the benefit of
creditors; or (vii) take any corporate action for the purpose of authorizing any
of the foregoing; provided that it shall not constitute an event of default for
a debtor relief proceeding to be instituted and remain unstayed if instituted
under laws other than the federal or state laws of the United States of America
by a Subsidiary not constituting a Material Subsidiary or by a Person or Persons
not controlled, directly or indirectly by either Co-Borrower (including the
Subsidiary itself, if its board of directors is not subject to control by a
Co-Borrower).
(j) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be
commenced against either Co-Borrower or any Subsidiary thereof in any court of
competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as
now or hereafter in effect) or under any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up or adjustment of
debts; or (ii) the appointment of a trustee, receiver, custodian, liquidator or
the like for either Co-Borrower or any Subsidiary thereof or for all or any
substantial part of their respective assets, and such case or proceeding shall
continue undismissed or unstayed for a period of sixty (60) consecutive calendar
days, or an order granting the relief requested in such case or proceeding
(including, but not limited to, an order for relief under such federal
bankruptcy laws) shall be entered; provided that it shall not constitute an
event of default for a debtor relief proceeding to be instituted and remain
unstayed if instituted under laws other than the federal or state laws of the
United States of America against a Subsidiary not constituting a Material
Subsidiary or by a Person or Persons not controlled, directly or indirectly by
either Co-Borrower (including the Subsidiary itself, if its board of directors
is not subject to control by a Co-Borrower).
(k) Failure of Agreements. Any material provision of any other Loan
Document shall for any reason cease to be valid and binding on either
Co-Borrower or Subsidiary thereof party thereto.
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(l) Termination Event. The occurrence of any of the following events:
(i) either Co-Borrower or any ERISA Affiliate fails to make full payment when
due of all amounts which, under the provisions of any Pension Plan or Section
412 of the Code, such Borrower or ERISA Affiliate is required to pay as
contributions thereto; (ii) an accumulated funding deficiency in excess of
$250,000 occurs or exists, whether or not waived, with respect to any Pension
Plan; (iii) a Termination Event; or (iv) either Co- Borrower or any ERISA
Affiliate as employers under one or more Multiemployer Plan makes a complete or
partial withdrawal from any such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan notifies such withdrawing employer that such employer has
incurred a withdrawal liability requiring payments in an amount exceeding
$250,000.
(m) Judgment. A judgment or order for the payment of money (other than
the judgment in the amount of $7,000,000 (the "Existing Judgment") entered by
Seguros del Estudo against Scientific Games Inc. and described on Schedule
5.1(t) hereof ) which exceeds in amount the Material Judgment Amount shall be
entered formally against either Co-Borrower or any of their Subsidiaries by any
court and such judgment or order shall continue undischarged or unstayed for a
period of sixty (60) days. The Existing Judgment is not discharged or stayed
within 10 Business Days after the date any Lien is imposed or created in
connection with the Existing Judgment.
(n) Attachment. A warrant or writ of attachment or execution or similar
process shall be issued against any property of either Co-Borrower or any
Subsidiary thereof which exceeds in value the Material Judgment Amount and such
warrant or process shall continue undischarged or unstayed for a period of
thirty (30) days.
SECTION 10.2 Remedies. Upon the occurrence of an Event of Default and
at any time thereafter so long as such Event of Default shall be continuing, the
Administrative Agent shall, upon the request and direction of the Required
Lenders, by notice to the Co-Borrowers:
(a) Acceleration: Termination of Facilities. Declare the principal of and
interest on the Loans and the Notes at the time outstanding, and all other
amounts owed to the Lenders and to the Administrative Agent under this Agreement
or any of the other Loan Documents and all other Obligations, to be forthwith
due and payable, whereupon the same shall immediately become due and payable
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or the other Loan Documents to
the contrary notwithstanding, make the election regarding interest on the Loans
pursuant to Section 3.1(e)(ii), and terminate the Credit Facility and the
Commitments and any right of the Co-Borrowers to request borrowings thereunder;
provided, that upon the occurrence of an Event of Default specified in Section
10.1(j) or (k), the Credit Facility and the Commitments shall be automatically
terminated and all Obligations shall automatically become due and payable, and
the interest rate election pursuant to Section 3.1(e)(ii) shall be deemed to
have been made.
(b) Rights of Collection. Exercise on behalf of the Lenders all of
their other rights and remedies under this Agreement, the other Loan Documents
and Applicable Law, in order to satisfy all of the Co-Borrowers' Obligations.
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SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Administrative Agent and the
Lenders set forth in this Agreement is not intended to be exhaustive and the
exercise by the Administrative Agent and the Lenders of any right or remedy
shall not preclude the exercise of any other rights or remedies, all of which
shall be cumulative, and shall be in addition to any other right or remedy given
hereunder or under the Loan Documents or that may now or hereafter exist in law
or in equity or by suit or otherwise. No delay or failure to take action on the
part of the Administrative Agent or any Lender in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Event of Default. No course of dealing
between the Co-Borrowers, the Administrative Agent and the Lenders or their
respective agents or employees shall be effective to change, modify or discharge
any provision of this Agreement or any of the other Loan Documents or to
constitute a waiver of any Event of Default.
SECTION 10.4 Set-off. Except to the extent prohibited by law, in
addition to any rights now or hereafter granted under Applicable Law and not by
way of limitation of any such rights, upon and after the occurrence of any Event
of Default and during the continuance thereof after acceleration pursuant to
Section 10.2(a), the Lenders and any assignee or participant of a Lender in
accordance with Section 12.9 are hereby authorized by the Co-Borrowers at any
time or from time to time, without notice to the Co-Borrowers or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured, excluding government securities required
by Applicable Law to be held as security for worker's compensation and similar
claims) and any other indebtedness at any time held or owing by the Lenders, or
any such assignee or participant to or for the credit or the account of the
Co-Borrowers against and on account of the obligations irrespective of whether
or not (a) the Lenders shall have made any demand under this Agreement or any of
the other Loan Documents or (b) the Administrative Agent shall have declared any
or all of the Obligations to be due and payable as permitted by Section 10.2.
SECTION 10.5 Adjustments. If any Lender (a "Benefitted Lender") shall at any
time receive any payment of all or part of its Loans, or interest thereon in a
greater proportion than any such payment received by any other Lender, if any,
in respect of such other Lender's Loans, or interest thereon, such Benefitted
Lender shall, to the extent permitted by Applicable Law, purchase for cash from
the other Lenders such portion of each such other Lender's Loans as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits ratably with each of the Lenders; provided, that if all or any portion
of such excess payment or benefits is thereafter recovered from such Benefitted
Lender, such purchase shall be rescinded, and the purchase price and benefits
returned to the extent of such recovery, but without interest. The Co-Borrowers
agree that each Lender so purchasing a portion of another Lender's Loans may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion.
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SECTION 10.6 Consents. The Co-Borrowers acknowledge that certain
transactions contemplated by this Agreement and the other Loan Documents and
certain actions which may be taken by the Administrative Agent or the Lenders in
the exercise of their respective rights under this Agreement and the other Loan
Documents may require the consent of a Governmental Authority. If counsel to the
Administrative Agent reasonably determines that the consent of a Governmental
Authority is required in connection with the execution, delivery and performance
of any of the aforesaid Loan Documents or any Loan Documents delivered to the
Administrative Agent or the Lenders in connection therewith or as a result of
any action which may be taken pursuant thereto, then the Co-Borrowers, at the
Lenders' sole cost and expense, agree to use their reasonable efforts to secure
such consent and to cooperate with the Administrative Agent and the Lenders in
any action commenced by the Administrative Agent or any Lender to secure such
consent.
ARTICLE XI
THE ADMINISTRATIVE AGENT
SECTION 11.1 Appointment. Each Lender hereby irrevocably appoints and
authorizes Administrative Agent to act as Administrative Agent hereunder and
under the other Loan Documents and to take such actions as agent on its behalf
hereunder and under the other Loan Documents, and to exercise such powers and to
perform such duties, as are specifically delegated to the Administrative Agent
by the terms hereof or thereof, together with such other powers and duties as
are reasonably incidental thereto. Without limiting the foregoing, each Lender
hereby (i) consents to the appointment of First Union as secured party under the
Note Pledge Agreement, and (ii) acknowledges and agrees that pursuant to the
terms of the Note Pledge Agreement, First Union in its capacity as secured party
under the Note Pledge Agreement will be acting for the benefit of itself, as
lender under the 364-Day Credit Agreement, and as Administrative Agent for the
benefit of the Lenders.
SECTION 11.2 Nature of Duties. The Administrative Agent shall have no
duties or responsibilities other than those expressly set forth in this
Agreement and the other Loan Documents. The Administrative Agent shall not have,
by reason of this Agreement or any other Loan Document, a fiduciary relationship
in respect of any Lender; and nothing in this Agreement or any other Loan
Document, express or implied, is intended to or shall be so construed as to
impose upon the Administrative Agent any obligations or liabilities in respect
of this Agreement or any other Loan Document except as expressly set forth
herein or therein. The Administrative Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents or
attorneys-in-fact and shall not be responsible for the negligence or misconduct
of any agents or attorneys-in-fact that it selects with reasonable care. The
Administrative Agent shall be entitled to consult with legal counsel,
independent public accountants and other experts selected by it with respect to
all matters pertaining to this Agreement and the other Loan Documents and its
duties hereunder and thereunder and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts. The Lenders hereby acknowledge that the
Administrative Agent shall not be under any duty to take any discretionary
action permitted to be taken by it pursuant to the provisions of this Agreement
or any
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other Loan Document unless it shall be requested in writing to do so by
the Required Lenders (or, where a higher percentage of the Lenders is expressly
required hereunder, such Lenders).
SECTION 11.3 Exculpatory Provisions. Neither the Administrative Agent
nor any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates (each an "Exculpated Person") shall be (i) liable for any action
taken or omitted to be taken by it or any Exculpated Person under or in
connection with the Loan Documents, except for its or any Exculpated Person's
breach of any Loan Document, violation of Applicable Law, gross negligence or
willful misconduct, (ii) responsible in any manner to any Lender for any
recitals, statements, information, representations or warranties herein or in
any other Loan Document or in any document, instrument, certificate, report or
other writing delivered in connection herewith or therewith, for the execution,
effectiveness, genuineness, validity, enforceability or sufficiency of this
Agreement or any other Loan Document, or for the financial condition of
Co-Borrowers or any of their Subsidiaries or any other Person, or (iii) required
to ascertain or make any inquiry concerning the performance or observance of any
of the terms, provisions or conditions of this Agreement or any other Loan
Document or the existence or possible existence of any Default or Event of
Default, or to inspect the properties, books or records of the Co-Borrowers or
any of their Subsidiaries.
SECTION 11.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any notice,
statement, consent or other communication (including, without limitation, any
thereof by telephone, telecopy, telex, telegram or cable) believed by it in good
faith to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons. The Administrative Agent may deem and treat each
Lender as the owner of its interest hereunder for all purposes hereof unless and
until a written notice of the assignment, negotiation or transfer thereof shall
have been given to the Administrative Agent in accordance with the provisions of
this Agreement. The Administrative Agent shall be entitled to refrain from
taking or omitting to take any action in connection with this Agreement or any
other Loan Document (i) if such action or omission would, in the reasonable
opinion of the Administrative Agent, violate any Applicable Law or any provision
of this Agreement or any other Loan Document or (ii) unless and until it shall
have received such advice or concurrence of the Required Lenders (or, where a
higher percentage of the Lenders is expressly required hereunder, such Lenders)
as it deems appropriate or it shall first have been indemnified to its
satisfaction by the Lenders against any and all liability and expense (other
than liability and expense arising from its own gross negligence or willful
misconduct) that may be incurred by it by reason of taking, continuing to take
or omitting to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent's acting or refraining from acting hereunder
or under any other Loan Document in accordance with the instructions of the
Required Lenders (or, where a higher percentage of the Lenders is expressly
required hereunder, such Lenders), and such instructions and any action taken or
failure to act pursuant thereto shall be binding upon all of the Lenders
(including all subsequent Lenders).
SECTION 11.5 Non-Reliance on Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
has made any representation or warranty to it and that no act by the
Administrative Agent or any such Person hereafter taken, including any review
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of the affairs of each Co-Borrower and their Subsidiaries, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that (i) it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, properties, financial and other condition and creditworthiness of
each Co-Borrower and their Subsidiaries and made its own decision to enter into
this Agreement and extend credit to the Co-Borrowers hereunder, and (ii) it
will, independently and without reliance upon the Administrative Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action hereunder and under the other Loan
Document and to make such investigation as it deems necessary to inform itself
as to the business, prospects, operations, properties, financial and other
condition and creditworthiness of each Co-Borrower and their Subsidiaries.
Except as expressly provided in this Agreement and the other Loan Document, the
Administrative Agent shall have no duty or responsibility, either initially or
on a continuing basis, to provide any Lender with any credit or other
information concerning the business, prospects, operations, properties,
financial or other condition or creditworthiness of each Co-Borrower and their
Subsidiaries or any other Person that may at any time come into the possession
of the Administrative Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
SECTION 11.6 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default (other than Events of Default under Section 10.1(b) with respect to
interest or fees) unless the Administrative Agent shall have received written
notice from Co-Borrowers or a Lender referring to this Agreement, describing
such Default or Event of Default and stating that such notice is a "notice of
default." In the event that the Administrative Agent receives such a notice, the
Administrative Agent will give notice thereof to the Lenders as soon as
reasonably practicable; provided, however, that if any such notice has also been
furnished to the Lenders, the Administrative Agent shall have no obligation to
notify the Lenders with respect thereto. The Administrative Agent shall (subject
to Sections 11.4 and 12.10) take such action with respect to such Default or
Event of Default as shall reasonably be directed by the Required Lenders;
provided that, unless and until the Administrative Agent shall have received
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders.
SECTION 11.7 Indemnification. To the extent the Administrative Agent is
not reimbursed by or on behalf of Co-Borrowers, and without limiting the joint
and several obligations of Co-Borrowers to do so, the Lenders (i) shall and do
hereby indemnify the Administrative Agent and its officers, directors,
employees, agents, attorneys-in-fact and Affiliates, ratably in proportion to
their respective percentages as used in determining the Required Lenders as of
the date of determination, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, attorneys' fees and expenses) or
disbursements of any kind or nature whatsoever that may at any time (including
at any time following the repayment in full of the Loans and the termination of
the Commitments) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of this
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Agreement or any other Loan Document or any documents contemplated by or
referred to herein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Administrative Agent under or in connection with
any of the foregoing, and (ii) shall reimburse the Administrative Agent upon
demand, ratably in proportion to their respective percentages as used in
determining the Required Lenders as of the date of determination, for any
expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, execution, delivery, administration, amendment,
modification, waiver or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement or any of the other Loan Documents
(including, without limitation reasonable attorneys' fees and expenses and
compensation of agents and employees paid for services rendered on behalf of the
Lenders); provided, however, that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements to the extent resulting from the gross
negligence or willful misconduct of the party to be indemnified.
SECTION 11.8 The Administrative Agent in its Individual Capacity. With
respect to its Commitment, the Loans made by it and the Note or Notes issued to
it, the Administrative Agent in its individual capacity and not as
Administrative Agent shall have the same rights and powers under the Loan
Documents as any other Lender and may exercise the same as though it were not
performing the agency duties specified herein; and the terms "Lenders,"
"Required Lenders," "holders of Notes" and any similar terms shall, unless the
context clearly otherwise indicates, include the Administrative Agent in its
individual capacity. The Administrative Agent and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with either Co-Borrower, any of their
Subsidiaries or any of their respective Affiliates as if the Administrative
Agent were not performing the agency duties specified herein, and may accept
fees and other consideration from any of them for services in connection with
this Agreement and otherwise without having to account for the same to the
Lenders.
SECTION 11.9 Successor Administrative Agent. The Administrative Agent
may resign at any time by giving thirty (30) days' prior written notice to the
Co-Borrowers and the Lenders. Upon any such notice of resignation, the Required
Lenders will, with the prior written consent of the Co-Borrowers (which consent
shall not be unreasonably withheld), appoint from among the Lenders a successor
to the Administrative Agent (provided that the Co-Borrowers' consent shall not
be required in the event a Default or Event of Default shall have occurred and
be continuing). If no successor to the Administrative Agent shall have been so
appointed by the Required Lenders and shall have accepted such appointment
within such thirty-day period, then the retiring Administrative Agent may, on
behalf of the Lenders and after consulting with the Lenders and the
Co-Borrowers, appoint a successor Administrative Agent from among the Lenders.
Upon the acceptance of any appointment as Administrative Agent by a successor
Administrative Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder and under the
other Loan Ns. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Article XI shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
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Administrative Agent. If no successor to the Administrative Agent has accepted
appointment as Administrative Agent by the thirtieth (30th) day following a
retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become
effective, and the Lenders shall thereafter perform all of the duties of the
Administrative Agent hereunder and under the other Loan Documents until such
time, if any, as the Required Lenders appoint a successor Administrative Agent
as provided for hereinabove.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to be
received by a party hereto (i) on the date of delivery if a Business Day (or the
next Business Day is the day of delivery is not a Business Day) if delivered by
hand or sent by telecopy and if delivered or transmitted during normal business
hours, otherwise on the next Business Day, (ii) on the next Business Day if sent
by recognized overnight courier service and (iii) on the third Business Day
following the date sent by certified mail, return receipt requested. A
telephonic notice to any Agent as understood by such Agent will be deemed to be
the controlling and proper notice in the event of a discrepancy with or failure
to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
If to either Co-Borrower: Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway.
Alpharetta, Georgia 30004
Attention: Chief Financial Officer
Telephone No.: (770) 664-3700
Telecopy No.: (770) 772-7620
If to First Union,
as Administrative Agent: First Union National Bank
First Union National Bank
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Wes Burton
Telephone No.: (404) 827-7580
Telecopy No.: (404) 225-4255
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and
First Union National Bank
NC 0737
301 South College Street, DC-5
Charlotte, North Carolina 28288-0737
Attention: Syndication Agency Services
Telephone No.: (704) 383-0281
Telecopy No.: (704) 383-0288
If to any Lender: The Address set forth on Schedule 1.1
(c) Administrative Agent's Office. The Administrative Agent hereby
designates its Syndication Agency Services office at One First Union Center, 301
South College Street, DC-5, Charlotte, North Carolina 28288-0737, or any
subsequent office which shall have been specified for such purpose by written
notice to the Co-Borrowers and Lenders, as the Administrative Agent's office
referred to herein, to which payments due are to be made and at which Loans will
be disbursed.
SECTION 12.2 Expenses. Subject to the limitations contained in the Term Sheet,
the Co-Borrowers will pay the reasonable out-of-pocket expenses of the
Administrative Agent in connection with: (i) the preparation, execution and
delivery of this Agreement and each of the other Loan Documents, whenever the
same shall be executed and delivered, including all syndication and due
diligence expenses, appraiser's fees, search fees, recording fees, taxes and the
reasonable fees and disbursements of counsel for the Administrative Agent; (ii)
the preparation, execution and delivery of any waiver, amendment or consent by
the Administrative Agent or the Lenders requested by the Co-Borrowers relating
to this Agreement or any of the other Loan Documents including reasonable fees
and disbursements of counsel for the Administrative Agent, search fees,
appraiser's fees, recording fees and taxes imposed in connection therewith; and
(iii) after the occurrence and during the continuance of an Event of Default,
consulting with one or more Persons, including appraisers, accountants,
engineers and attorneys, concerning or related to the nature, scope or value of
any right or remedy of the Administrative Agent or any of the Lenders hereunder
or under any of the other Loan Documents, including any review of factual
matters in connection therewith, which expenses shall include the reasonable
fees and disbursements of such Persons. In addition, after the occurrence and
during the continuance of an Event of Default, the Co-Borrowers will pay the
reasonable out-of-pocket expenses of the Administrative Agent and each Lender in
connection with prosecuting or defending any claim in any way arising out of,
related to, connected with, or enforcing any provision of, this Agreement or any
of the other Loan Documents, which expenses shall include the reasonable fees
and disbursements of counsel and of experts and other consultants retained by
the Administrative Agent (but with any counsel engaged by the Administrative
Agent, to be approved by both the Administrative Agent and the Required Lenders,
with the Administrative Agent not to withhold its approval unreasonably but to
have the sole choice of counsel if the Administrative Agent and the Required
Lenders cannot agree) or any of the Lenders but shall not, with respect to all
counsel hired by the Lenders other than the Administrative Agent, result in the
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payment of legal fees by the Co-Borrowers in excess of five thousand dollars
($5,000) for the subject Event of Default; provided, however, that in connection
with any litigation or other proceeding (i) between the Co-Borrowers and the
Lenders, the Co-Borrowers shall not be obligated to pay any expenses or costs of
the Lenders (including, without limitation, reasonable attorneys' fees and
expenses) that are attributable to any issue raised in such litigation or other
proceeding with respect to which the Co-Borrowers shall have prevailed (the
determination, if necessary, of which party shall have prevailed may be made by
the court or arbitration panel in the trial or appeal of such action or other
proceeding) and (ii) solely between any Lender and the Administrative Agent, the
Co-Borrowers shall not be obligated to pay any expenses or costs of any Lender
or the Administrative Agent.
SECTION 12.3 Governing Law. This Agreement, the Notes and the other
Loan Documents, unless otherwise expressly set forth therein, shall be governed
by, construed and enforced in accordance with the laws of the State of Georgia,
without reference to the conflicts or choice of law principles thereof.
SECTION 12.4 Consent to Jurisdiction. The Co-Borrowers hereby
irrevocably consent to the personal jurisdiction of the state and federal courts
located in Fulton County, Georgia, in any action, claim or other proceeding
arising out of any dispute in connection with this Agreement, the Notes and the
other Loan Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. The Co-Borrowers, the Administrative
Agent and each Lender hereby irrevocably consent to the service of a summons and
complaint and other process in any action, claim or proceeding brought by any
party hereto in connection with this Agreement, the Notes or the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations, on behalf of itself or its property, in the
manner specified in Section 12.1, if and to the extent otherwise in compliance
with Applicable Law. Nothing in this Section 12.4 shall affect the right of the
Co-Borrowers, the Administrative Agent or any Lender to serve legal process in
any other manner permitted by Applicable Law or affect the right of the
Co-Borrowers, Administrative Agent or any Lender to serve legal process in any
other manner permitted by Applicable Law or affect the right of the
Administrative Agent or any Lender to bring any action or proceeding against any
party hereto or its properties in the courts of any other jurisdictions.
SECTION 12.5 Arbitration.
(a) Binding Arbitration. Upon demand of any party, whether made before
or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to the Notes or any other
Loan Documents ("Disputes"), between or among parties to the Notes or any other
Loan Document shall be resolved by binding arbitration as provided herein.
Institution of a judicial proceeding by a party does not waive the right of that
party to demand arbitration hereunder. Disputes may include, without limitation,
tort claims, counterclaims, claims brought as class actions, claims arising from
Loan Documents executed in the future, or claims concerning any aspect of the
past, present or future relationships arising out of or connected with the Loan
Documents. Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration
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Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in Atlanta, Georgia. The expedited procedures set forth in
Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. The arbitrators shall be appointed as provided in the Arbitration
Rules.
(b) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the Administrative Agent and the Lenders
preserve, without diminution, certain remedies that the Administrative Agent and
the Lenders may employ or exercise freely, either alone, in conjunction with or
during a Dispute. The Administrative Agent and the Lenders shall have and hereby
reserve the right to proceed in any court of proper jurisdiction or by self help
to exercise or prosecute the following remedies: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale granted in the Loan Documents or under applicable law or by judicial
foreclosure and sale, (ii) all rights of self help including peaceful occupation
of property and collection of rents, set off, subject to the provisions of
Section 10.4, and peaceful possession of property, (iii) when applicable, a
judgement by confession of judgement and (iv) obtaining provisional or ancillary
remedies including injunctive relief, sequestration, garnishment, attachment,
appointment of receiver and in filing an involuntary bankruptcy proceeding.
Preservation of these remedies does not limit the power of an arbitrator to
grant similar remedies that may be requested by a party in a Dispute.
SECTION 12.6 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH CO-BORROWER
HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO
ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION
WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
SECTION 12.7 Reversal of Payment. To the extent any Co-Borrower makes a
payment or payments to the Administrative Agent for the ratable benefit of the
Lenders which payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds repaid, the Obligations or part thereof intended to be
satisfied shall be revived and continued in full force and effect as if such
payment or proceeds had not been received by the Administrative Agent.
SECTION 12.8 Injunctive Relief. The Co-Borrowers, Administrative Agent
and each Lender recognize that, in the event any of them fail to perform,
observe or discharge any of their obligations or liabilities under this
Agreement, any remedy of law may prove to be inadequate relief to the other
parties. Therefore, the Co-Borrowers, the Administrative Agent and each Lender
agree
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that the other parties, at such parties' option, shall be entitled to temporary
and permanent injunctive relief in any such case without the necessity of
proving actual damages.
SECTION 12.9 Successors and Assigns; Participations.
(a) Each Lender may assign to one or more other Eligible Assignees or,
during the existence and continuance of an Event of Default, to any Person
(each, an "Assignee"), all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the outstanding Loans made by it and the Note or Notes held by it); provided,
however, that (i) any such assignment (other than an assignment by a Lender to
an Affiliate of such Lender) shall not be made without the prior written consent
of the Administrative Agent and, if a Default or Event of Default has not
occurred and is not continuing, the Co-Borrowers (to be evidenced by their
counter execution of the relevant Assignment and Acceptance), which consent
shall not be unreasonably withheld, (ii) except in the case of an assignment by
a Lender to an Affiliate of such Lender or during the existence and continuance
of a Default or Event of Default, the amount of the Commitment of the assigning
Lender being assigned pursuant to each such assignment (determined as of the
date of the Assignment and Acceptance with respect to each such assignment)
shall in no event be less than the lesser of (A) the entire Commitment of such
Lender immediately prior to such assignment or (B) $5,000,000, and (iii) the
parties to each such assignment will execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance (an "Assignment and Acceptance") in the form of Exhibit E attached
hereto, together with any Note or Notes subject to such assignment, and the
Assignee will pay a non-refundable processing fee of $3000 to the Administrative
Agent for its own account. Upon such execution, delivery, acceptance and
recording of the Assignment and Acceptance, from and after the effective date
specified therein, which effective date shall be at least five Business Days
after the execution thereof (unless the Administrative Agent shall otherwise
agree), (A) the Assignee thereunder shall be a party hereto and, to the extent
that rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of the
assigning Lender hereunder with respect thereto and (B) the assigning Lender
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights (other than
rights under the provisions of this Agreement and the other Loan Documents
relating to indemnification or payment of fees, costs and expenses, to the
extent such rights relate to the time prior to the effective date of such
Assignment and Acceptance) and be released from its obligations under this
Agreement, other than obligations arising prior to the effective date of such
Assignment and Acceptance (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of such assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party hereto).
The terms and provisions of each Assignment and Acceptance shall, upon the
effectiveness thereof, be incorporated into and made a part of this Agreement,
and the covenants, agreements and obligations of each Lender set forth therein
shall be deemed made to and for the benefit of the Administrative Agent and the
other parties hereto as if set forth at length herein.
(b) The Administrative Agent will maintain at its address for notices
referred to herein a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitments of, and principal
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amount of the Loans owing to, each Lender from time to time (the "Register").
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Co-Borrowers, the Administrative Agent and the
Lenders may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by Co-Borrowers and each Lender at any reasonable time and from
time to time upon reasonable prior notice.
(c) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an Assignee and counter executed by the
Co-Borrowers (if required), together with any Note or Notes subject to such
assignment and the processing fee referred to in subsection (a) above, the
Administrative Agent will (i) accept such Assignment and Acceptance, (ii) on the
effective date thereof, record the information contained therein in the Register
and (iii) give notice thereof to the Co-Borrowers and the Lenders. Within five
(5) Business Days after its receipt of such notice, the Co-Borrowers, at their
own expense, will execute and deliver to the Administrative Agent in exchange
for the surrendered Note or Notes a new Note or Notes to the order of such
Assignee in an aggregate principal amount equal to the principal amount of the
Commitment (or, if the Commitments have been terminated, the principal amount of
the Loans) assumed by it pursuant to such Assignment and Acceptance and, to the
extent the assigning Lender has retained its Loans and/or Commitment hereunder,
a new Note or Notes to the order of the assigning Lender in an aggregate
principal amount equal to the principal amount of the Commitment (or, if the
Commitments have been terminated, the principal amount of the Loans) retained by
it hereunder. Such new Note or Notes shall be dated the date of the replaced
Note or Notes and shall otherwise be in substantially the forms of the Notes
attached hereto. The Administrative Agent will return canceled Notes to the
Co-Borrowers.
(d) Each Lender may, without the consent of the Co-Borrowers, the
Administrative Agent or any other Lender, sell to one or more other Persons
(each, a "Participant") participations in any portion comprising less than all
of its rights and obligations under this Agreement (including, without
limitation, a portion of its Commitment, the outstanding Loans made by it and
the Note or Notes held by it); provided, however, that (i) such Lender's
obligations under this Agreement shall remain unchanged and such Lender shall
remain solely responsible for the performance of such obligations, (ii) any such
participation shall not exceed fifty percent (50%) of such Lender's post
assignment Commitment, (iii) the Co-Borrowers, the Administrative Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement, and
no Lender shall permit any Participant to have any voting rights or any right to
control the vote of such Lender with respect to any amendment, modification,
waiver, consent or other action hereunder or under any other Loan Document
(except as to actions that would (w) reduce or forgive the principal amount of,
or rate of interest on, any Loan, or reduce or forgive any fees or other
Obligations, (x) extend any date (including without limitation, the Revolver
Facility Termination Date) fixed for the payment of any principal of or interest
on any Loan, any fees or any other Obligations, or (y) increase any Commitment
of any Lender), and (iv) no Participant shall have any rights under this
Agreement or any of the other Loan Documents, each Participant's rights against
the granting Lender in respect of any participation to be those set forth in the
participation agreement, and all amounts payable by the Co-Borrowers hereunder
shall be determined as if such Lender had not granted such participation.
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(e) Nothing in this Agreement shall be construed to prohibit any Lender
from pledging or assigning all or any portion of its rights and interest
hereunder or under any Note to any Federal Reserve Bank as security for
borrowings therefrom; provided, however, that no such pledge or assignment shall
release a Lender from any of its obligations hereunder.
(f) Disclosure of Information; Confidentiality. The Administrative
Agent and the Lenders shall treat as confidential all non-public information,
including, without limitation, all financial projections, obtained pursuant to
the Loan Documents and shall disclose such information outside their
organizations only as may be deemed appropriate by any of the Administrative
Agent or the Lenders in the exercise of its or their rights under the Loan
Documents with respect to the repayment or administration of, or transfer or
assignment of participations or interests in, the Loans or, to the extent
permitted by Applicable Law, upon reasonable prior notice to the Co-Borrowers,
as compelled by judicial or administrative process or by other requirements of
Applicable Law.
SECTION 12.10 Amendments, Waivers and Consents: Renewal. Except as set
forth below, any term, covenant, agreement or condition of this Agreement or any
of the other Loan Documents may be amended or waived by the Lenders upon request
of the Co-Borrowers, and any consent given by the Lenders in response to a
request by the Co-Borrowers, if, but only if, such amendment, waiver or consent
is in writing signed by the Required Lenders (or by the Administrative Agent
with the consent of the Required Lenders) and delivered to the Administrative
Agent and, in the case of an amendment, signed by the Co-Borrowers; provided,
that no amendment, waiver or consent shall (a) increase the amount or extend the
time of the obligation of the Lenders to make Loans, (b) extend the originally
scheduled time or times of payment of the principal of any Loan or the time or
times of payment of interest on any Loan, (c) reduce the rate of interest or
fees payable on any Loan, (d) permit any subordination of the principal or
interest on any Loan, (e) amend the provisions of this Section 12.10 or the
definition of Required Lenders, (f) increase the Swingline Commitment, the
Aggregate Commitment, or the Aggregate Revolver Loan Commitments, or (g) release
any Guarantor or amend the provisions of Section 7.12 (but with a waiver of, or
consent to departure from, the provisions of Section 7.12 as it pertains to any
Material Subsidiary not organized under the laws of one of the United States to
require only the approval of the Required Lenders) , without the prior written
consent of each Lender bound thereby. In addition, no amendment, waiver or
consent to the provisions of Article XI shall be made without the written
consent of the Administrative Agent.
SECTION 12.11 Performance of Duties. The Co-Borrowers' obligations
under this Agreement and each of the Loan Documents shall be performed at the
joint and several sole cost and expense of the Co-Borrowers.
SECTION 12.12 Indemnification.
(a) Each Co-Borrower jointly and severally agrees to reimburse the
Administrative Agent and the Lenders for all reasonable costs and expenses,
including reasonable counsel or other out-of-pocket fees and disbursements
reasonably incurred, and the Co-Borrowers hereby indemnify and hold the
Administrative Agent and each Lender (collectively, the "Indemnified Parties"
and individually, an "Indemnified Party") harmless from and against all losses
suffered by the
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Administrative Agent and the Lenders in connection with (i) the exercise by the
Administrative Agent or the Lenders, after the occurrence and during the
continuance of an Event of Default, of any remedy granted to them by
Co-Borrowers under this Agreement or any of the other Loan Documents, (ii) any
claim by any third party against the Administrative Agent or any Lender arising
out of or in any way connected with the acts or omissions of the Co-Borrowers or
any Subsidiary thereof under or pursuant to this Agreement or any of the other
Loan Documents, and (iii) the collection or enforcement of the Obligations or
any of them against the Co-Borrowers, after the occurrence and during the
continuance of an Event of Default; provided, that no reimbursement obligation
or undertaking to indemnify contained herein shall apply (A) to any expenses
that are attributable to any issue raised in any litigation or other proceeding
with respect to which the Co-Borrowers shall have prevailed (the determination,
if necessary, of which party shall have prevailed may be made by the court or
arbitration panel in the trial or appeal of such action or other proceeding), or
(B) to the extent that such losses, claims, damages, liabilities or other
expenses result from the breach by any Indemnified Party of its obligations
hereunder or under any Loan Document, the violation of Applicable Law, gross
negligence or willful misconduct of any Indemnified Party.
(b) The following shall apply to all claims for indemnity under this
Section 12.12 or otherwise under the Loan Documents:
(i) If any Indemnified Party has knowledge of any claim or
matter for which it believes it is entitled to indemnification hereunder, it
shall give prompt written notice thereof to the Co-Borrowers; provided, however,
that the failure of an Indemnified Party to give such notice shall not relieve
the Co- Borrowers of its obligations hereunder.
(ii) Each claim against an Indemnified Party by a third party
shall, if reasonably requested by the Co-Borrowers, be contested by the
Indemnified Party in good faith by appropriate proceedings, provided that the
Co-Borrowers shall indemnify such Indemnified Party in full in respect of any
out-of-pocket fees, costs or expenses actually incurred by such Indemnified
Party in conducting such contest and the amount of any interest or penalties, if
any, which are required to be paid as a direct result of contesting such claim.
(iii) In connection with any litigation or other proceeding
between the Co-Borrowers and the Lenders, the Co-Borrowers shall not be
obligated to pay any expenses or costs of the Lenders (including, without
limitation, reasonable attorneys' fees and expenses) that are attributable to
any issue raised in such litigation or other proceeding with respect to which
the Co-Borrowers shall have prevailed (the determination, if necessary, of which
party shall have prevailed may be made by the court or arbitration panel in the
trial or appeal of such action or other proceeding).
SECTION 12.13 All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Lenders, the Administrative Agent and
any Persons designated by the Administrative Agent or such Lenders pursuant to
any provisions of this Agreement or any of the other Loan Documents shall be
deemed coupled with an interest and shall be irrevocable so long as any of the
Obligations remain unpaid or unsatisfied or the Credit Facility have not been
terminated.
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SECTION 12.14 Survival of Indemnities. Notwithstanding any termination
of this Agreement, the indemnities to which the Administrative Agent and the
Lenders are entitled under the provisions of this Article XII and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Administrative Agent and the Lenders against
events arising after such termination as well as before.
SECTION 12.15 Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and neither
limit nor amplify the provisions of this Agreement.
SECTION 12.16 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
SECTION 12.17 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns, and all of which taken
together shall constitute one and the same agreement.
SECTION 12.18 Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full and the
Commitments have been terminated. No termination of this Agreement shall affect
the rights and obligations of the parties hereto arising prior to such
termination.
SECTION 12.19 Provisions Regarding the Euro.
(a) Definitions. As used in this Section 12.19, the following
terms have the following meanings:
"beginning of the third stage of EMU" means the date
the third stage of EMU began or the date on which
circumstances arise which, in the reasonable, good faith
opinion of the Administrative Agent, have substantially the
same effect and result in substantially the same consequences
as the beginning of the third stage of EMU as contemplated by
the Treaty on European Union.
"EMU" means economic and monetary union as
contemplated in the Treaty on European Union.
"EMU legislation" means legislative measures of the
European Council for the introduction of change over to or
operation of a single or unified European currency (whether
known
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as the euro or otherwise), being in part the implementation of
the third stage of EMU;
"euro" means the single currency to which
participating member states of the European Union are
converting;
"euro unit" means the currency unit of the euro;
"fixed exchange rate" means the exchange rate for a
national currency unit into a euro unit set in accordance with
EMU legislation in effect from time to time.
"national currency unit" means the unit of currency
(other than a euro unit) of a participating member state.
"participating member state" means each state so
described in any EMU legislation.
"Treaty on European Union" means the treaty of Rome
of March 25, 1957, as amended by the Single European Act 1986
and the Maastricht Treaty (signed February 7, 1992) as amended
from time to time.
(b) Effectiveness of Provisions. The provisions of clauses (c)
to (l) below, inclusive, shall be effective on the later of the date of
this Agreement or the beginning of the third stage of EMU, provided,
that if and to the extent that any such provision relates to any state
(or the currency of such state) that is not a participating member
state on the beginning of the third stage of EMU, such provision shall
become effective in relation to such state (and the currency of such
state) at and from the date on which such state becomes a participating
member state.
(c) Continuity of Contract. The parties to this Agreement
agree that the occurrence or non-occurrence of EMU, any event or events
associated with the EMU and/or the introduction of the euro in all or
any part of the European Union will not result in the discharge,
cancellation, rescission or termination in whole or in part of any
agreement between any of the parties hereto or give the Administrative
Agent, the Lenders or the Co-Borrowers the right to cancel, rescind,
terminate or vary any agreement, other than as specifically provided in
this Agreement.
(d) Redenomination and Alternative Currencies. If and to the
extent that any EMU legislation provides that following the beginning
of the third stage of EMU an amount denominated either in the euro unit
or in the national currency unit of a member state and payable within
the member state by crediting an account of a creditor can be paid by a
debtor either in the euro
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<PAGE> 87
unit or in that national currency unit, each party to this Agreement
shall be entitled, subject to clause (e) below, to pay or repay any
such amount either in the euro unit or in such national currency unit;
provided, however, any amount paid in a national currency unit shall
equal, at the fixed exchange rate for that national currency unit, the
required amount stated to be due in euro units.
(e) Loans. Any Loan in the currency of a participating member
state shall be made in the euro unit, provided that any Loan may, if so
requested by any Co-Borrower, be made in the national currency unit
(based upon the fixed exchange rate) of any participating member state
so long as such national currency unit continues to be available as
legal tender for obligations of the same type or character as the
obligations set forth in this Agreement.
(f) Payments to the Administrative Agent. Those Sections of
this Agreement providing for payment or repayment in a national
currency unit shall be construed so that, in relation to the payment of
any amount of euro units or national currency units, such amount shall
be made available to the Administrative Agent in immediately available
funds at the Euro Lending Office.
(g) Payment by the Administrative Agent to the Lenders. Any
amount payable by the Administrative Agent to the Lenders under this
Agreement in the national currency unit of a participating member state
shall be paid in the currency received by it from the Co-Borrowers.
(h) Payments by the Administrative Agent Generally. This
clause (h) is not intended to, and does not, modify the provisions of
Section 3.4(a) of this Agreement to the extent that such provisions
relate to the place, date and time for payment of any amounts under
this Agreement. With respect to the payment of any amount denominated
in the euro unit or in a national currency unit, the Administrative
Agent shall not be liable to the Co-Borrowers or any of the Lenders in
any way whatsoever for any delay, or the consequences of any delay, in
the crediting to any account of any amount required by this Agreement
to be paid by the Administrative Agent if the Administrative Agent has
made reasonable effort to effect all relevant steps to achieve, on the
date required by the Agreement, the payment of such amount in
immediately available funds (in the euro unit or, as the case may be,
in a national currency unit) to the applicable Euro Lending Office or
the account with the bank in the principal financial center in the
participating member state which any Co-Borrower or, as the case may
be, any Lender shall have specified for such purpose. In this
paragraph, "all relevant steps" means all such steps as may be
prescribed from time to time by the regulations or operating procedures
of such clearing or settlement system as the Administrative Agent may
from time to time reasonably believe to be in effect for the purpose of
clearing or settling payment of the euro.
(i) Basis of Accrual. If the basis of accrual of interest
(such as IBOR) or fees expressed in this Agreement with respect to the
currency of any state that becomes a participating member state, in the
Administrative Agent's reasonable, good faith judgment, shall not be
available because interest rate quotes for a national currency unit are
no longer provided, or shall be inconsistent with any convention or
practice in the London interbank market for the basis of accrual of
interest or fees in respect of the euro, such convention or
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practice shall replace such expressed basis effective as of and from
the date on which such state becomes a participating member state;
provided, however, if any Loan in the currency of such state is
outstanding immediately prior to such date, such replacement shall take
effect, with respect to such Loan, at the end of the then current
Interest Period.
(j) Rounding and Other Consequential Changes. Without
prejudice and in addition to any method of conversion or rounding
prescribed by any EMU legislation and without prejudice to the
respective liabilities for indebtedness of the Co-Borrowers to the
Administrative Agent and to the Lenders and the Administrative Agent
and the Lenders to the Co-Borrowers under or pursuant to this
Agreement:
(i) each reference in this Agreement to a minimum
amount (or an integral multiple thereof) in a
national currency unit to be paid to or by the
Administrative Agent or Lenders shall be replaced by
a reference to such reasonably comparable amount (or
an integral multiple thereof) in the euro unit as the
Administrative Agent may from time to time specify;
and
(ii) each Co-Borrower hereby agrees to make, execute
and deliver all such additional and further acts and
instruments (including amendments hereto) as the
Administrative Agent may from time to time reasonably
request as necessary or appropriate to reflect the
implementation of the EMU and to place the parties
hereto in substantially the position they would have
occupied had the EMU not been implemented.
(k) Exchange Indemnification and Increased Costs. Each
Co-Borrower shall upon demand from the Administrative Agent, pay to the
Administrative Agent for the account of each Lender the amount of (i)
any loss or cost or increased cost incurred by the Administrative Agent
or such Lender in respect of any Loans made hereunder as a result of
the election by the Co-Borrowers to borrow in national currency units
and repay in euro units or to borrow in euro units and repay in
national currency units, (ii) any reduction in any amount payable to,
or in the effective return on its capital to, the Administrative Agent
or such Lender in respect of any Loans made hereunder as a result of
the election of the Co-Borrowers to borrow in national currency units
and repay in euro units or to borrow in euro units and repay in
national currency units, or (iii) any currency exchange loss that the
Administrative Agent or such Lender sustains in respect of any Loans
made hereunder as a result of the election by the Co-Borrowers to
borrow in national currency units and repay in euro units or to borrow
in euro units and repay in national currency units.
(l) Further Assurance. Each Co-Borrower agrees, at the request
of the Administrative Agent, at the time of or at any time following
the implementation of the EMU, to enter into an agreement amending this
Agreement in such manner as the Administrative Agent reasonably shall
request in order to reflect the implementation of the EMU to place the
parties hereto in the position they would have been in had the EMU not
been implemented.
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[Remainder of page intentionally blank; next page is signature page]
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<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, all as of the day and year first
written above.
[CORPORATE SEAL] SCIENTIFIC GAMES HOLDINGS CORP.
By:
-----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
[CORPORATE SEAL] SCIENTIFIC GAMES INC.
By:
-----------------------------------------
Name:
---------------------------------
Title:
--------------------------------
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE> 91
FIRST UNION NATIONAL BANK, as
Domestic Office Address: Administrative Agent, Issuing Bank
and Lender
301 South College Street, DC-5
Charlotte, North Carolina 28288-0737 By:
---------------------------------
Name:
---------------------------
Title:
--------------------------
Euro Lending Office Address:
3 Bishopgate
London EC2N 3AB
England
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE> 92
Domestic Office Address: WACHOVIA BANK, N.A., as Lender
191 Peachtree Street
Atlanta, GA 30303
By:
--------------------------------------
Name:
------------------------------
Title:
-----------------------------
Euro Lending Office Address:
191 Peachtree Street
Atlanta, GA 30303
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE> 93
Domestic Office Address: BANK OF AMERICA, N.A., as Lender
600 Peachtree Street
Atlanta, GA 30308
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
Euro Lending Office Address:
600 Peachtree Street
Atlanta, GA 30308
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE> 94
Domestic Office Address: SUNTRUST BANK, ATLANTA, as Lender
25 Park Place
Mail Code 1941
Atlanta, GA 30303
By:
----------------------------------------
Name:
--------------------------------
Title:
--------------------------------
Euro Lending Office Address:
Attn: Sandra Bentley By:
25 Park Place --------------------------------------
14th Floor Name:
Atlanta, GA 30303 --------------------------------
Title:
-------------------------------
[SIGNATURE PAGE TO CREDIT AGREEMENT]
<PAGE> 1
- -------------------------------------------------------------------------------
364-DAY CREDIT AGREEMENT
DATED AS OF NOVEMBER 30, 1999
BY AND AMONG
SCIENTIFIC GAMES HOLDINGS CORP.
AND
SCIENTIFIC GAMES INC.
AS CO-BORROWERS,
AND
FIRST UNION NATIONAL BANK,
AS LENDER
- -------------------------------------------------------------------------------
<PAGE> 2
CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
DEFINITIONS..............................................................................1
SECTION 1.1 Definitions.................................................................1
SECTION 1.2 General....................................................................14
SECTION 1.3 Accounting Matters.........................................................14
SECTION 1.4 Other Definitions and Provisions...........................................15
SECTION 1.5 Exhibits and Schedules......................................................15
ARTICLE II
CREDIT FACILITY.........................................................................15
SECTION 2.1 Revolver Loans.............................................................15
SECTION 2.2 Procedure for Advances of Revolver Loans...................................15
SECTION 2.3 Repayment of Revolver Loans................................................16
SECTION 2.4 Termination of Revolver Facility...........................................17
SECTION 2.5 Use of Proceeds............................................................17
SECTION 2.6 Co-Borrower and Guarantor Liability........................................17
SECTION 2.7 Subordination of Subrogation and Contribution Claim.......................17
SECTION 2.8 Foreign Subsidiary Guaranties..............................................17
ARTICLE III
GENERAL LOAN PROVISIONS.................................................................17
SECTION 3.1 Interest...................................................................17
SECTION 3.2 Closing Fee................................................................20
SECTION 3.3 Notice and Manner of Conversion or Continuation of Loans...................20
SECTION 3.4 Manner of Payment..........................................................20
SECTION 3.5 Crediting of Payments and Proceeds........................................21
SECTION 3.6 Changed Circumstances......................................................21
SECTION 3.7 Indemnity..................................................................22
SECTION 3.8 Capital Requirements.......................................................23
SECTION 3.9 Taxes......................................................................23
ARTICLE IV
CLOSING: CONDITIONS OF CLOSING AND BORROWING............................................24
SECTION 4.1 Closing....................................................................24
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 4.2 Conditions to Closing and Initial Loan.....................................24
SECTION 4.3 Conditions to All Loans....................................................27
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CO-BORROWERS..........................................27
SECTION 5.1 Representations and Warranties.............................................27
SECTION 5.2 Survival of Representations and Warranties, Etc............................33
ARTICLE VI
FINANCIAL INFORMATION AND NOTICES.......................................................34
SECTION 6.1 Financial Statements and Projections.......................................34
SECTION 6.2 Officer's Compliance Certificate..........................................35
SECTION 6.3 Other Certificates and Reports.............................................35
SECTION 6.4 Notice of Litigation and Other Matters.....................................36
SECTION 6.5 Accuracy of Information....................................................37
SECTION 6.6 Notice of Demand for Reimbursement, etc....................................37
ARTICLE VII
AFFIRMATIVE COVENANTS...................................................................37
SECTION 7.1 Preservation of Corporate Existence and Related Matters....................38
SECTION 7.2 Maintenance of Property....................................................38
SECTION 7.3 Insurance..................................................................38
SECTION 7.4 Accounting Methods and Financial Records...................................38
SECTION 7.5 Payment and Performance of Obligations.....................................38
SECTION 7.6 Compliance With Laws and Approvals........................................38
SECTION 7.7 Environmental Law..........................................................39
SECTION 7.8 Compliance with ERISA and the Code.........................................39
SECTION 7.9 Compliance With Agreements.................................................39
SECTION 7.10 Conduct of Business.......................................................39
SECTION 7.11 Visits and Inspections....................................................40
SECTION 7.12 Subsidiaries..............................................................40
SECTION 7.13 Further Assurances........................................................40
SECTION 7.14 Year 2000 Compatibility...................................................41
ARTICLE VIII
FINANCIAL COVENANTS.....................................................................41
SECTION 8.1 Leverage Ratio.............................................................41
SECTION 8.2 Fixed Charge Coverage Ratio................................................41
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IX
NEGATIVE COVENANTS......................................................................41
SECTION 9.1 Limitations on Debt........................................................41
SECTION 9.2 Limitations on Contingent Obligations......................................42
SECTION 9.3 Limitations on Liens.......................................................42
SECTION 9.4 Limitations on Loans, Advances, Investments and Acquisitions...............42
SECTION 9.5 Limitations on Mergers and Liquidation.....................................44
SECTION 9.6 Limitations on Sale of Assets..............................................44
SECTION 9.7 Transactions with Affiliates...............................................45
SECTION 9.8 Certain Accounting Changes.................................................45
SECTION 9.9 Licenses...................................................................45
SECTION 9.10 Restrictive Agreements....................................................45
ARTICLE X
DEFAULT AND REMEDIES....................................................................46
SECTION 10.1 Events of Default.........................................................46
SECTION 10.2 Remedies..................................................................48
SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc...........................49
SECTION 10.4 Set-off...................................................................49
SECTION 10.5 Consents..................................................................49
ARTICLE XI......................................................................................50
MISCELLANEOUS...........................................................................50
SECTION 11.1 Notices...................................................................50
SECTION 11.2 Expenses..................................................................50
SECTION 11.3 Governing Law.............................................................51
SECTION 11.4 Consent to Jurisdiction...................................................51
SECTION 11.5 Arbitration...............................................................51
SECTION 11.6 WAIVER OF JURY TRIAL......................................................52
SECTION 11.7 Reversal of Payment.......................................................52
SECTION 11.8 Injunctive Relief.........................................................52
SECTION 11.9 Successors and Assigns; Participations....................................53
SECTION 11.10 Amendments, Waivers and Consents: Renewal.................................54
SECTION 11.11 Performance of Duties....................................................54
SECTION 11.12 Indemnification..........................................................54
SECTION 11.13 All Powers Coupled with Interest.........................................55
SECTION 11.14 Survival of Indemnities..................................................55
SECTION 11.15 Titles and Captions......................................................55
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
SECTION 11.16 Severability of Provisions...............................................55
SECTION 11.17 Counterparts.............................................................55
SECTION 11.18 Term of Agreement........................................................55
</TABLE>
<PAGE> 6
EXHIBITS
Exhibit A - Form of Revolver Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Notice of Conversion/Continuation
Exhibit D - Form of Officer's Certificate
Exhibit E - Form of Negative Pledge Agreement
Exhibit F - Form of Intercompany Subordination Agreement
Exhibit G - Form of Joinder Agreement
Exhibit H - Form of Foreign Subsidiary Note
Exhibit I - Form of Limited Foreign Guaranty
Exhibit J - Form of Note Pledge Agreement
Exhibit K - Form of Guaranty
Exhibit L - Form of Bid Activity Report
Exhibit M - Form of Contribution Agreement
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 5.1(a) - Jurisdictions of Organization and Qualification to Do
Business as Foreign Corporation
Schedule 5.1(b) - Subsidiaries and Capitalization
Schedule 5.1(d) - Compliance of Agreement, Loan Documents and Borrowings with
Laws
Schedule 5.1(g) - Environmental Matters
Schedule 5.1(h) - ERISA Plans
Schedule 5.1(1) - Material Contracts
Schedule 5.1(m) - Labor and Collective Bargaining Agreements
Schedule 5.1(o) - Liabilities Not Reflected in Financial Statements
Schedule 5.1(q) - Real Property
Schedule 5.1(s) - Debt and Contingent Obligations
Schedule 5.1(t) - Litigation
Schedule 9.1 - Existing Debt
Schedule 9.2 - Existing Contingent Obligations
Schedule 9.3 - Existing Liens
Schedule 9.4 - Existing Loans, Advances and Investments
</TABLE>
<PAGE> 7
364-DAY CREDIT AGREEMENT, dated as of the 30th day of November, 1999,
by and among SCIENTIFIC GAMES HOLDINGS CORP., a corporation organized under the
laws of Delaware ("Holdings"), SCIENTIFIC GAMES INC. (the "Company"), a
corporation organized under the laws of Delaware and a wholly-owned indirect
Subsidiary of Holdings (Holdings and the Company together are the
"Co-Borrowers"), and FIRST UNION NATIONAL BANK, a national banking association,
as lender ("Lender").
STATEMENT OF PURPOSE
The Co-Borrowers have requested that the Lender provide the credit
facility hereunder. The parties have agreed that the credit facilities are to
be governed by the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
covenants and provisions herein contained and for TEN DOLLARS ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Co-Borrowers and the Lender hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. In addition to the terms defined above and
the terms defined elsewhere herein, the following terms when used in this
Agreement shall have the meanings assigned to them below:
"Accounts Designation Letter" means the letter executed by each of the
Co-Borrowers, delivered on the Closing Date and from time to time thereafter,
designating the accounts of the Co-Borrowers to which proceeds of Revolver
Loans are to be disbursed and authorizing the Lender to disburse such proceeds
to such accounts.
"Administrative Agent" means the "Administrative Agent" as such term
is defined in the Three-Year Credit Agreement.
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary of such Person) which directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, such Person or any Subsidiary of such Person. The term "control" means
(i) the power to vote ten percent (10%) or more of the securities or other
equity interests of a Person having ordinary voting power, or (ii) the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
<PAGE> 8
"Agreement" means this 364-Day Credit Agreement, as amended or
supplemented from time to time.
"Applicable Law" means all applicable provisions of constitutions,
laws, statutes, treaties, rules, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Applicable Margin" shall have the meaning assigned thereto in Section
3.1(a) and may be a negative number.
"Bankruptcy Code" means the U.S. Bankruptcy Code, 11 U.S.C. ss. 101 et
seq., as amended.
"Banks" means the "Lenders" and "Issuing Bank" as such terms are
defined in the Three-Year Credit Agreement.
"Base Rate" means, at any time, the higher of (a) the Prime Rate or
(b) the Federal Funds Rate plus 1/2 of 1%; each change in the Base Rate shall
take effect simultaneously with the corresponding change or changes in the
Prime Rate or the Federal Funds Rate.
"Base Rate Loan" means any loan under the Revolver bearing interest at
a rate determined with reference to the Base Rate.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina, and Atlanta, Georgia, are open for
the conduct of their commercial banking business, and (b) with respect to all
notices and determinations in connection with, and payments of principal and
interest on, any LIBOR Rate Loan, any day that is a Business Day described in
clause (a) and that is also, with respect to LIBOR Rate Loans, a day for
trading by and between banks in dollar deposits in the London interbank market.
"Capital Lease" means, with respect to any Person, any lease of any
property that would, in accordance with GAAP, be required to be classified and
accounted for as a capital lease on its balance sheet.
"Cash Flow Percentage" means, for any corporation, partnership, or
other entity in which either Co-Borrower has any direct or indirect investment
or other interest, for any period of calculation, the percentage derived by
dividing (A) the product of (i) Consolidated EBITR for such corporation,
partnership, or other entity during the period, multiplied by (ii) the
percentage amount of direct or indirect ownership by either or both
Co-Borrowers of all outstanding capital stock or other ownership interests of
the corporation, partnership, or other entity at the end of the period BY (B)
Consolidated EBITR for Holdings and its Subsidiaries during the period.
"Change in Control" means (i) any person or group of persons shall
obtain beneficial ownership or control (within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended) in one or more series of
transactions of more than fifty percent (50%) of the
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<PAGE> 9
common stock of either of the Co-Borrowers, (ii) any person or group of persons
shall obtain more than fifty percent (50%) of the voting power of shareholders
of either of the Co-Borrowers entitled to vote in the election of members of the
Board of Directors, (iii) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors of Holdings cease for any reason to constitute a majority of the
members of the Board of Directors of such company, or (iv) there shall have
occurred under any indenture or other instrument evidencing any Debt in excess
of $10 million any "change in control" (as defined in such indenture or other
evidence of Debt) obligating either of the Co-Borrowers or any Subsidiary to
repurchase, redeem or repay all or any part of the Debt or capital stock
provided for therein.
"Closing Date" means the date of this Agreement.
"Co-Borrowers" shall have the meaning assigned thereto in the preamble
hereof.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Commitment" means the Commitment of the Lender to make Revolver Loans
under Section 2.1 of this Agreement in an aggregate principal amount not to
exceed at any time Twenty-Five Million Dollars ($25,000,000), as the same may
be reduced or modified at any time or from time to time pursuant to Section
2.3(c).
"Company" shall have the meaning assigned thereto in the preamble
hereof.
"Consolidated" means, when used with reference to financial statements
or financial statement items of Holdings or any of its Subsidiaries, such
statements or items on a consolidated basis in accordance with applicable
principles of consolidation under GAAP.
"Contribution Agreement" means that certain Contribution Agreement,
dated of even date, and providing for certain contribution and indemnity claims
among the Co-Borrowers and Material Subsidiaries with respect to amounts paid
in connection with the Obligations, substantially in the form of Exhibit M
attached hereto.
"Contingent Obligation" means, with respect to Holdings and its
Subsidiaries, without duplication, any obligation, contingent or otherwise, of
any such Person pursuant to which such Person has directly or indirectly
guaranteed any Debt or other monetary obligation of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of any such Person (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement condition or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of
such Debt or other monetary obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided,
that the term Contingent Obligation shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be
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<PAGE> 10
deemed to be an amount equal to the stated or determinable amount of the
related obligation (unless the Contingent Obligation is limited by its terms to
a lesser amount, in which case to the extent of such amount) or, if not so
stated or determinable, the reasonably anticipated liability thereof.
"Credit Facility" means the revolving credit facility extended to the
Co-Borrowers pursuant to Section 2.1 in the aggregate principal amount not to
exceed at any time Twenty-Five Million Dollars ($25,000,000).
"Debt" means, with respect to Holdings and its Subsidiaries, at any
date and without duplication, the sum, calculated in accordance with GAAP, of
(i) all liabilities, obligations and indebtedness for borrowed money including
but not limited to obligations evidenced by bonds, debentures, notes or other
similar instruments of any such Person, (ii) all obligations to pay the
deferred purchase price of property or services of any such Person, except
trade payables arising in the ordinary course of business not more than ninety
(90) days past due, (iii) the capitalized obligations of any such Person as
lessee under capital leases, (iv) all Debt of any other Person secured by a
Lien on any asset of any such Person, (v) all obligations, contingent or
otherwise, of any such Person relative to the face amount of letters of credit,
whether or not drawn, exclusive of (A) standby letters of credit (other than
letters of credit securing obligations of a type described in clauses (i),
(ii), (iii) or (iv)) having a term of one year or less and entered into in the
ordinary course of business to the extent such letters of credit have not been
drawn upon and (B) bid, performance, litigation and similar bonds or guarantees
entered into in the ordinary course of business to the extent the same have not
been drawn upon, or if and to the extent drawn upon, such drawing is reimbursed
not later than the 10th Business Day following receipt by Co-Borrowers or a
Subsidiary of a demand for reimbursement on such bonds or guarantees by the
surety or other issuer thereof), (vi) all Contingent Obligations of such Person
for the repayment of money borrowed or the deferred purchase price of property
(including all earn-out obligations), including, without limitation, all
guaranty, surety, accommodation and like undertakings with respect to such
obligations, (vii) all obligations to redeem, repurchase, exchange, defease or
otherwise make payments in respect of capital stock or securities of such
Person and (vii) all termination payments which would be due and payable by any
such Person pursuant to a hedging agreement.
"Deemed Distribution Event" means the delivery by the Company to the
Lender of an opinion (reasonably satisfactory to the Lender) from the Company's
regular outside counsel or its tax advisors to the effect that a foreign
Material Subsidiary's becoming or continuing to be liable under the Guaranty
could reasonably be expected to create taxable income for Co-Borrowers or any
Subsidiary organized in the United States under Section 956 of the Code.
"Default" means any of the events specified in Section 10.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
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"EBITR" means, with respect to any Person, for any period of
calculation and without duplication, Net Income for such period, plus the sum
of the following items, in each case, to the extent deducted in the computation
of such Net Income (i) Interest Expense paid or accrued but not paid during
such period, plus (ii) income, franchise and other tax expenses paid during
such period, plus (iii) rental expense (exclusive of Capital Leases) paid
during such period.
"Eligible Assignee" means (i) a commercial bank organized under the
laws of the United States or any state thereof and having total assets in
excess of $1,000,000,000, (ii) a commercial bank organized under the laws of
any other country that is a member of the Organization for Economic Cooperation
and Development or any successor thereto (the "OECD") or a political
subdivision of any such country and having total assets in excess of
$1,000,000,000, provided that such bank is acting through a branch or agency
located in the United States, in the country under the laws of which it is
organized or in another country that is also a member of the OECD, (iii) the
central bank of any country that is a member of the OECD, (iv) a finance
company, insurance company or other financial institution or fund that is
engaged in making, purchasing or otherwise investing in loans in the ordinary
course of its business and having total assets in excess of $1,000,000,000, (v)
any Affiliate of the Lender, or (vi) any other Person approved by Lender and
Co-Borrowers, which approval shall not be unreasonably withheld.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (i) is maintained for employees or
former employees of any Co-Borrower or any ERISA Affiliate or (ii) has at any
time within the preceding six years been maintained for the employees or former
employees of any Co-Borrower or any current or former ERISA Affiliate.
"Environmental Law" means any and all applicable federal, state,
provincial and local laws, statutes, ordinances, rules, regulations, permits,
licenses, written approvals and published interpretations, and orders of courts
or Governmental Authorities, relating to the protection of human health or the
environment, including, but not limited to, requirements pertaining to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Materials.
"Equipment" means as to any Person all of such Person's now owned and
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including, without
limitation, data processing hardware and software, motor vehicles, aircraft,
dies, tools, jigs, and office equipment, as well as all of such types of
property leased by such Person and all of such Persons' rights and interest
with respect thereto under such leases (including, without limitation, options
to purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the
foregoing, and all manuals, drawings, instructions, warranties and rights with
respect thereto; wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
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<PAGE> 12
"ERISA Affiliate" means any Person who together with any Co-Borrower
is treated as a single employer within the meaning of Section 414(b), (c), (m)
or (o) of the Code or Section 4001(b) of ERISA.
"Event of Default" means any of the events specified in Section 10.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Judgment" shall have the meaning assigned thereto in Section
10.1(m).
"Existing Letter of Credit and Reimbursement Agreement" means that
certain Letter of Credit and Reimbursement Agreement dated as of August 25,
1999, among First Union, Co-Borrowers, Scientific Games Finance Corporation,
SGIL and Scientific Games Royalty Corporation, as the same may be amended,
modified, restated or supplemented from time to time.
"Expiration Date" means the date which is 364 days after the Closing
Date.
"Federal Funds Rate" means, for any day, a fluctuating interest rate
per annum (rounded upward, if necessary, to the next 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
published at 11:00 a.m. (Eastern Standard or Daylight Time) for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by First Union from three Federal funds brokers of
recognized standing selected by it in good faith as reasonably representative
of such rate.
"First Union" means First Union National Bank.
"Fiscal Year" means each fiscal year of Holdings and its Subsidiaries
ending on December 31.
"Fixed Charge Coverage Ratio" means, for any period of calculation,
EBITR divided by (i) Interest Expense paid or accrued but not paid during such
period, and (ii) rental expense (exclusive of Capital Leases) paid during such
period.
"Foreign Subsidiary Note" means each and every promissory note made to
the Company or Holdings from a foreign Material Subsidiary, whether or not
executing a Limited Foreign Guaranty and made to evidence the loans to be made
by the Company or Holdings to the foreign Material Subsidiary from proceeds of
the Loans and other cash sources.
"GAAP" means, as of any date of determination, generally accepted
accounting principles, as recognized by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board, consistently
applied and maintained on a consistent basis for Holdings and its Subsidiaries
throughout the period indicated and consistent with the prior financial
practice
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<PAGE> 13
of Holdings and the Subsidiaries. The term "consistently applied" as used in
connection therewith, means that the accounting principles applied as at a date
or for a period specified are consistent in all material respects to those
applied as at prior dates or for prior periods.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing having
jurisdiction over the Person and the subject matter.
"Guaranty" means that certain Guaranty of even date, executed by each
of the Guarantors and by which each of the Guarantors (other than SGIL, which
shall execute a Limited Foreign Guaranty) shall guarantee the payment of the
full amount of the Obligations substantially in the form of Exhibit K attached
hereto, as amended or supplemented from time to time.
"Guarantors" means those Persons who have executed a Guaranty or a
Limited Foreign Guaranty, including, without limitation, Scientific Games
Finance Corporation, a Delaware corporation and a Subsidiary of Holdings,
Scientific Games Royalty Corporation, a Delaware corporation and a Subsidiary
of Holdings, SGIL and all other Material Subsidiaries.
"Hazardous Materials" means any substances or materials (i) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (ii) which are
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or similar in kind and harmful to human health or the environment and
are or become regulated by any Governmental Authority, (iii) the presence of
which require investigation or remediation under any Environmental Law, (iv)
the discharge or emission or release of which requires a permit or license
under any Environmental Law or other Governmental Approval, (v) which are
deemed to constitute a nuisance, a trespass or pose a health or safety hazard
to persons or neighboring properties, (vi) which are materials consisting of
underground or aboveground storage tanks, whether empty, filled or partially
filled with any substance, or (vii) which contain, without limitation,
asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation,
petroleum hydrocarbons, petroleum derived substances or waste, crude oil,
nuclear fuel, natural gas or synthetic gas.
"Holdings" shall have the meaning assigned thereto in the preamble
hereof.
"Intercompany Subordination Agreement" means the Intercompany
Subordination Agreement of even date by and among, certain Subsidiaries of
Co-Borrowers identified therein and the Lender, substantially in the form of
Exhibit F attached hereto, as amended or supplemented from time to time.
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<PAGE> 14
"Initial Interest Period" means the period during which all Loans shall
be Base Rate Loans, which period shall commence on the Closing Date and end on
the date three (3) Business Days thereafter.
"Interest Expense" means, with respect to Holdings and its Consolidated
Subsidiaries, for any period of calculation and without duplication, gross
interest expense (including without limitation, interest expense attributable
in accordance with GAAP to Capital Leases and all net obligations pursuant to
hedging agreements), determined on a Consolidated basis for such period in
accordance with GAAP.
"Interest Payment Date" means, with respect to Base Rate Loans, the
last Business Day of each calendar quarter commencing with the first calendar
quarter ending after the Closing Date, and with respect to LIBOR Rate Loans,
the last day of each Interest Period applicable thereto.
"Interest Period" shall have the meaning assigned thereto in Section
3.1(b).
"Joinder Agreement" means a Joinder Agreement substantially in the form
of Exhibit G executed by each Subsidiary in accordance with Section 7.12, as
amended or supplemented from time to time.
"Lender" shall have the meaning assigned thereto in the preamble
hereof.
"Lending Office" means the Lender's office located at its address set
forth on the signature pages hereof or such other office as the Lender may
hereafter designate as its Lending Office by notice to the Co-Borrowers, to
which payments due are to be made and at which Loans will be disbursed.
"Leverage Ratio" means at any date the ratio of (i) the Consolidated
Debt of Holdings and its Subsidiaries as of such date to (ii) the sum of (A)
the Consolidated Net Worth of Holdings and its Subsidiaries plus (B) the
Consolidated Debt of Holdings and its Subsidiaries, each as of such date.
"LIBOR" means the prevailing rate of interest determined on the basis
of the rate for deposits in dollars for a period equal to the applicable
Interest Period commencing on the first day of such Interest Period appearing
on Telerate Page 3750 as of 11:00 a.m. (London time) two Business Days prior to
the first day of the applicable Interest Period. In the event that such rate
does not appear on Telerate Page 3750, "LIBOR" shall be the rate per annum at
which deposits in Dollars are offered by leading reference banks in the London
interbank market to First Union at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of the applicable Interest Period for a
period equal to such Interest Period and in an amount substantially equal to
the amount of the applicable Loan.
"LIBOR Rate" means (i) LIBOR divided by (ii) one (1) less the Reserve
Percentage (such rate to be rounded upward to the next whole multiple of 1/16
of 1%).
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<PAGE> 15
"LIBOR Rate Loan" means any loan under the Revolver bearing interest at
a rate determined with reference to the LIBOR Rate.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to
a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
"Limited Foreign Guaranty" means the Limited Foreign Guaranty executed
by any Material Subsidiary (other than SG Austria) not organized in the United
States of America and for which the Company has established that there is a
Deemed Distribution Event.
"Loan" means any loan or advance made by the Lender pursuant to this
Agreement.
"Loan Documents" means, collectively, this Agreement, the Notes, the
Intercompany Subordination Agreement, any Joinder Agreement, the Guaranty, the
Limited Foreign Guaranty, the Negative Pledge Agreement, the Note Pledge
Agreement and each other document, instrument and agreement executed and
delivered by either Co-Borrower or any Subsidiary pursuant to and in connection
with this Agreement.
"Loan Year" means the period of twelve (12) consecutive months
commencing on the Closing Date and each succeeding period of twelve (12)
consecutive months commencing on each anniversary of the Closing Date.
"Material Adverse Effect" means, with respect to Holdings and its
Subsidiaries taken as a whole, a material adverse effect on the properties,
business, prospects, operations or condition (financial or otherwise) of any
such Person so as to impair the ability of any such Person to perform its
obligations under the Loan Documents to which it is a party.
"Material Contract" means any contract or other agreement, written or
oral, of Holdings or any of its Subsidiaries involving monetary liability of or
to any such Person in an amount in excess of $1,000,000 per annum.
"Material Judgment Amount" means $1,000,000.
"Material Subsidiary" means Scientific Games Finance Corporation,
Scientific Games Royalty Corporation, SGIL, SG Austria and any other Subsidiary
(i) having, at any time, total assets equal to or greater than ten percent
(10%) of the then total consolidated assets of Holdings or (ii) having at any
Fiscal Year end (or as of the end of any fiscal quarter as may be required
pursuant to 6.2(d)), a Cash Flow Percentage, for the consecutive four quarter
period ending on such Fiscal Year end (or, as requested by the Lender, fiscal
quarter end), equal to or greater than ten percent (10%).
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<PAGE> 16
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Co-Borrower or any ERISA Affiliate has made,
or accrued an obligation to make, contributions within the preceding six years.
"Negative Pledge Agreement" means the agreement executed by each of the
Co-Borrowers and the Material Subsidiaries and prohibiting the sale or
collateral conveyance of the signatories' assets.
"Net Income" means for any period and without duplication, net income
(or loss) of Holdings and its Consolidated Subsidiaries for such period
determined in accordance with GAAP; provided, that other than in the
calculation called for by subsection (ii) of the definition of Material
Subsidiary, there shall be excluded from the calculation of such Net Income the
income of any Subsidiary (other than a Material Subsidiary) if and to the
extent that a Co-Borrower or a Material Subsidiary has not received the income
in a cash distribution.
"Net Worth" means, as of any date, the total of all amounts which
would, in accordance with GAAP, be included on a Consolidated balance sheet of
Holdings and its Consolidated Subsidiaries as of such date as (a) the par or
stated value of all outstanding capital stock of Holdings and its Consolidated
Subsidiaries, (b) paid-in capital or capital surplus relating to such capital
stock, and (c) any retained earnings or earned surplus, less any accumulated
deficit.
"Notes" means the Revolver Notes.
"Note Pledge Agreement" means each Note Pledge Agreement substantially
in the form of Exhibit J attached hereto.
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 2.2(a).
"Notice of Conversion/Continuation" shall have the meaning assigned
thereto in Section 3.3.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (i) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans,
(ii) all payment and other obligations owing under any hedging agreement and
(iii) all other fees and commissions (including attorney's fees), charges,
indebtedness, loans, liabilities, obligations, covenants and duties owing to
the Lender, of every kind, nature and description, direct or indirect, absolute
or contingent, due or to become due, contractual or tortious, liquidated or
unliquidated, and whether or not evidenced by any note, and whether or not for
the payment of money in each case under or in respect of this Agreement, the
Note or any of the other Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 6.2.
"Other Taxes" shall have the meaning assigned thereto in Section
3.9(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
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<PAGE> 17
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (i) is maintained for employees or former
employees of any Co-Borrower or any ERISA Affiliates or (ii) has at any time
within the preceding six years been maintained for the employees or former
employees of any Co-Borrower or any of their current or former ERISA
Affiliates.
"Permissible Restrictive Agreement" means an agreement entered into by
either or both Co- Borrowers or one or more Subsidiary that restricts the
payment of dividends by the Co-Borrower or Subsidiary party to the agreement,
but only restricts such dividend payment to the extent it, when added to all
other dividend payments since the inception of the agreement, would exceed more
than half of the cumulative net income earned by the Co-Borrower or Subsidiary
since the inception of the agreement.
"Permitted Acquisition" shall have the meaning assigned thereto in
Section 9.4(b)(x).
"Permitted Business" means (i) any business segment of the lottery and
promotional game industry, including, without limitation, the production,
distribution and sale of lottery tickets, game design, inventory management and
distribution, retailer telemarketing, field services, on line lottery or gaming
systems and components, lottery ticket accounting and validation hardware and
software, central site computers and communications hardware, support and
maintenance services or any combination thereof, (ii) any related, ancillary or
complimentary business, including, without limitation, the production,
distribution and sale of prepaid telephone cards, the production, distribution
and sale of hardware, software and support services for sports betting and
credit card processing, the production, distribution and sale of any printed
products utilizing manufacturing processes or equipment similar to the
processes or equipment then employed by the Company or otherwise employed in
the lottery and gaming industry and the production, distribution and sale of
products and services for which a useful or necessary component is the
utililization of concealed, encoded or encrypted information or data.
"Permitted Liens" means (i) Liens for taxes, assessments and other
governmental charges or levies (excluding any Lien imposed pursuant to any of
the provisions of ERISA or Environmental Law) not yet due or as to which the
period of grace, if any, related thereto has not expired or which are being
contested in good faith and by appropriate proceedings or procedures if
adequate reserves are maintained (to the extent required by GAAP), (ii) the
claims of materialmen, mechanics, carriers, warehousemen, processors or
landlords for labor, materials, supplies or rentals incurred in the ordinary
course of business, (A) which are not overdue for a period of more than thirty
(30) days or (B) which are being contested in good faith and by appropriate
proceedings or procedures, (iii) Liens consisting of deposits or pledges made
in the ordinary course of business in connection with, or to secure payment of,
obligations under workers' compensation, unemployment insurance or similar
legislation or obligations under customer service contracts, (iv) Liens
constituting covenants, conditions, encumbrances in the nature of zoning
restrictions and other Applicable Law restricting the right, use or enjoyment
of real property, easements and rights or restrictions of record on the use of
real property, facilities or Equipment which in the aggregate do not materially
detract from the value of such property, facilities or Equipment or materially
impair the use thereof in the ordinary conduct of business, including, without
limitation: (A) easements, exceptions, reservations,
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<PAGE> 18
or other agreements for the purpose of pipelines, conduits, cables, wire
communication lines, power lines and substations, streets, trails, walkways,
drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the
removal of oil, gas, other minerals, and other like purposes affecting real
property, facilities, or Equipment which, in the aggregate, do not materially
burden or impair the value or use of such property for the purposes for which
it is or may reasonably be expected to be held; (B) easements, exceptions,
reservations, or other agreements for the purpose of facilitating the joint
or common use of property in a development or similar real property project
affecting real property which, in the aggregate, do not materially burden or
impair the value or use of such property for the purposes for which it is or
may reasonably be expected to be held; and (C) rights reserved to or vested in
any Governmental Authority by Applicable Law to control or regulate, or
obligations or duties under Applicable Law to any Governmental Authority with
respect to, the use of any real property; (v) inchoate Liens incident to
construction or maintenance of real property or Liens incident to construction
or maintenance of real property now or hereafter filed of record for which
adequate reserves have been established (to the extent required by GAAP) and
which are being contested in good faith by appropriate proceedings or
procedures and have not proceeded to judgment; (vi) rights reserved to or
vested in any Governmental Authority by Applicable Law to control or regulate
or obligations or duties under Applicable Law to any Governmental Authority
with respect to any right, power, franchise, grant, license, or permit; (vii)
statutory Liens or other Liens which arise by operation of Applicable Law,
other than those described in clauses (i) or (ii) above, arising in the
ordinary course of business with respect to (A) obligations which are not
delinquent or are being contested in good faith by appropriate proceedings or
procedures, provided that adequate reserves have been established (to the
extent required by GAAP) with respect thereto and, by reason of nonpayment, no
property is subject to a material risk of loss or forfeiture; or (B) in favor
of unpaid sellers of goods or prepaying buyers of goods, or Liens in items of
any accompanying documents or proceeds of either arising in favor of a
collecting bank; (viii) Liens of the Administrative Agent for the benefit of
the Administrative Agent and the Banks to secure Co-Borrowers obligations under
the the Three-Year Credit Agreement, including, without limitation, Liens
granted in favor of First Union pursuant to the Note Pledge Agreement to secure
the obligations of Co-Borrowers under this Agreement and the Three-Year Credit
Agreement and related loan documents; (ix) Existing Liens described on Schedule
9.3; (x) Liens on Debt permitted by Section 9.1, including Real Estate
Financing Debt; and (xi) any judgment Lien in connection with the Existing
Judgment so long as the Existing Judgement is discharged or stayed within 10
Business Days after the date of the creation or imposition of such Lien.
"Person" means an individual, corporation, partnership, association,
trust, business trust, limited liability company, joint venture, joint stock
company, pool, syndicate, sole proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or group.
"Prime Rate" means, at any time, the rate of interest per annum
publicly announced from time to time by First Union as its prime rate. Each
change in the Prime Rate shall be effective as of the opening of business on
the day such change in the Prime Rate occurs. The parties hereto acknowledge
that the rate announced publicly by First Union as its Prime Rate is an index
or base rate and shall not necessarily be its lowest or best rate charged to
its customers or other banks.
"Projections" shall have the meaning assigned thereto in Section
6.1(c).
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<PAGE> 19
"Real Estate Financing Debt" shall have the meaning assigned thereto in
Section 9.1(x).
"Receivables" means as to any Person any right to payment from or on
behalf of any obligor, whether constituting an account, chattel paper,
instrument, letter of credit, general intangible or otherwise, arising from the
sale or financing by such Person of merchandise or services, and monies due
thereunder, security in the merchandise and services financed thereby, records
related thereto, and the right to payment of any interest or finance charges
and other obligations with respect thereto, proceeds from claims on insurance
policies related thereto, any other proceeds related thereto, and any other
related rights.
"Reserve Percentage" means the maximum daily arithmetic reserve
requirement imposed by the Board of Governors of the Federal Reserve System (or
any successor) under Regulation D on Eurocurrency liabilities (as defined in
Regulation D) for the applicable Interest Period as of the first day of such
Interest Period, but subject to any changes in such reserve requirement
becoming effective during the Interest Period. For purposes of calculating the
Reserve Percentage, the reserve requirement shall be as set forth in Regulation
D without benefit of credit for prorations, exemptions or offsets under
Regulation D, and further without regard to whether or not the Lender elects to
actually fund any Loan or portion thereof with Eurocurrency liabilities. Each
calculation by Lender of the LIBOR Rate shall be entitled to a presumption of
correctness, absent manifest error.
"Responsible Officer" of any Person means the chief executive officer,
president, chief financial officer, general counsel or chief accounting officer
of such Person.
"Revolver Loan" means any loan made to the Co-Borrowers pursuant to
Section 2.1, and all such Loans collectively as the context requires.
"Revolver Notes" means the separate Revolving Credit Notes made by the
Co-Borrowers payable to the order of the Lender, substantially in the form of
Exhibit A hereto, evidencing the Credit Facility, and any amendments and
modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part; "Revolver
Note" means any of such Notes.
"SEC" means the Securities and Exchange Commission.
"SG Austria" means Scientific Games International GmbH, a limited
liability company organized under the laws of the Republic of Austria.
"SGIL" means Scientific Games International Limited.
"Solvent" means, with respect to Holdings and each of its Subsidiaries,
that such Person (i) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage
and is able to pay its debts as they mature, (ii) owns property having a value,
both at fair valuation and at present fair saleable value, greater than the
amount required to pay its probable liabilities (including contingencies), and
(iii) does not believe that it will incur debts or liabilities beyond its
ability to pay such debts or liabilities as they mature.
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<PAGE> 20
"Subsidiary" means any corporation, partnership or other entity of
which more than fifty percent (50%) of the outstanding capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation, partnership or other
entity is at the time, directly or indirectly, owned by either of the
Co-Borrowers or the management is otherwise controlled by such Person
(irrespective of whether, at the time, capital stock or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency).
"Taxes" shall have the meaning assigned thereto in Section 3.9(a).
"Termination Date" means the earliest of the dates referred to in
Section 2.4.
"Termination Event" means: (i) a "Reportable Event" described in
Section 4043 of ERISA (other than a Reportable Event as to which the provision
of 30 days' notice has been waived by the PBGC under applicable regulations or
is not subject to the provision for 30 days notice to the PBGC); (ii) the
withdrawal of any Co-Borrower or any ERISA Affiliate from a Pension Plan during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA; (iii) the termination of a Pension Plan, the filing of a
notice of intent to terminate a Pension Plan or the treatment of a Pension Plan
amendment as a distress termination under Section 4041(c) of ERISA; (iv) the
institution of proceedings to terminate, or the appointment of a trustee with
respect to, any Pension Plan by the PBGC; (v) any other event or condition
which is reasonably expected to constitute grounds under Section 4042(a) of
ERISA for the termination of, or the appointment of a trustee to administer,
any Pension Plan; (vi) the partial or complete withdrawal of any Co-Borrower or
any ERISA Affiliate from a Multiemployer Plan; (vii) the imposition of a Lien
pursuant to Section 412 of the Code or Section 302 of ERISA; (viii) any event
or condition which results in the reorganization or insolvency of a
Multiemployer Plan under Sections 4241 or 4245 of ERISA; or (ix) any event or
condition which results in the termination of a Multiemployer Plan under
Section 4041A of ERISA or the institution by PBGC of proceedings to terminate a
Multiemployer Plan under Section 4042 of ERISA.
"Three-Year Credit Agreement" means that certain Credit Agreement dated
as of the date hereof, by and among the Co-Borrowers, the Administrative Agent
and the Banks.
"United States" means the United States of America.
SECTION 1.2 General. All terms of an accounting nature not specifically
defined herein shall have the meanings assigned thereto by GAAP. Unless
otherwise specified, a reference in this Agreement to a particular section,
subsection, Schedule or Exhibit is a reference to that section, subsection,
Schedule or Exhibit of this Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural shall include
the singular and plural, and pronouns stated in the masculine, feminine or
neuter gender shall include the masculine, the feminine and the neuter. Any
reference herein to "Atlanta time" shall refer to the applicable time of day in
Atlanta, Georgia.
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<PAGE> 21
SECTION 1.3 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including without limitation, all computations utilized by
Co-Borrowers or any Subsidiary thereof to determine compliance with any
covenant contained herein, shall, except as otherwise expressly contemplated
hereby or unless there is an express written direction by the Lender to the
contrary agreed to by the Co-Borrowers, be performed in accordance with GAAP.
In the event that changes in GAAP (as in effect on the Closing Date) shall be
mandated by the Financial Accounting Standards Board or any similar accounting
body of comparable standing or shall be recommended by the Co-Borrowers'
certified public accountants, to the extent that such changes would modify such
accounting terms or the interpretation or computation thereof, such changes
shall be followed in defining such accounting terms only from and after the
date the Co-Borrowers and the Lender shall have entered into an amendment of
this Agreement to the extent necessary to reflect any such changes in the
financial covenants and other terms and conditions of this Agreement and to
conform the covenants for evaluating Co-Borrowers financial condition to
substantially the same criteria as were in effect prior to such change in GAAP.
SECTION 1.4 Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings
when used in this Agreement, the Notes and the other Loan Documents and any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
SECTION 1.5 Exhibits and Schedules. All Exhibits and Schedules to this
Agreement, either as originally existing or as the same may from time to time
be supplemented, modified, or amended are incorporated herein by reference. A
matter disclosed on any Schedule shall be deemed disclosed on all Schedules.
The disclosure of any matter, if such matter constitutes a Default or an Event
of Default, will not cure any such Default or Event of Default.
ARTICLE II
CREDIT FACILITY
SECTION 2.1 Revolver Loans. Subject to the terms and conditions of this
Agreement, the Lender agrees to make Revolver Loans to the Co-Borrowers jointly
and severally from time to time from the Closing Date through the Termination
Date as requested by the Company, on behalf of Co-Borrowers, in accordance
with the terms of Section 2.2; provided that the sum of the aggregate principal
amount of all outstanding Revolver Loans shall not exceed the Commitment. Each
Revolver Loan by the Lender shall be in a principal amount equal to the
aggregate principal amount of Revolver Loans requested on such occasion, up to
a principal amount at any time outstanding under the Credit Facility equal to
the Commitment. If at any time the Lender shall make Revolver
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<PAGE> 22
Loans to the Co-Borrowers such that the aggregate amount of Revolver Loans
outstanding hereunder exceeds the Commitment, such Revolver Loans shall
nonetheless constitute Obligations hereunder. Subject to the terms and
conditions hereof, the Co-Borrowers may borrow, repay and reborrow Revolver
Loans hereunder until the Termination Date.
SECTION 2.2 Procedure for Advances of Revolver Loans.
(a) Requests for Borrowing. The Company, on behalf of the
Co-Borrowers, shall give the Lender irrevocable prior written notice in the
form attached hereto as Exhibit B (a "Notice of Borrowing") not later than
11:00 a.m. (Atlanta time) (i) on the date of borrowing with respect to each
Base Rate Loan and (ii) at least three (3) Business Days before each LIBOR Rate
Loan, of its intention to borrow, specifying (A) the date of such borrowing,
which shall be a Business Day, (B) the amount of such borrowing, which shall,
with respect to LIBOR Rate Loans, be in an aggregate principal amount of
$5,000,000 or a whole multiple of $1,000,000 in excess thereof, and, with
respect to Base Rate Loans, be in an aggregate principal amount of $500,000 and
or a whole multiple of $100,000 in excess thereof, (C) whether the Loans are to
be LIBOR Rate Loans or Base Rate Loans, and (D) in the case of a LIBOR Rate
Loan, the duration of the Interest Period applicable thereto. Notices received
after 11:00 a.m. (Atlanta time) shall be deemed received on the next Business
Day.
(b) Disbursement of Revolver Loans. Not later than 1:00 p.m. (Atlanta
time) on the proposed borrowing date for any Revolver Loan, the Lender will
make available for the account of the Co-Borrowers at the appropriate Lending
Office in Dollars the Revolver Loans requested. The proceeds of each borrowing
requested pursuant to this Section 2.2(b) shall be disbursed in immediately
available funds by crediting such proceeds to the account of Co-Borrowers
designated in the Accounts Designation Letter.
SECTION 2.3 Repayment of Revolver Loans.
(a) Repayment on Termination Date. The Co-Borrowers shall repay the
outstanding principal amount of all Revolver Loans made to such Co-Borrowers in
full, together with all accrued but unpaid interest thereon, on the Termination
Date.
(b) Mandatory Repayment of Excess Loans. If at any time the sum of
the outstanding principal amount of all Revolver Loans exceeds the Commitment ,
the Co-Borrowers shall repay such excess, and such payment shall be applied in
the following order: (i) first, to Revolver Loans which are Base Rate Loans;
and (ii) second, to LIBOR Loans. Each such repayment shall be accompanied by
accrued interest on the amount repaid and any amount required to be paid
pursuant to Section 3.7 hereof.
(c) Optional Repayments and Commitment Reductions. Without fee or
penalty, the Co-Borrowers may at any time and from time to time repay the
Revolver Loans made thereto, in whole or in part, upon irrevocable notice to
the Lender not later than 11:00 a.m. (Atlanta time) on the date of repayment
with respect to Base Rate Loans and at least three (3) Business Days before
with respect to LIBOR Rate Loans, specifying the date and amount of repayment
and whether the repayment is of Base Rate Loans or LIBOR Rate Loans, or a
combination thereof, and, if of a
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<PAGE> 23
combination thereof, the amount allocable to each. If any such notice is given,
the amount specified in such notice shall be due and payable on the date set
forth in such notice. Partial repayments shall be in an aggregate amount of
$5,000,000 or a whole multiple of $1,000,000 in excess thereof with respect to
LIBOR Rate Loans, and $500,000 or a whole multiple of $100,000 in excess
thereof with respect to Base Rate Loans. Each such repayment shall be
accompanied by any amount required to be paid pursuant to Section 3.7. Upon the
repayment of any Loan, the Co-Borrowers, without fee or penalty, upon
irrevocable notice to the Lender at least five (5) Business Days prior to the
proposed commitment reduction, may reduce the Commitment for more or less than
the repaid Loan amount, but with such commitment reduction to be in a minimum
amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof.
(d) Limitation on Repayment of LIBOR Rate Loans. No Co-Borrower may
repay any LIBOR Rate Loan hereunder on any day other than on the last day of
the Interest Period applicable thereto unless such repayment is accompanied by
any amount required to be paid pursuant to Section 3.7.
SECTION 2.4 Termination of Revolver Facility. The Lender's Commitment
under Section 2.1 shall terminate on the earlier of (i) the Expiration Date or
(ii) the date of termination by the Lender pursuant to Section 10.2(a).
SECTION 2.5 Use of Proceeds. The Co-Borrowers shall use the proceeds of
the Loans for working capital and general corporate requirements of the
Co-Borrowers, including, without limitation, stock repurchases in respect of
Holding's capital stock and Permitted Acquisitions.
SECTION 2.6 Co-Borrower and Guarantor Liability. With respect to the
respective liabilities for the Obligations, the Co-Borrowers and Guarantors
have executed with the Lender that certain Contribution Agreement, of even
date, providing for certain contribution and other rights among the
Co-Borrowers and Guarantors.
SECTION 2.7 Subordination of Subrogation and Contribution Claim. Each
Co-Borrower and Guarantor hereby subordinates, to the collection and payment in
full of the Obligations and to the fullest extent possible, and irrevocably
agrees to delay until full and final payment of the Obligations any enforcement
of, any and all rights, whether at law, in equity, by agreement or otherwise,
to subrogation, indemnity, reimbursement, contribution, or any other similar
claim, cause of action or remedy that otherwise would arise out of such
Co-Borrower's or Guarantor's payment or performance of the Obligations,
including, without limitation, any and all claims under the Contribution
Agreement.
SECTION 2.8 Foreign Subsidiary Guaranties. If at any time and from time
to time the Company shall establish for any foreign Material Subsidiary (other
than SG Austria) a Deemed Distribution Event, the foreign Material Subsidiary
shall execute a Limited Foreign Guaranty, and, upon such execution, be relieved
of liability under the Guaranty.
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<PAGE> 24
ARTICLE III
GENERAL LOAN PROVISIONS
SECTION 3.1 Interest.
(a) Interest Rate Options. Loans made on the Closing Date and during
the Initial Interest Period shall be Base Rate Loans and shall bear interest at
the Base Rate plus the Applicable Margin (the "Applicable Margin") as set forth
below in this Section 3.1. Thereafter, Base Rate Loans shall bear interest at
the Base Rate plus the Applicable Margin and, LIBOR Rate Loans shall bear
interest at the LIBOR Rate plus the Applicable Margin. On behalf of the
Co-Borrowers, the Company shall determine whether a Revolving Loan is to be a
Base Rate Loan or LIBOR Rate Loan and select the Interest Period, if any,
applicable to any Revolving Loan at the time a Notice of Borrowing is given
pursuant to Section 2.2 or at the time a Notice of Conversion/Continuation is
given pursuant to Section 3.3. Any Loan or any portion thereof as to which the
Company has not duly specified an interest rate as provided herein shall be
deemed a Base Rate Loan, and, if it is a LIBOR Rate Loan for which an Interest
Period has ended, shall, so long as no Event of Default has occurred and shall
be continuing, be deemed renewed as a Base Rate Loan and, in each case, no
Event of Default shall arise as a result thereof.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
Company, on behalf of the Co-Borrowers, by giving notice at the times described
in Section 3.1(a), shall elect an interest period (each, an "Interest Period")
to be applicable to such Loan, which Interest Period shall be a period of one,
two or three months; provided that:
(i) the Interest Period shall commence on the date of advance
of or conversion to any LIBOR Rate Loan and, in the case of immediately
successive Interest Periods, each successive Interest Period shall
commence on the date on which the next preceding Interest Period
expires;
(ii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided, that, with respect to any LIBOR
Rate Loan, if any Interest Period would otherwise expire on a day that
is not a Business Day but is a day of the month after which no further
Business Day occurs in such month, such Interest Period shall expire on
the next preceding Business Day;
(iii) with respect to any LIBOR Rate Loan, any Interest Period
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period;
(iv) no Interest Period for Revolver Loans shall extend beyond
the Termination Date;
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<PAGE> 25
(v) there shall be no more than four Types of LIBOR Rate Loans
outstanding at any time; for purposes of this provision, a "Type" of
Loan shall refer to Loans with Interest Periods beginning and ending on
the same date; and
(vi) such right of election is subject to Section 3.1(e)(i).
(c) Applicable Margin. On and after the Closing Date until
adjustments, if any, pursuant to Subsection 3.1(d) below after receipt by the
Lender of financial statements for Holdings and Subsidiaries for the quarter
ended September 30, 1999, the Applicable Margin (which may be a negative
number) for LIBOR Rate Loans will be 0.75% and for Base Rate will be 0.00%,
and, thereafter, the Applicable Margin with respect to Base Rate Loans and
LIBOR Rate Loans shall be determined as provided below by reference to the
Leverage Ratio at the end of each fiscal quarter of Holdings as follows:
<TABLE>
<CAPTION>
------------------------------------------------
Applicable Margin
------------------------------------------------
<S> <C> <C>
Leverage LIBOR Base
Ratio Margin Rate
Margin
------------------------------------------------
Less than or equal to 0.75% 0.00%
25%
------------------------------------------------
Greater than 25%, but 1.00% 0.00%
less than or equal to
40%
------------------------------------------------
Greater than 40% 1.25% 0.25%
------------------------------------------------
</TABLE>
(d) Adjustments to Applicable Margin. Adjustments, if any, in the
Applicable Margin shall be made by the Lender ten (10) Business Days after
receipt by the Lender of quarterly financial statements for Holdings and its
Subsidiaries and the accompanying Officer's Compliance Certificate setting
forth the Leverage Ratio for Holdings and its Subsidiaries as of the most
recent fiscal quarter end. In the event Holdings fails to deliver such
financial statements and certificate within the time required by Sections
6.1(a) or (b) and Section 6.2 hereof, the Applicable Margin shall be the
highest Applicable Margin set forth above until five (5) Business Days after
the delivery of such financial statements and certificate.
(e) Default Rate. Upon the occurrence and during the continuance of
an Event of Default, (i) the Co-Borrowers shall no longer have the option to
request LIBOR Rate Loans, (ii) (A) prior to the acceleration of any of the
Obligations pursuant to Section 10.2, the amount of any overdue Loan or other
Obligation shall bear interest at a rate per annum two percent (2.0%) in excess
of the highest rate otherwise then applicable to the Loans, and (B) after the
acceleration of any of the Obligations pursuant to Section 10.2, all of the
Obligations shall bear interest at a rate per
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<PAGE> 26
annum two percent (2.0%) in excess of the highest rate otherwise then
applicable to the Loans, and (iii) all LIBOR Rate Loans at the end of their
applicable Interest Period shall be converted to Base Rate Loans. Interest
shall continue to accrue on the Notes after the filing by or against either or
both Co- Borrowers of any petition seeking any relief in bankruptcy or under
any act or law pertaining to insolvency or debtor relief, whether state,
federal or foreign.
(f) Interest Payment and Computation. Interest on each Loan shall be
payable in arrears on each Interest Payment Date. Interest on Base Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as the case may
be, and assessed for the actual number of days elapsed, and interest on all
other Loans shall be computed on the basis of a year of 360 days and assessed
for the actual number of days elapsed.
(g) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lender
has charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the
maximum rate permitted by Applicable Law and the Lender at its option promptly
refund to the applicable Co-Borrower or Co-Borrowers any interest received by
Lender in excess of the maximum lawful rate or shall apply such excess to the
principal balance of the Obligations. It is the intent hereof that the
Co-Borrowers not pay or contract to pay, and that the Lender not receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by the Co-Borrowers under Applicable Law.
SECTION 3.2 Closing Fee. Co-Borrowers hereby jointly and severally
agree to pay to Lender a closing fee (the "Closing Fee") in an amount equal to
.175% of the Commitment, which closing fee shall be payable in advance in four
(4) equal installments payable on Closing Date and on February 28, 2000, May
31, 2000 and August 31, 2000; provided, however, that upon the termination of
the Credit Facility the Co-Borrowers' obligation to pay any outstanding portion
of the Closing Fee that is not then due and payable shall terminate.
Notwithstanding anything in the immediately preceding sentence to the contrary,
the entire outstanding balance of the Closing Fee shall be payable in full on
the date of the initial funding of any Loans under this Agreement.
SECTION 3.3 Notice and Manner of Conversion or Continuation of Loans.
After the Initial Interest Rate Period, provided that no Default or Event of
Default has occurred and is then continuing, the Co-Borrowers shall have the
option to (i) convert at any time all or any portion of their outstanding Base
Rate Loans in a principal amount equal to $5,000,000 or any whole multiple of
$1,000,000 in excess thereof into LIBOR Rate Loans, (ii) upon the expiration of
any Interest Period, convert all or any part of their outstanding LIBOR Rate
Loans in a principal amount equal to $500,000 or a whole multiple of $100,000
in excess thereof into Base Rate Loans, and (iii) upon the expiration of its
Interest Period, continue any LIBOR Rate Loan in a principal amount of
$5,000,000 or any whole multiple of $1,000,000 in excess thereof as a LIBOR
Rate Loan. Whenever the Co-Borrowers desire to convert or continue Loans as
provided above, the Company, on behalf of the Co-Borrowers, shall give the
Lender irrevocable prior written notice in the form
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<PAGE> 27
attached hereto as Exhibit C (a "Notice of Conversion/Continuation") not later
than 11:00 a.m. (Atlanta time) three (3) Business Days before the Business Day,
in the case of a conversion to or a continuation of a LIBOR Rate Loan, and the
same Business Day, in the case of a conversion to a Base Rate Loan, on which a
proposed conversion or continuation of such Loan is to be effective specifying
(i) the Loans to be converted or continued and, with respect to any LIBOR Rate
Loan to be converted or continued, the last day of the current Interest Period
therefor, (ii) the effective date of such conversion or continuation (which
shall be a Business Day), and (iii) the principal amount of such Loans to be
converted or continued.
SECTION 3.4 Manner of Payment.
(a) Each payment (including repayments described in Article II) by
any Co-Borrower on account of the principal of or interest on the Loans or of
any fee, commission or other amounts payable to the Lender under this Agreement
or any Note shall be made not later than 1:00 p.m. (Atlanta time) on the date
specified for payment under this Agreement to the Lender at the Lending Office,
in immediately available funds, and shall be made without any set-off,
counterclaim or deduction whatsoever. Any payment received after such time but
before 2:00 p.m. (Atlanta time) on such day shall be deemed a payment on such
date for the purposes of Section 10.1, but for all other purposes shall be
deemed to have been made on the next succeeding Business Day. Any payment
received after 2:00 p.m. (Atlanta time) shall be deemed to have been made on
the next succeeding Business Day for all purposes. All Loans shall be repayable
in Dollars.
SECTION 3.5 Crediting of Payments and Proceeds. In the event that
Co-Borrowers shall fail to pay any of the Obligations when due and the
Obligations have been accelerated pursuant to Section 10.2, all payments
received by the Lender shall be applied first, to all Lender's fees and
expenses then due and payable, then to all other expenses then due and payable
by the Co-Borrowers hereunder, then to all indemnity obligations then due and
payable by the Co-Borrowers hereunder, then to all commitment and other fees
and commissions then due and payable, then to accrued and unpaid interest on
the Obligations (pro rata in accordance with all such amounts due), then to the
principal amount of the Obligations, in that order.
SECTION 3.6 Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect
to any Interest Period the Lender shall determine that by reason of
circumstances affecting the foreign exchange and interbank markets generally,
deposits in Eurodollars in the applicable amounts are not being offered
(through Telerate Page 3750 or otherwise) to the Lender for such Interest
Period, then the Lender shall forthwith give notice thereof to the
Co-Borrowers. Thereafter, until the Lender notifies the Co- Borrowers that such
circumstances no longer exist, the right of the Co-Borrowers to convert any
Loan to or continue any Loan as a LIBOR Rate Loan, shall be suspended, and the
applicable Co- Borrower or Co-Borrowers shall repay in full (or cause to be
repaid in full) the then-outstanding principal amount of each such LIBOR Rate
Loan, together with accrued interest thereon, on the last day of the then
current Interest Period applicable to such LIBOR Rate Loan or convert the then
outstanding principal amount of each such LIBOR Rate Loan to a Base Rate Loan,
if available, as of the last day of such Interest Period.
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<PAGE> 28
(b) Laws Affecting LIBOR Rate Availability. If, after the date
hereof, the introduction of, or any change in, any Applicable Law or any change
in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender (or any of its Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency, shall
make it unlawful or impossible for the Lender (or any of its Lending Offices)
to honor its obligations hereunder to make or maintain any LIBOR Rate Loan the
Lender shall promptly give notice thereof to the Co-Borrowers. Thereafter,
until the Lender notifies the Co-Borrowers that such circumstances no longer
exist (which notification shall be given promptly, but in any event within
thirty (30) days after the Lender obtains actual knowledge that such
circumstances no longer exist), (i) the obligations of the Lender to make LIBOR
Rate Loans and the right of the Co-Borrowers to convert any Loan or continue
any Loan as a LIBOR Rate Loan shall be suspended and thereafter the
Co-Borrowers may select only Base Rate Loans hereunder, and (ii) if the Lender
may not lawfully continue to maintain a LIBOR Rate Loan to the end of the then
current Interest Period applicable thereto, the applicable Loan shall
immediately be converted to a Base Rate Loan for the remainder of such Interest
Period, and the applicable Co-Borrower or Co-Borrowers shall pay any amount
required to be paid pursuant to Section 3.7.
(c) Increased Costs. If, after the date hereof, the introduction of,
or any change in, any Applicable Law, or in the interpretation or
administration thereof by any Governmental Authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Lender (or any of its Lending Offices) with any request or
directive (whether or not having the force of law) of such Governmental
Authority, central bank or comparable agency:
(i) shall subject the Lender (or any of its Lending Offices) to
any tax, duty or other charge with respect to any LIBOR Rate Loan or any Note
or shall change the basis of taxation of payments to the Lender (or any of its
Lending Offices) of the principal of or interest on any LIBOR Rate Loan or any
Note or any other amounts due under this Agreement in respect thereof (except
for changes in the rate of tax on the overall net income of the Lender or any
of its Lending Offices imposed by the jurisdiction in which such Lender is
organized or is or should be qualified to do business or such Lending Office is
located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of the
Federal Reserve System), special deposit, insurance or capital or similar
requirement against assets of, deposits with or for the account of, or credit
extended by the (or any of its Lending Offices) or shall impose on the Lender
(or any of its Lending Offices) or the foreign exchange and interbank markets
any other condition affecting any LIBOR Rate Loan or any Note;
and the result of any of the foregoing is to increase the costs to the Lender
of maintaining any LIBOR Rate Loan or to reduce the yield or amount of any sum
received or receivable by the Lender under this Agreement or under the Notes in
respect of a LIBOR Rate Loan, then the Lender shall promptly notify the the
Co-Borrowers of such fact and demand compensation therefor and, within fifteen
(15) days after such notice by the Lender, the Co-Borrowers shall pay to the
Lender such
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additional amount or amounts as will compensate the Lender for such increased
cost or reduction. The Lender will promptly notify the Co-Borrowers of any
event of which it has knowledge that will entitle the Lender to compensation
pursuant to this Section 3.6(c); provided, that the Lender shall incur no
liability whatsoever to the Co-Borrowers in the event it fails to do so. A
certificate of the Lender setting forth the basis for determining such
additional amount or amounts necessary to compensate the Lender shall be
conclusively presumed to be correct absent manifest error. If the Lender claims
compensation under this Section, a Co-Borrower may at any time, upon at least
four (4) Business Days' prior notice to the Lender and upon payment through the
date of such payment plus any prepayment fee required or charges imposed under
Section 3.7 hereof, pay in full the affected LIBOR Rate Loans of the Lender or
request that such LIBOR Rate Loans be converted to Base Rate Loans.
SECTION 3.7 Indemnity. Each Co-Borrower jointly and severally shall and
hereby do indemnify the Lender against any loss or expense (including without
limitation any foreign exchange costs) which may arise or be attributable to
the Lender's obtaining, liquidating or employing deposits or other funds
acquired to effect, fund or maintain the Loans (i) as a consequence of any
failure by the Co-Borrowers to make any payment when due of any amount due
hereunder in connection with a LIBOR Rate Loan, (ii) due to any failure of the
Co-Borrowers to borrow on a date specified therefor in a Notice of Borrowing or
Notice of Continuation/Conversion with respect to any LIBOR Rate Loan or (iii)
due to any payment, prepayment or conversion of any LIBOR Rate Loan on a date
other than the last day of the Interest Period therefor. The Lender's
calculations of any such loss or expense shall be furnished to the Co-Borrowers
and shall be presumed to be correct, absent manifest error.
SECTION 3.8 Capital Requirements. If either (i) the introduction of, or
any change in, or in the interpretation of, any Applicable Law or (ii)
compliance with any guideline or request from any central bank or comparable
agency or other Governmental Authority (whether or not having the force of
law), has or would have the effect of reducing the rate of return on the
capital of, or has affected or would affect the amount of capital required to
be maintained by, the Lender or any corporation controlling the Lender as a
consequence of, or with reference to the Commitment and other commitments of
this type, below the rate which such Lender or such other corporation could
have achieved but for such introduction, change or compliance, then within five
(5) Business Days after written demand by any such Lender, the Co-Borrowers
shall pay to such Lender from time to time as specified by such Lender
additional amounts sufficient to compensate such Lender or other corporation
for such reduction. A certificate as to such amounts submitted to the
Co-Borrowers and the Lender, shall, in the absence of manifest error, be
presumed to be correct and binding for all purposes.
SECTION 3.9 Taxes.
(a) Payments Free and Clear. Any and all payments by the Co-Borrowers
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholding, and all liabilities with respect thereto excluding, (i)
in the case of the Lender, income and franchise taxes imposed by the
jurisdiction under the laws of which the Lender (as the case may be) is
organized or is or should be
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qualified to do business or any political subdivision thereof and (ii) in the
case of the Lender, income and franchise taxes imposed by the jurisdiction of
the Lender's Lending Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If any Co-Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to the Lender, (A) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
3.9) the Lender receives an amount equal to the amount such party would have
received had no such deductions been made, (B) such Co-Borrower shall make such
deductions, (C) such Co-Borrower shall pay the full amount deducted to the
relevant taxing authority or other authority in accordance with Applicable Law,
and (D) such Co-Borrower shall deliver to the Lender evidence of such payment
to the relevant taxing authority or other authority in the manner provided in
Section 3.9(d). Notwithstanding the foregoing, "Taxes" shall not include any
taxes, levies, imposts, duties, deductions, fees, charges or withholdings which
are the result of any one or more of the following events: (A) the failure of
the Lender to properly or timely file any tax return required to be filed by
the Lender, (B) any transfer of the Lender's Commitment or the Notes, or any
part thereof, or any participation therein, by the Lender, or (C) the gross
negligence or willful misconduct of the Lender or any Affiliate thereof or any
breach by the Lender of its obligations hereunder.
(b) Stamp and Other Taxes. In addition, the Co-Borrowers shall pay
any present or future stamp, registration, recordation or documentary taxes or
any other similar fees or charges or excise or property taxes, levies of the
United States or any state or political subdivision thereof or any applicable
foreign jurisdiction which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement, the Loans, the other Loan Documents, or the perfection of any rights
in respect thereto (hereinafter referred to as "Other Taxes").
(c) Indemnity. The Co-Borrowers jointly and severally shall and do
hereby indemnify the Lender for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes and Other Taxes imposed by any
jurisdiction on amounts payable under this Section 3.9) paid by the Lender (as
the case may be) and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. Such indemnification shall be made
within thirty (30) days from the date the Lender (as the case may be) makes
written demand therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of
any payment of Taxes or Other Taxes, the affected Co-Borrower shall furnish to
the Lender, at its address referred to in Section 11.1, the original or a
certified copy of a receipt evidencing payment thereof or other evidence of
payment satisfactory to the Lender.
(e) Survival. Without prejudice to the survival of any other
agreement of the Co-Borrowers hereunder, the agreements and obligations of the
Co-Borrowers contained in this Section 3.9 shall survive the payment in full of
the Obligations and the termination of the Commitment.
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ARTICLE IV
CLOSING: CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1 Closing. The closing shall take place at the offices of
Sutherland, Asbill & Brennan, L.L.P., at First Union Plaza, 999 Peachtree
Street, N.E., 23rd Floor, Atlanta, Georgia at 10:00 a.m. on the Closing Date or
at such other time and place as the parties shall agree.
SECTION 4.2 Conditions to Closing and Initial Loan. The obligation of
the Lender to make the initial Loans is subject to the satisfaction of each of
the following conditions:
(a) Executed Loan Documents. (i) This Agreement, (ii) the Notes,
(iii) the Guaranty executed by each Material Subsidiary existing on the Closing
Date (other than foreign Material Subsidiaries for which the Company shall have
established a Deemed Distribution Event), (iv) the Limited Foreign Guaranty
executed by SGIL and any other foreign Material Subsidiary existing on the
Closing Date (other than SG Austria) for which the Company shall have
established a Deemed Distribution Event, (v) the Negative Pledge Agreement,
(vi) the Note Pledge Agreement with respect to the Foreign Subsidiary Notes
executed by SGIL, SG Austria and each other foreign Material Subsidiary for
which the Company shall have established a Deemed Distribution Event, and (vii)
the other Loan Documents shall have been duly authorized and executed by the
parties thereto in form and substance satisfactory to the Lender, shall be in
full force and effect and no Default or Event of Default shall exist hereunder
or thereunder, and the Co-Borrowers shall have delivered original counterparts
thereof to the Lender.
(b) Closing Certificates; etc.
(i) Officer's Certificate. The Lender shall have received a
certificate from the chief executive officer or chief financial officer of, on
behalf of the Co-Borrowers, in form and substance reasonably satisfactory to
the Lender, to the effect that, to the best knowledge and belief of such
officer, all representations and warranties of the Co-Borrowers contained in
this Agreement and the other Loan Documents are true and correct in all
material respects; that the Co-Borrowers are not in violation of any of the
covenants contained in this Agreement and the other Loan Documents; that, after
giving effect to the transactions contemplated by this Agreement, no Default or
Event of Default has occurred and is continuing; that the Co-Borrowers have
satisfied each of the closing conditions to be satisfied thereby; and that the
Co-Borrowers have filed all required tax returns and owe no delinquent taxes.
(ii) Officer's Compliance Certificate. The Lender shall have
received an Officer's Compliance Certificate stating that no Default or Event
of Default exists and setting forth the calculations required to establish
whether or not the Co-Borrower and their Subsidiaries are in compliance with
the financial covenants set forth in Article VIII hereof as of the Closing
Date, in form and substance reasonably satisfactory to the Lender.
(iii) Certificate of Secretary of each Co-Borrower. The Lender
shall have received a certificate of the secretary or assistant secretary (or,
in the case of any Person organized or
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incorporated other than pursuant to the laws of the United States or any state
thereof, a director or such other officer as such Person may reasonably
designate) of each Co-Borrower and Guarantor certifying, as applicable, that
attached thereto is a true and complete copy of the articles of incorporation
or other charter documents of such Co-Borrower or Guarantor and all amendments
thereto, certified as of a recent date by the appropriate Governmental
Authority in its jurisdiction of incorporation; that attached thereto is a true
and complete copy of the bylaws of such Co-Borrower or Guarantor as in effect
on the date of such certification; that attached thereto is a true and complete
copy of resolutions duly adopted by the Board of Directors of such Co-Borrower,
authorizing the borrowings or guarantee contemplated hereunder or thereunder
and the execution, delivery and performance of this Agreement and the other
Loan Documents to which it is a party; and as to the incumbency and genuineness
of the signature of each officer of such Co-Borrower or Guarantor executing
Loan Documents to which such Co-Borrower or Guarantor is a party, provided,
however, that in the case of any foreign Guarantor, the secretary's certificate
shall be limited solely to matters concerning the incumbency and genuineness of
the signature of each officer of such foreign Guarantor so long as the Lender
shall have received a favorable opinion of counsel as provided in clause (vi)
below.
(iv) Certificates of Good Standing. The Lender shall have
received certificates as of a recent date of the good standing or valid
existence of each Co-Borrower and Guarantor (exclusive of any Guarantor
incorporated under the laws of any jurisdiction located outside the United
States) under the laws of Delaware, and Georgia.
(v) Accounts Designation Letter. The Accounts Designation
Letter to be delivered by the Co-Borrowers pursuant to Section 2.2, dated as of
the Closing Date.
(vi) Opinions of Counsel. The Lender shall have received
favorable opinions of outside counsel to the Co-Borrowers and Guarantors
(including each foreign Guarantor) and addressed to the Lender with respect to
the Co-Borrowers and the Guarantors, the Loan Documents, the transactions
contemplated thereby, regulatory matters and such other matters as the Lender
may reasonably request, reasonably satisfactory in form and substance to the
Lender. Such opinions, with respect to United States law matters, may be
rendered by its regular outside counsel or combination thereof without regard
to whether such counsel is admitted to or authorized to practice in any
jurisdiction other than the State of Georgia.
(c) Consents; No Adverse Change.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any be required, of any Person and
of all Governmental Authorities and courts having jurisdiction with respect to
the execution and delivery of this Agreement and the other Loan Documents shall
have been obtained.
(ii) Permits and Licenses. All material permits and licenses,
including material permits and licenses required under Applicable Law,
necessary to the conduct of business by the Co-Borrowers and their
Subsidiaries as currently conducted shall have been obtained.
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(iii) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority to enjoin, restrain, or prohibit, or to
obtain substantial damages in respect of, or which is related to or arises out
of this Agreement or the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby, or which, in the Lender's
reasonable discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement and such other Loan Documents.
(iv) No Material Adverse Change. Since December 31, 1998,
there shall not have occurred any event or condition (other than matters of
general economic or political nature) that has had or is reasonably likely to
have a Material Adverse Effect.
(v) No Event of Default. No Default or Event of Default shall
have occurred and be continuing.
(d) Financial Statements. The Lender shall have received recent
annual and interim financial statements and other financial information with
respect to Holdings and its Subsidiaries prepared in accordance with GAAP.
Without limitation of the foregoing, the Lender shall have received audited
financial statements for Holdings and Subsidiaries for the Fiscal Year ended
December 31, 1998 and unaudited financial statements for Holdings and
Subsidiaries for the nine month period ended September 30, 1999.
(e) Miscellaneous.
(i) Notice of Borrowing. The Lender shall have received
written instructions from the Company, on behalf of the Co-Borrowers, directing
the payment of any proceeds of Loans made under this Agreement that are to be
made on the Closing Date.
(ii) Proceedings and Documents. All opinions, certificates and
other instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be reasonably satisfactory in form and
substance to the Lender. The Lender shall have received copies of all other
instruments and other evidence as the Lender may reasonably request, in form
and substance reasonably satisfactory to the Lender, with respect to the
transactions contemplated by this Agreement and the taking of all actions in
connection therewith.
(iii) Due Diligence and Other Documents. The Co-Borrowers and
Material Subsidiaries shall have delivered to the Lender such other documents,
certificates and opinions as the Lender reasonably request.
SECTION 4.3 Conditions to All Loans. The obligation of the Lender to
make any Loans is subject to the satisfaction of the following conditions
precedent on the relevant borrowing date:
(i) Continuation of Representations and Warranties. The
representations and warranties contained in Article V shall be true and correct
in all material respects on and as of such borrowing date with the same effect
as if made on and as of such date except any of which speak
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as of a specific date, in which event such representations and warranties shall
be true and correct in all material respects on and as of such specific date.
(ii) No Existing Default. No Default or Event of Default shall
have occurred and be continuing hereunder on the borrowing date with respect to
such Loan or after giving effect to the Loans to be made on such date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CO-BORROWERS
SECTION 5.1 Representations and Warranties. To induce the Lender to
enter into this Agreement and to induce the Lender to make the Loans, the
Co-Borrowers hereby jointly and severally represent and warrant to the Lender
that:
(a) Organization; Power; Qualification. Each Co-Borrower, their
Material Subsidiaries and each Guarantor is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation, has the power and authority to own its properties and to carry on
its business as now being conducted. Each Co-Borrower, their Material
Subsidiaries and each Guarantor is duly qualified and authorized to do business
in each jurisdiction where its business requires such qualification and
authorization, except where the failure to be so qualified and authorized to do
business could not reasonably be expected to have a Material Adverse Effect.
The jurisdictions in which the Co-Borrowers and its Material Subsidiaries are
organized and qualified to do business as of the Closing Date are described on
Schedule 5.1(a). On the Closing Date the only Subsidiaries of the Co-Borrowers
that are Material Subsidiaries are Scientific Games Finance Corporation,
Scientific Games Royalty Corporation, SGIL and SG Austria.
(b) Ownership. Each Subsidiary of the Co-Borrowers as of the Closing
Date is listed on Schedule 5.1(b). As of the Closing Date, the capitalization
of the Co-Borrowers and each of its Subsidiaries consists of the number of
shares, authorized, issued and outstanding, of such classes and series, with or
without par value, described on Schedule 5.1(b). All outstanding shares have
been duly authorized and validly issued and are fully paid and nonassessable.
As of the Closing Date, the shareholders of the Company and each of its
Subsidiaries of the Co-Borrowers and the number of shares owned by each are
described on Schedule 5.1(b). As of the Closing Date, there are no outstanding
stock purchase warrants, subscriptions, options, securities, instruments or
other rights of any type or nature whatsoever, which are convertible into,
exchangeable for or otherwise provide for or permit the issuance of capital
stock of the Co-Borrowers, or any of its Subsidiaries, except as described on
Schedule 5.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. Each
of the Co-Borrowers and Guarantors has the right, power and authority and has
taken all necessary corporate and other action to authorize the execution,
delivery and performance of this Agreement and each of the other Loan Documents
to which it is a party in accordance with their respective terms. This
Agreement and each of the other Loan Documents have been duly executed and
delivered by the
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duly authorized officers of the Co-Borrowers and Guarantors and each such Loan
Document executed and delivered by a Co-Borrower or a Guarantor constitutes the
legal, valid and binding obligation of the Co-Borrowers or the Guarantor, as
the case may be, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar state or federal debtor relief laws from time to time in
effect which affect the enforcement of creditors' rights in general or by
general principles of equity.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by the Co-Borrowers and each
Guarantor of the Loan Documents to which each such Person is a party in
accordance with their respective terms, the borrowings hereunder and the
transactions contemplated hereby do not and will not, by the passage of time,
the giving of notice or otherwise, (i) except as set forth on Schedule 5.1(d)
hereto, require any Governmental Approval or violate any Applicable Law
relating to Co-Borrower or any of its Subsidiaries, (ii) conflict with, result
in a breach of or constitute a default under the articles of incorporation,
bylaws or other organizational documents of Co-Borrower or any of its
Subsidiaries or any Material Contract to which such Person is a party or by
which any of its properties may be bound or any Governmental Approval relating
to such Person or (iii) result in or require the creation or imposition of any
Lien upon or with respect to any material property now owned or hereafter
acquired by such Person.
(e) Compliance with Law; Governmental Approvals. Each of the
Co-Borrowers and each Subsidiary (i) has all material Governmental Approvals
required by any Applicable Law for it to conduct its business and (ii) is in
material compliance with each Governmental Approval applicable to it and in
compliance with all other Applicable Law relating to it or any of its
respective properties because of the conduct of its business. Each such
material Governmental Approval is in full force and effect, is final and not
subject to review on appeal and is not the subject of any pending or, to the
best knowledge of the Co-Borrowers, threatened attack by direct or collateral
proceeding, except for such failures to be in full force and effect that could
not reasonably be expected to have a Material Adverse Effect.
(f) Tax Returns and Payments. Each of Co-Borrowers and their
Subsidiaries has duly filed or caused to be filed all federal, state, local and
other tax returns required by Applicable Law to be filed, and has paid, or made
adequate provision for the payment of, all federal, state, local and other
taxes, assessments and governmental charges or levies upon it and its property,
income, profits and assets which are due and payable, except where the payment
of such tax is being disputed in good faith and adequate reserves have been
established (if and to the extent required by GAAP). No Governmental Authority
has asserted any Lien or other claim against Co-Borrowers or any Subsidiary
thereof with respect to the payment of all material state and federal taxes
which has not been discharged or resolved or is not being disputed in good
faith. The charges, accruals and reserves on the books of Co-Borrowers and any
of its Subsidiaries in respect of federal, state, local and other taxes for all
Fiscal Years and portions thereof are in the judgment of the Co-Borrowers
adequate, and the Co-Borrowers do not anticipate any additional material taxes
or assessments for any of such years.
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(g) Environmental Matters. Except as set forth on Schedule 5.1(g),
the properties of each Co-Borrower and all Subsidiaries are in compliance in
all respects with all applicable Environmental Law, and there is no
contamination at, under or about such properties or such operations which could
interfere in any respect with the continued operation of such properties or
impair in any respect the fair saleable value thereof, except for such failures
to comply and contamination that could not reasonably be expected to have a
Material Adverse Effect. Except as set forth on Schedule 5.1(g), neither
Co-Borrower nor any of their Subsidiaries has received any written notice of
material violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Law
with regard to any of its properties or the operations conducted in connection
therewith, nor does either Co-Borrower nor any of its Subsidiaries have
knowledge that any such notice will be received or is being threatened.
(h) ERISA.
(i) Neither Co-Borrower nor any ERISA Affiliate maintains or
contributes to, or has any obligation under, any Employee Benefit Plans other
than those identified on Schedule 5.1(h);
(ii) Each Co-Borrower and each ERISA Affiliate is in material
compliance with all applicable provisions of ERISA and all other laws
applicable to any Employee Benefit Plans and the regulations and published
interpretations thereunder with respect to all Employee Benefit Plans except
for any required amendments for which the remedial amendment period as defined
in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan
that is intended to be qualified under Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified, and each trust
related to such plan has been determined to be exempt under Section 501(a) of
the Code. Each such Employee Benefit Plan has been operated in a manner to
preserve such qualification. No liability has been incurred by any Co-Borrower
or any ERISA Affiliate which remains unsatisfied for any taxes or penalties
with respect to any Employee Benefit Plan or any Multiemployer Plan;
(iii) No Pension Plan has been terminated, nor has any
accumulated funding deficiency (as defined in Section 412 of the Code) been
incurred (without regard to any waiver granted under Section 412 of the Code),
nor has any funding waiver from the Internal Revenue Service been received or
requested with respect to any Pension Plan, nor has either Co-Borrower or any
ERISA Affiliate failed to make any contributions or to pay any amounts due and
owing as required by Section 412 of the Code, Section 302 of ERISA or the terms
of any Pension Plan prior to the due dates of such contributions under Section
412 of the Code or Section 302 of ERISA, nor has there been any event requiring
any disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to
any Pension Plan;
(iv) Neither any Co-Borrower nor any ERISA Affiliate has: (A)
engaged in a nonexempt prohibited transaction described in Section 406 of ERISA
or Section 4975 of the Code; (B) incurred any liability to the PBGC which
remains outstanding other than the payment of premiums and there are no premium
payments which are due and unpaid; (C) failed to make a
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required contribution or payment to a Multiemployer Plan; or (D) failed to make
a required installment or other required payment under Section 412 of the
Code;
(v) The execution and delivery by Co-Borrowers of this
Agreement and the borrowings hereunder will not involve any prohibited
transaction under ERISA or the Code;
(vi) No Termination Event has occurred or is reasonably
expected to occur; and
(vii) No material proceeding, claim, lawsuit and/or
investigation is existing or, to the best knowledge of Co-Borrowers, threatened
concerning or involving any (A) employee welfare benefit plan (as defined in
Section 3(1) of ERISA) maintained or contributed to by any Co-Borrower or any
ERISA Affiliate, (B) Pension Plan or (C) Multiemployer Plan.
(i) Margin Stock. Neither Co-Borrower nor any Subsidiary thereof is
engaged principally or as one of its activities in the business of extending
credit other than in connection with any employee benefit plan for the purpose
of "purchasing" or "carrying" any "margin stock" (as each such term is defined
or used in Regulations G and U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of any of the Loans will be used for
purchasing or carrying margin stock or for any purpose which violates, or which
would be inconsistent with, the provisions of Regulation G, T, U or X of such
Board of Governors.
(j) Government Regulation. Neither Co-Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company" (as each such term is defined or used in the Investment Company Act of
1940, as amended) and neither Co-Borrower nor any Subsidiary thereof is, or
after giving effect to any Loan will be, a "Holding Company" or a "Subsidiary
Company" of a "Holding Company" or an "affiliate" of a "Holding Company" within
the respective meanings of each of the quoted terms of the Public Utility
Holding Company Act of 1935 as amended, or any other Applicable Law which
materially limits its ability to incur or consummate the transactions
contemplated hereby.
(k) Patents, Copyrights and Trademarks. Co-Borrowers and their
Material Subsidiaries own or possess all patent, copyright and trademark rights
which are required to conduct their business without infringing upon any
validly asserted rights of others. To the best knowledge and belief of
Co-Borrowers, no event has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any such rights
which revocation or termination constitutes a Material Adverse Effect. Neither
Co-Borrower nor any of their Subsidiaries has been threatened with any
litigation regarding patents, copyrights or trademarks that would present a
material impediment to the business of any such Person.
(l) Material Contracts. Schedule 5.1(1) sets forth a complete and
accurate list of all contracts or other agreements, written or oral, of
Holdings or any of its Subsidiaries involving monetary liability of or to any
such Person in an amount in excess of $5,000,000 per annum in effect as of the
Closing Date not listed on any other Schedule hereto; other than as set forth
in Schedule 5.1(1), each Co-Borrower and any Subsidiary thereof party thereto
has performed or is performing all of its material obligations under all
Material Contracts and, to the best knowledge of the Co-
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Borrowers, each other party thereto is in substantial compliance with each
Material Contract, and each Material Contract is, and after giving effect to
the consummation of the transactions contemplated by the Loan Documents will
be, in full force and effect in accordance with the terms thereof. Each
Co-Borrower and its Subsidiaries have made available on a confidential basis
for inspection by the Lender a true and complete copy of each written contract
or agreement of Holdings or any of its Subsidiaries required to be listed on
Schedule 5.1(1).
(m) Employee Relations. As of the Closing Date, each of Co-Borrowers
and their Subsidiaries is not, except as set forth on Schedule 5.1(m), party to
any collective bargaining agreement nor has any labor union been recognized as
the representative of its employees. Except as set forth on Schedule 5.1(m),
each Co-Borrower knows of no pending, threatened or contemplated strikes, work
stoppage or other collective labor disputes involving their employees or those
of its Subsidiaries that reasonably could be expected to have a Material
Adverse Effect.
(n) Burdensome Provisions. Neither Co-Borrower nor any Subsidiary
thereof is a party to any indenture, agreement, lease or other instrument, or
subject to any corporate or partnership restriction, Governmental Approval or
Applicable Law which is so unusual or burdensome as in the foreseeable future
could reasonably be expected to have a Material Adverse Effect. Neither Co-
Borrower or its Subsidiaries presently anticipate that future expenditures
needed to meet the provisions of any statutes, orders, rules or regulations of
a Governmental Authority will be so burdensome as to have a Material Adverse
Effect.
(o) Financial Statements. All balance sheets, statements of income,
retained earnings, stockholders' equity and cash flows, and all other financial
information of Co-Borrowers and their Subsidiaries (exclusive of any financial
projection under Section 6.1(c) or otherwise) which have been furnished by each
Co-Borrower to the Lender for the purposes of or in connection with this
Agreement, including without limitation the financial statements described in
Section 4.2 (d), have been prepared in all material respects in accordance with
GAAP consistently applied throughout the periods involved and present fairly in
accordance with GAAP in all material respects the matters reflected therein
subject, in the case of unaudited statements, to changes resulting from normal
year-end audit adjustments and items that would be disclosed in footnotes to
the audited statements. As of the Closing Date, except as set forth on Schedule
5.1(o), neither Co-Borrower nor any of its Subsidiaries has any contingent
liability or liability for taxes, long-term leases or unusual forward or
long-term commitments which are not reflected in the financial statements
described above or in the notes thereto.
(p) Solvency. As of the Closing Date and after giving effect to each
Loan made hereunder, each Co-Borrower and each of their Material Subsidiaries
will be Solvent.
(q) Titles to Properties. Each Co-Borrower and their Subsidiaries has
such title to the real property owned or leased by it as is necessary or
desirable to the conduct of its business and good and valid title to all of its
personal property sufficient to carry on its business as presently conducted,
except such property as has been disposed of by either Co-Borrower or its
Subsidiaries subsequent to such date which dispositions have been in the
ordinary course of business or as
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otherwise expressly permitted hereunder. Schedule 5.1(q) hereto sets forth the
address of all real property owned or leased by a Borrower (and if leased, the
record owner thereof).
(r) Liens. None of the properties and assets of either Co-Borrower or
any Subsidiary thereof is subject to any Lien, except in each case Permitted
Liens. No financing statement under the Uniform Commercial Code of any state
which names either Co-Borrower or any Subsidiary thereof or any of their
respective trade names or divisions as debtor and which is still in effect, has
been filed in any state or other jurisdiction and neither Co-Borrower nor any
Subsidiary thereof has signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement, except to perfect Permitted Liens.
(s) Debt and Contingent Obligations. Schedule 5.1(s) is a complete
and correct listing as of the Closing Date of all Debt and Contingent
Obligations of Co-Borrowers and their Subsidiaries exceeding individually the
amount of $500,000. Each Co-Borrower and their Subsidiaries have performed and
are in material compliance with all of the terms of such Debt and Contingent
Obligations and all instruments and agreements relating thereto, and no default
or event of default, or event or condition which with notice or lapse of time
or both would constitute such a default or event of default on the part of
either Co-Borrower or their Subsidiaries exists with respect to any such Debt
or Contingent Obligation. Schedule 5.1(s) sets forth a complete and correct
listing of all bid, performance, litigation and similar bonds or guarantees
entered into by Holdings or any of its Subsidiaries as in effect on the Closing
Date.
(t) Litigation. Except as set forth on Schedule 5.1(t), there are no
actions, suits or proceedings pending nor, to the knowledge of the
Co-Borrowers, threatened against or in any other way relating adversely to or
affecting either Co-Borrower or any Subsidiary thereof or any of their
respective properties in any court or before any arbitrator of any kind or
before or by any Governmental Authority which, if adversely determined, is
reasonably likely to have a Material Adverse Effect. Except as set forth on
Schedule 5.1(t), there is no attachment, judgment, lien, levy or order
exceeding the Material Judgment Amount that has been placed upon or assessed
against either Co-Borrower or any of their Subsidiaries and remains
undischarged or unstayed.
(u) Franchise and License Fees. Each Co-Borrower and each of its
Subsidiaries have paid all material franchise, license or other fees and
charges which have become due pursuant to any Governmental Approval in respect
of its business and has made appropriate provisions as is required by GAAP for
any such fees and charges which have accrued.
(v) Absence of Defaults. No event has occurred or is continuing which
constitutes a Default or an Event of Default, or which constitutes, or which
with the passage of time or giving of notice or both would constitute, a
default or event of default by either Co-Borrower or any Subsidiaries thereof
under any Material Contract or material judgment, decree or order of a court of
competent jurisdiction to which either Co-Borrower or its Subsidiaries is a
party or by which either Co-Borrower or their Subsidiaries or any of their
respective properties may be bound or which would require either Co-Borrower or
their Subsidiaries to make any payment thereunder prior to the scheduled
maturity date therefor.
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(w) Accuracy and Completeness of Information. All written
information, reports and other papers and data produced by or on behalf of
either Co-Borrower or any of their Subsidiaries thereof and furnished to the
Lender were, at the time the same were so furnished, complete and correct in
all material respects. No document furnished or written statement made to the
Lender by either Co- Borrower or any Subsidiary thereof in connection with the
negotiation, preparation or execution of this Agreement or any of the Loan
Documents contains or will, when considered as a whole, contain any untrue
statement of a fact material to the creditworthiness of Co-Borrower or its
Subsidiaries or omits or will omit to state a material fact necessary in order
to make the statements contained therein not misleading. Neither Co-Borrower is
aware of any facts which it has not disclosed in writing to the Lender having a
Material Adverse Effect, or insofar as either Co-Borrower can now foresee,
could reasonably be expected to have a Material Adverse Effect.
(x) Year 2000. The Co-Borrowers have (i) undertaken a sufficient
inventory, review and assessment of all areas within their business and
operations that could be adversely affected by the failure of the Co-Borrowers
to be Year 2000 Compliant on a timely basis, (ii) developed a plan and timeline
for becoming Year 2000 Compliant on a timely basis, (iii) to date, implemented
that plan in accordance with that timeline in all material respects, and (iv)
made inquiry of its key suppliers, vendors and customers as to whether such
person(s) will, on a timely basis, be Year 2000 Compliant in all material
respects and on the basis of such inquiry reasonably believes that all such
person(s) will be Year 2000 Compliant. "Year 2000 Compliant" shall means that,
in all material respects, all computer and software related applications shall
be able to recognize and perform properly, date sensitive functions involving
dates prior to and after December 31, 1999. The Co-Borrowers shall take all
action reasonably necessary to ensure that the Borrowers shall be Year 2000
Compliant and that no material adverse change will arise in the Co-Borrowers'
financial condition as a result of its efforts or failure to be Year 2000
Compliant.
(y) No Material Adverse Change. Since December 31, 1998, there shall
not have occurred any event or condition (other than matters of general
economic or political nature) that has had or is reasonably likely to have a
Material Adverse Effect.
SECTION 5.2 Survival of Representations and Warranties, Etc. All
representations and warranties set forth in this Article V and all
representations and warranties contained in any certificate or in any of the
Loan Documents (including without limitation, any such representation or
warranty made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement (a) shall be made or deemed to be made
at and as of the Closing Date and as of each borrowing date with the same
effect as if made on and as of the Closing Date, except to the extent that such
representations and warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct on and as
of such earlier date, and (b) shall survive the Closing Date and shall not be
waived by the execution and delivery of this Agreement, any investigation made
by or on behalf of the Lender or any borrowing hereunder.
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ARTICLE VI
FINANCIAL INFORMATION AND NOTICES
Until payment in full of the Obligations and termination of the
Commitment, unless consent has been obtained in the manner set forth in Section
11.10 hereof, the Co-Borrowers will furnish or cause to be furnished to the
Lender at its address set forth in Section 11.1 hereof, or such other address
as may be designated by the Lender from time to time:
SECTION 6.1 Financial Statements and Projections.
(a) Quarterly Financial Statements. As soon as practicable and in any
event no later than forty-five (45) days after the end of each fiscal quarter,
an unaudited Consolidated and consolidating balance sheet of each Holdings and
the Subsidiaries as of the close of such fiscal quarter and unaudited
Consolidated and consolidating statements of income, retained earnings and cash
flows for the fiscal quarter then ended and that portion of the Fiscal Year
then ended, including the notes thereto, all in reasonable detail setting forth
in comparative form the corresponding budgeted figures for the portion of the
Fiscal Year then ended and the corresponding figures for the preceding Fiscal
Year for the portion of the Fiscal Year then ended and prepared by in
accordance with GAAP, and certified by the chief financial officer of Holdings
to present fairly in all material respects the financial condition of Holdings
and its Subsidiaries as of their respective dates and the results of operations
of Holdings and its Subsidiaries for the respective periods then ended.
(b) Annual Financial Statements. As soon as practicable and in any
event no later than ninety (90) days after the end of each Fiscal Year, an
unaudited consolidating balance sheet of Holdings and Subsidiaries and an
audited Consolidated balance sheet of Holdings and Subsidiaries as of the close
of such Fiscal Year and audited Consolidated statements of income, retained
earnings and cash flows for the Fiscal Year then ended, including the notes
thereto, all in reasonable detail setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and prepared by an
independent certified public accounting firm of nationally recognized standing
in accordance with GAAP, and accompanied by a report thereon by such certified
public accountants that is not qualified with respect to scope limitations
imposed by either Co-Borrower or any of their Subsidiaries or with respect to
accounting principles followed by Co-Borrowers or any of their Subsidiaries not
in accordance with GAAP.
(c) Annual Business Plan and Financial Projections. As soon as
practicable and in any event within sixty (60) days after the beginning of each
Fiscal Year, a business plan of Co-Borrowers and their Material Subsidiaries
for the ensuring four fiscal quarters, such plan to include, on a quarterly
basis, the following: a quarterly operating and capital budget, a projected
income statement, statement of cash flows and balance sheet and a report
containing management's discussion and analysis of such projections (such
business plan and projections, the "Projections"), accompanied by a certificate
from the chief financial officer of each Co-Borrowers to the effect that, to
the best of such officer's knowledge, the Projections are good faith estimates
of the financial condition and operations of each Co-Borrowers and their
Subsidiaries for such four quarter period.
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SECTION 6.2 Officer's Compliance Certificate At each time financial
statements are delivered pursuant to Sections 6.1(a) or (b), a certificate of
the chief financial officer of each Co-Borrower in the form of Exhibit D
attached hereto (an "Officer's Compliance Certificate"):
(a) stating that such officers have reviewed such financial
statements and such statements fairly present the financial condition of each
Co-Borrower and their Subsidiaries as of the dates indicated and the results of
their operations and cash flows for the periods indicated;
(b) stating that to such officer's knowledge, based on a reasonable
examination, no Default or Event of Default exists, or, if such is not the
case, specifying such Default or Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken by the Co-
Borrowers with respect to such Default or Event of Default;
(c) setting forth as at the end of such fiscal quarter or Fiscal
Year, as the case may be, the calculations required to establish whether or not
each Co-Borrower and their Subsidiaries were in compliance with the financial
covenants set forth in Article VIII hereof as at the end of each respective
period and the Applicable Margin pursuant to Section 3.1(c) as at the end of
each respective period;
(d) setting forth as at the end of such Fiscal Year (or, upon the
request of the Lender in its sole discretion, as at the end of such fiscal
quarter), for each corporation, partnership, or other entity in which either or
both Co-Borrowers has any ownership interest at the end of such period, the
Cash Flow Percentage for such entity for the consecutive four quarter period
ending on such Fiscal Year end (or, as requested by the Lender, fiscal quarter
end); and
(e) stating all amounts outstanding under each outstanding Foreign
Subsidiary Note, as of the end of such fiscal quarter or Fiscal Year, as the
case may be.
SECTION 6.3 Other Certificates and Reports
(a) Promptly upon receipt thereof, copies of any management report
and any management responses thereto submitted to any Co-Borrower or their
Board of Directors by their independent public accountants in connection with
their auditing function;
(b) Promptly after a request therefor, such other information
regarding the operations, business affairs and financial condition of each
Co-Borrower or any of their Subsidiaries as the Lender may reasonably request;
(c) Promptly upon filing or receipt of any filing made with the SEC
by or with respect to Holdings or any Subsidiary pursuant to Section 13 or
15(d) of the Exchange Act, copies of the same, and copies of all notices and
proxy and other information provided by Holdings to its shareholders;
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(d) At each time financial statements are required to be delivered
pursuant to Section 6.1(b) a listing setting forth as of the end of such Fiscal
Year all Material Contracts constituting lottery or promotional game customer
contracts; and
(e) At each time financial statements are required to be delivered
pursuant to Section 6.1(a), a report setting forth bid activity (and specifying
bids won and lost) in respect of all lottery and promotional game contracts or
other agreements, written or oral, bid upon by Co-Borrowers or any of their
Subsidiaries and involving revenue to Co-Borrowers or any of their Subsidiaries
of $5,000,000 or more over the stated life of such contract or agreement,
substantially in the form of Exhibit L.
SECTION 6.4 Notice of Litigation and Other Matters. Promptly (but in no
event later than ten (10) days after a Responsible Officer of any Co-Borrower
or Guarantor obtains actual knowledge thereof) give telephonic and written
notice of:
(a) the commencement of all material proceedings and investigations
by or before any Governmental Authority and all material actions and
proceedings in any court or before any arbitrator against or involving either
Co-Borrower or any Subsidiary thereof or any of their respective properties,
assets or businesses;
(b) any notice of any material violation received by either
Co-Borrower or any Subsidiary thereof from any Governmental Authority,
including without limitation, any notice of a material violation of
Environmental Law;
(c) any labor controversy that has resulted in, or could reasonably
be expected to result in, a strike or other work action against either
Co-Borrower or any Subsidiary thereof;
(d) any attachment, judgment, lien, levy or order exceeding the
Material Judgment Amount that may be placed upon or assessed against either
Co-Borrower or any of their Subsidiaries;
(e) any Default or Event of Default, or any event, of which a
Responsible Officer has actual knowledge, which constitutes or which with the
passage of time or giving of notice or both would constitute a default or event
of default under any Material Contract to which either Co- Borrower or any of
their Subsidiaries is a party or by which either Co-Borrower or any Subsidiary
thereof or any of their respective properties may be bound;
(f) (i) the failure of either Co-Borrower or any ERISA Affiliate to
make a required installment or payment under Section 302 of ERISA or Section
412 of the Code by the due date, (ii) any Termination Event or "prohibited
transaction," as such term is defined in Section 406 of ERISA or Section 4975
of the Code, in connection with any Employee Benefit Plan or any trust created
thereunder, along with a description of the nature thereof, what action such
Co-Borrower has taken, is taking or proposes to take with respect thereto and,
when known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto, (iii) all notices
received by either Co-Borrower or any ERISA Affiliate of the PBGC's intent to
terminate
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any Pension Plan or to have a trustee appointed to administer any Pension Plan,
(iv) all notices received by any Borrower or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA, (v) any Borrower obtaining
knowledge or reason to know that either Co-Borrower or any ERISA Affiliate has
filed or intends to file a notice of intent to terminate any Pension Plan under
a distress termination within the meaning of Section 4041(c) of ERISA, and (vi)
the requirement to file any notice with the Internal Revenue Service,
Department of Labor, PBGC or any plan participant, beneficiary or alternate
payee required under Sections 101(d), 302(f)(4), 303 and 307 of ERISA or under
Section 401(a)(29) of the Code with respect to any Employee Benefit Plan of
either Co-Borrower or any ERISA Affiliate; or
(g) any event which makes any of the representations set forth in
Section 5.1 inaccurate in any material respect.
SECTION 6.5 Accuracy of Information. All written information, reports,
statements and other papers and data furnished by or on behalf of either
Co-Borrower to the Lender whether pursuant to this Article VI or any other
provision of this Agreement, or any of the Loan Documents, shall be, at the
time the same is so furnished, complete and correct in all material respects
based on the applicable Co-Borrower's knowledge thereof.
SECTION 6.6 Notice of Demand for Reimbursement, etc. Promptly (but in
no event later than three (3) Business Days) after any demand or request is
made against any Co-Borrower or any of its Subsidiaries for reimbursement or
repayment of any drawing or payments under or pursuant to any bid, performance,
litigation and similar bonds or guarantees entered into in the ordinary course
of business that individually, or in the aggregate for all such bonds or
guarantees, exceeds $5,000,000, Co-Borrowers shall give the Lender written
notice of each such request for reimbursement or repayment thereof, together
with (i) pro forma financial statements prepared based upon the most recent
quarterly or annual financial statements required to be delivered to the Lender
pursuant to Section 6.1 hereof and adjusted to reflect the financial impact of
the reimbursement of such bonds and guarantees and, if unreimbursed, such
unreimbursed portion of such bonds and guarantees shall be counted as Debt, and
(ii) an Officer's Compliance Certificate demonstrating on a pro forma basis,
after giving effect to the adjustments as required in the immediately preceding
clause (i), compliance with the financial covenants set forth in Article VIII
hereof as of the date of required delivery of said certificate.
ARTICLE VII
AFFIRMATIVE COVENANTS
Until payment in full of the Obligations and termination of the
Commitment, unless consent has been obtained in the manner provided for in
Section 11.10, each Co-Borrower will, and will cause each of their Subsidiaries
to:
SECTION 7.1 Preservation of Corporate Existence and Related Matters.
Except as permitted by Section 9.5, preserve and maintain its separate
corporate existence and all material
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rights, franchises, licenses and privileges necessary to the conduct of its
business, and qualify and remain qualified as a foreign corporation and
authorized to do business in each jurisdiction where it is doing business so as
to require such qualification and authorization.
SECTION 7.2 Maintenance of Property. Take commercially reasonable
actions to protect and preserve all material properties useful in and material
to its business, including material copyrights, patents, trade names and
trademarks; maintain in good working order and condition (reasonable wear and
tear excepted) all buildings, equipment and other tangible real and personal
property; and from time to time make or cause to be made all renewals,
replacements and additions to such property necessary in the reasonable
judgement of such Co-Borrower for the conduct of its business, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times.
SECTION 7.3 Insurance. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law, and on the Closing Date and from time to time thereafter
deliver on a confidential basis to the Lender upon its request a detailed list
of the insurance then in effect, stating the names of the insurance companies,
the amounts and rates of the insurance, the dates of the expiration thereof and
the properties and risks covered thereby.
SECTION 7.4 Accounting Methods and Financial Records. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete in all material respects) as may be required or as may be
necessary to permit the preparation of financial statements in accordance with
GAAP and in compliance with the regulations of any Governmental Authority
having jurisdiction over it or any of its properties.
SECTION 7.5 Payment and Performance of Obligations. Pay and perform all
Obligations under this Agreement and the other Loan Documents, subject to
notice and cure provisions, and pay or perform (i) all taxes, assessments and
other governmental charges that may be levied or assessed upon it or any of its
property, and (ii) all other indebtedness, obligations and liabilities in
accordance with customary trade practices; provided, however, that each
Co-Borrower and its Subsidiaries may contest or dispute any item described in
clauses (i) and (ii) hereof in good faith so long as adequate reserves are
maintained with respect thereto in accordance with GAAP.
SECTION 7.6 Compliance With Laws and Approvals. In jurisdictions where
doing business, observe and remain in material compliance with all Applicable
Law and maintain in full force and effect all material Governmental Approvals,
in each case applicable or necessary to the conduct of its business.
SECTION 7.7 Environmental Law. In addition to and without limiting the
generality of Section 7.6, (i) comply in all material respects with, and use
commercially reasonable efforts to ensure such compliance by all of its tenants
and subtenants, if any, with, all applicable Environmental Law and obtain and
comply with and maintain, and use commercially reasonable efforts to ensure
that all of its tenants and subtenants obtain and comply with and maintain, any
and all material licenses, approvals, notifications, registrations or permits
required by applicable
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Environmental Law, provided, that allegations of noncompliance may be contested
in good faith by reasonable procedures so long as the failure to comply would
not reasonably be expected to result in a Material Adverse Effect; (ii) conduct
and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Law, and
timely comply with all lawful orders and directives of any Governmental
Authority regarding Environmental Law; and (iii) defend, indemnify and hold
harmless the Lender, and their respective parents, Subsidiaries, Affiliates,
employees, agents, officers and directors, from and against any claims,
demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the violation of, noncompliance with
or liability under any Environmental Law applicable to the operations of such
Co-Borrower or its Subsidiaries, or any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
reasonable attorney's and consultant's fees, investigation and laboratory fees,
response costs, court costs and litigation expenses, except to the extent that
any of the foregoing arise out of or relate to the breach of law, gross
negligence or willful misconduct of any party who would otherwise be entitled
to indemnification therefor.
SECTION 7.8 Compliance with ERISA and the Code. In addition to and
without limiting the generality of Section 7.6, make timely payment of
contributions required to meet the minimum funding standards set forth in ERISA
or the Code with respect to any Employee Benefit Plan; not take any action or
fail to take action the result of which could be a material liability to the
PBGC or to a Multiemployer Plan; not participate in any prohibited transaction
that could result in any material civil penalty under ERISA or material tax
under the Code; furnish to the Lender upon the Lender's request such additional
information about any Employee Benefit Plan as may be reasonably requested by
the Lender; and operate each Employee Benefit Plan in such a manner that such
plan would not reasonably be expected to incur any material tax liability under
Section 4980B of the Code or any material liability to any qualified
beneficiary as defined in Section 4980B of the Code.
SECTION 7.9 Compliance With Agreements. Comply in all material respects
with each term, condition and provision of all material leases, agreements and
other instruments entered into in the conduct of its business including,
without limitation, any Material Contract in each instance in which failure to
comply could reasonably be expected to have a Material Adverse Effect,
provided, that whether or not failure to comply could reasonably be expected to
have a Material Adverse Effect, each Co-Borrower and its Subsidiaries shall
always attempt in good faith to comply in all material respects with all such
leases, agreements, and other instruments.
SECTION 7.10 Conduct of Business. The Company will not, and will not
permit any Material Subsidiary to, engage in any business other than a
Permitted Business, except to such extent as would not be material to the
Company and its Material Subsidiaries, taken as a whole, provided, however,
that the Company and any Material Subsidiary also may engage in a business
other than a Permitted Business, so long as such non-Permitted Business is
acquired in connection with the acquisition of a Permitted Business and such
non-Permitted Business is held for disposition and disposed of within 365 days
of its acquisition.
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SECTION 7.11 Visits and Inspections. Upon reasonable prior notice
therefrom and during normal business hours, permit representatives of the
Lender, from time to time, in each case subject to reasonable security
procedures, (i) to visit and inspect its properties; (ii) inspect, audit and
make extracts from its books, records and files, including, but not limited to,
management letters prepared by independent accountants; and (iii) discuss with
its principal officers, and its independent accountants, its business, assets,
liabilities, financial condition, results of operations and business prospects.
SECTION 7.12 Subsidiaries. Co-Borrowers and their Subsidiaries may
acquire new Subsidiaries or form new Subsidiaries and use such Subsidiaries to
acquire any business permitted under Section 7.10 or a substantial portion of
the assets of any Person or to enter into and perform any contract involving
the conduct of business permitted by Section 7.10, subject to the provisions of
this Section 7.12 and to the other terms of this Agreement and so long as any
such acquisition is a Permitted Acquisition under Section 9.4(x). Unless a new
Subsidiary is, as a part of an acquisition transaction, merged upon the
consummation thereof into one of the Co-Borrowers with such Co-Borrower being
a surviving entity, then the Co-Borrowers shall cause each new Subsidiary,
which is a Material Subsidiary or a Guarantor, to cause to be executed and
delivered to the Lender: (i) unless the new Subsidiary is a foreign Subsidiary
for which the Company has established that there is a Deemed Distribution
Event, in which case the Subsidiary will execute a Limited Foreign Guaranty, a
Joinder Agreement and the documents referred to therein, (ii) such other
documents reasonably requested by the Lender consistent with the terms of this
Agreement which provide that such Subsidiary shall become bound by all of the
terms, covenants and agreements contained in the Loan Documents and (iii) such
other documents as the Lender shall reasonably request, including without
limitation, officers' certificates, financial statements, opinions of counsel,
board resolutions, charter documents, certificates of existence and authority
to do business and any other closing certificates and Loan Documents described
in Section 4.2.
As soon as practicable upon any corporation, partnership or other
entity's becoming a Material Subsidiary, the corporation, partnership, or other
entity, unless it is an entity for which the Company has established that there
is a Deemed Distribution Event, in which case the entity will execute a Limited
Foreign Guaranty, will execute (i) a Joinder Agreement and the documents
referred to therein, (ii) such other documents reasonably requested by the
Lender consistent with the terms of this Agreement which provide that such
entity shall become bound by all of the terms, covenants and agreements
contained in the Loan Documents and (iii) such other documents as the Lender
shall reasonably request, including without limitation, officers' certificates,
financial statements, opinions of counsel, board resolutions, charter
documents, certificates of existence and authority to do business and any other
closing certificates and Loan Documents described in Section 4.2.
SECTION 7.13 Further Assurances. Make, execute and deliver all such
additional and further acts, things and instruments as the Lender may
reasonably require to and consummate the transactions contemplated hereby and
to vest completely in and insure the Lender its rights under this Agreement,
the Notes and the other Loan Documents.
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SECTION 7.14 Year 2000 Compatibility. Promptly and in no event later
than December 31, 1999, take all action necessary to ensure that Co-Borrowers'
computer based systems are able to operate and effectively process data
including dates on and after December 31, 1999. At the request of the Lender,
Co-Borrowers shall provide the Lender assurances in form and substance
satisfactory to the Lender of Co-Borrowers' year 2000 compatibility.
ARTICLE VIII
FINANCIAL COVENANTS
Until payment in full of the Obligations and termination of the
Commitment, unless consent has been obtained in the manner set forth in Section
11.10 hereof, Holdings and its Subsidiaries on a Consolidated basis will not:
SECTION 8.1 Leverage Ratio. As of any fiscal quarter end and as of the
date that any Officer's Compliance Certificate is required to be delivered
pursuant to Section 6.6 hereof, permit the Leverage Ratio to exceed fifty
percent (50%).
SECTION 8.2 Fixed Charge Coverage Ratio. At each fiscal quarter end and
as of the date that any Officer's Compliance Certificate is required to be
delivered pursuant to Section 6.6 hereof, permit the Fixed Charge Coverage
Ratio for Holdings and its Subsidiaries for the four quarter period consisting
of such quarter and the immediately preceding three quarters to be less than
3.00 to 1.00.
ARTICLE IX
NEGATIVE COVENANTS
Until payment in full of the Obligations and termination of the
Commitment, unless consent has been obtained in the manner set forth in Section
11.10 hereof, each Co-Borrower will not and will not permit any of their
Subsidiaries to:
SECTION 9.1 Limitations on Debt. Create, incur, assume or suffer to
exist any Debt except (i) the Obligations, (ii) Debt set forth on Schedule 9.1,
and renewals, refinancings or extensions thereof in principal amount not in
excess of that outstanding as of the date of such renewal, refinancing or
extension and having the terms, collateral and guarantors not materially less
favorable to Co-Borrowers, taken as a whole, than as the renewed Debt, (iii)
Debt consisting of Contingent Obligations permitted by Section 9.2, (iv) Debt
of any Co-Borrower or Guarantor to any other Co- Borrower or Guarantor, but
only if such Debt is subordinated to the Obligations pursuant to the terms and
conditions of the Intercompany Subordination Agreement, (v) Debt that may be
payable with respect to hedging agreements entered into in order to manage
existing or anticipated interest rate, exchange rate or commodity price risks
and not for speculative purposes; (vi) Debt and obligations owing under
documentary letters of credit generally; (vii) Debt in the principal amount of
up to $80,000,000 incurred by Co-Borrowers under the Three-Year Credit
Agreement, (viii) Debt incurred by Co-Borrowers under the Existing Letter of
Credit and Reimbursement Agreement, (ix)
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Debt not in excess of Fifteen Million Dollars ($15,000,000), constituting real
estate financing incurred in connection with the construction of certain new
facilities of Scientific Games International Limited so long as the scheduled
maturity of such Debt is after the Revolver Facility Termination Date ("Real
Estate Financing Debt"), and (x) other Debt that, together with any Real Estate
Financing Debt permitted to be incurred pursuant to clause (ix) above, is not
in excess of twenty Million Dollars ($20,000,000). Each of the categories of
Permitted Debt referred to in clauses (i) through (x) above is cumulative and
independent of each other category.
SECTION 9.2 Limitations on Contingent Obligations. Other than as
provided in Schedule 9.2, or as otherwise permitted by Section 9.1 (including
any guarantee by Holdings or any of its Subsidiaries of (i) any Real Estate
Financing Debt, (ii) any obligations of any Co-Borrower or any of their
Subsidiaries under the Three-Year Credit Agreement or the Existing Letter of
Credit and Reimbursement Agreement), create, incur, assume or suffer to exist
any Contingent Obligations, except Contingent Obligations arising under hedging
agreements entered into in order to manage existing or anticipated interest
rate, exchange rate or commodity price risks and not for speculative purposes.
SECTION 9.3 Limitations on Liens. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties
(including shares of capital stock), real or personal, whether now owned or
hereafter acquired, except Permitted Liens, including those set forth on
Schedule 9.3.
SECTION 9.4 Limitations on Loans, Advances, Investments and
Acquisitions.
(a) Allow its aggregate loans, investments (measured at the time of
the making of the investments), and interests (measured at the time of
obtaining the interests) in other than Material Subsidiaries that are
Guarantors to exceed at any time an amount equal to ten percent (10%) of the
then Consolidated shareholders equity of Holdings.
(b) Except as provided in subsections (i) through (xi) below,
purchase, own, invest in or otherwise acquire, directly or indirectly, any
capital stock, interests in any partnership or joint venture, evidence of Debt
or other obligation or security, substantially all or a material portion of the
business or assets of any other Person or any other investment or interest
whatsoever in any other Person; or make or permit to exist, directly or
indirectly, any loans, advances or extensions of credit to, or any investment
in cash or by delivery of property in, any Person; or enter into, directly or
indirectly, any commitment or option in respect of the foregoing:
(i) investments in Material Subsidiaries that are Guarantors and the
other existing loans, advances and investments described on
Schedule 9.4 (other than existing loans, advances and
investments in SG Austria, which shall be permitted only to the
extent provided for in clause (xi) below);
(ii) investments in (A) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or
any agency thereof (or if the investment is made by a foreign
Subsidiary, by the government or agency thereof of
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the country in which such funds, instruments or obligations are
denominated) ("Government Securities") maturing within one (1)
year from the date of acquisition thereof, (B) commercial paper
maturing no more than 120 days from the date of creation thereof
and currently having the highest rating obtainable from either
Standard & Poor's Corporation, Moody's Investors Service, Inc.,
or Fitch's Investors Services, Inc., (C) certificates of deposit
issued by bankers' acceptances of, and reverse repurchase
agreements covering Government Securities issued by, the Lender
or any other commercial bank incorporated under the laws of the
United States of America or any state thereof (or, if the
investment is made by a foreign Subsidiary, by the government or
agency thereof in which such funds, instruments or obligations,
as the case may be are denominated, if any), each having
combined capital, surplus and undivided profits of not less than
$500,000,000 and having, in the case of institutions organized
in the United States, a rating of "A" or better by a nationally
recognized rating agency; provided, that the aggregate amount
invested in such certificates of deposit shall not at any time
exceed $5,000,000 for any one such certificate of deposit and
$10,000,000 for any one such bank, or (D) demand or time
deposits maturing no more than one year from the date of
creation thereof with commercial banks or savings banks or
savings and loan associations each having membership either in
the Federal Deposit Insurance Corporation ("FDIC") or the
deposits of which are insured by the FDIC and in amounts not
exceeding the maximum amounts of insurance thereunder;
(iii) investments in either Co-Borrowers or Material Subsidiaries
created or acquired after the Closing Date; provided, that such
Material Subsidiaries become Guarantors hereunder pursuant to
the requirements of Section 7.12 hereof;
(iv) loan and advances to officers, directors and employees of one or
more of the Co-Borrowers or their Subsidiaries in an aggregate
amount not to exceed $2 million at any time outstanding;
(v) deposits for utilities, security deposits, leases and similar
prepaid expenses incurred in the ordinary course of business;
(vi) trade accounts created in the ordinary course of business;
(vii) shares of money market funds, including those of the Lender,
that invest solely in permitted investments of the kinds
described in clause (ii) above;
(viii) investments consisting of hedging agreements as permitted under
Section 9.1;
(ix) investments received in connection with the settlement of
litigation or in settlement of delinquent obligations of, and
other disputes with, customers and suppliers arising in the
ordinary course of business or in connection with the bankruptcy
or reorganization of any Person; and
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(x) investments by either Co-Borrower or any Subsidiary in the form
of acquisitions of all or substantially all of the business or a
line of business (whether by the acquisition of capital stock,
assets or any combination thereof) of any other Person so long
as each of the following conditions are met: (A) (I) the
acquisition does not result in Holdings or any of its Material
Subsidiaries engaging in any business other than a Permitted
Business, except as otherwise permitted pursuant to Section 7.10
hereof, (B) no Default or Event of Default is in existence at
the time of such acquisition or would be created as a
consequence of such acquisition, (C) Co-Borrowers shall have
furnished to the Lender an Officer's Compliance Certificate
demonstrating, on a pro forma basis after giving effect to the
consummation of the subject acquisition, compliance with the
financial covenants contained in Article VIII of this Agreement,
and (D) Co-Borrowers shall promptly deliver to the Lender such
other documents and information as the Lender shall reasonably
request. Each acquisition consummated in accordance with the
provisions of this subsection 9.4(b)(x) shall be referred to as
a "Permitted Acquisition"; and
(xi) investments in the form of loans, advances or extensions of
credit by either Co-Borrower to SG Austria so long as (i) the
aggregate amount of all such investments does not at any time
exceed $12,000,000, and (ii) each such loan, advance or
extension of credit is evidenced by a promissory note which has
been duly executed by SG Austria and pledged to the
Administrative Agent pursuant to the Note Pledge Agreement.
SECTION 9.5 Limitations on Mergers and Liquidation. Merge, consolidate
or enter into any similar combination with any other Person or liquidate,
wind-up or dissolve itself (or suffer any liquidation or dissolution) except
(i) any Co-Borrowers or any Material Subsidiary of either Co-Borrower that is
a Guarantor may merge with either Co-Borrower or any other Material Subsidiary
of either Co-Borrower that is a Guarantor and (ii) any Material Subsidiary may
merge with or into any other Person for the purpose of consummating any
acquisition permitted by Section 9.4 as long as either a Co-Borrower or a
Material Subsidiary that is a Guarantor is the surviving Person and no Default
or Event of Default shall have occurred before and after giving effect to such
merger.
SECTION 9.6 Limitations on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, the sale of any receivables and leasehold
interests and any sale-leaseback or similar transaction), whether now owned or
hereafter acquired except:
(i) the sale of inventory in the ordinary course of business;
(ii) the sale of investments in the ordinary course of business;
(iii) the sale of obsolete or surplus assets no longer used or usable
in the business of either Co-Borrower or any of its Subsidiaries or as
otherwise permitted by Section 7.2;
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(iv) the sale or discount without recourse of Receivables arising in
the ordinary course of business in connection with the compromise or collection
thereof;
(v) the sale by any Co-Borrower or any Subsidiary of any of its
property to any Co-Borrower or to any Subsidiary which is or becomes a
Guarantor; or
(vi) the sale of property and assets not contemplated by the
foregoing clauses, which, when added to other sales of property and assets in
the same Loan Year, were not conveyed for total gross consideration of more
than twenty million Dollars ($20,000,000) and which, when added to other sales
of property and assets since the Closing Date, were not for total gross
consideration payable of more than twenty-five million Dollars ($25,000,000).
SECTION 9.7 Transactions with Affiliates. Except as otherwise permitted
by Section 9.4(b)(iv), directly or indirectly: (i) make any loan or advance to,
or purchase or assume any note or other obligation to or from, any of its
officers, directors, shareholders or other Affiliates, or to or from any member
of the immediate family of any of its officers, directors, shareholders or
other Affiliates, or (ii) enter into, or be a party to, any transaction with
any of its Affiliates, except (A) upon fair and reasonable terms that are fully
disclosed to the Lender and are no less favorable to it than it would obtain in
a comparable arm's length transaction with a Person not its Affiliate, or (B)
transactions between Co-Borrowers and any Material Subsidiary or other
Guarantor or between Material Subsidiaries or Guarantors, or (C) any employee
or director compensation arrangement of the Co-Borrowers or their Subsidiaries
which has been approved by a majority of Holdings' disinterested directors. No
director shall be deemed not to be a "disinterested director" by reason of his
or her receipt of normal directors fees or participation in director benefit
plans, including, without limitation, director stock grant or stock option
plans, deferred compensation plans or other forms of director remuneration as
shall be reasonable and customary.
SECTION 9.8 Certain Accounting Changes. Change its Fiscal Year end, or
make any material change in its accounting treatment and reporting practices
except as required by GAAP.
SECTION 9.9 Licenses. Terminate any Governmental Approval or any
Material Contract unless the Board of Directors of the Co-Borrower or
Subsidiary proposing to effect the termination has determined that such
termination would not have a Material Adverse Effect.
SECTION 9.10 Restrictive Agreements. Except as to any Debt permitted by
clauses (vii), (viii) and (x) of Section 9.1 of this Agreement, enter into (i)
any agreement providing for Debt of either Co-Borrower or their Subsidiaries
which contains any negative pledge on assets or any covenants materially more
restrictive than the provisions of this Agreement hereof, or which restricts,
limits or otherwise encumbers its ability to incur Liens on or with respect to
any of its assets or properties other than the assets or properties securing
such Debt, or (ii) any agreement other than a Permissible Restrictive Agreement
which shall restrict, limit or otherwise encumber (by covenant or otherwise)
the ability to make any payment to either Co-Borrower or any of their
Subsidiaries, in the form of dividends, intercompany advances or otherwise.
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ARTICLE X
DEFAULT AND REMEDIES
SECTION 10.1 Events of Default. Each of the following shall constitute
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans. Either Co-Borrower
shall default in any payment of principal of any Loan or Note when and as due
(whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. Either Co-Borrower shall fail to pay
interest on any Loan or Note or any fee or any other Obligation within five
Business Days of the date the same shall be due.
(c) Misrepresentation. Any representation or warranty made or deemed
to be made by either Co-Borrower or any of its Subsidiaries under this
Agreement, any Loan Document or any amendment hereto or thereto, shall at any
time prove to have been incorrect or misleading in any material respect when
made or deemed made.
(d) Default in Performance of Certain Covenants. There shall be a
default in the performance or observance of any covenant or agreement contained
in Sections 6.4, 7.1, 7.11, 7.12 or Articles VIII or IX of this Agreement
(other than a default caused by a reduction or downgrade in the ratings
required for investments under Section 9.4(b)(ii) after the investments have
been made, so long as the investments have been fully disposed of within ten
(10) Business Days after the reduction or downgrade).
(e) Default in Performance of Other Covenants and Conditions. Either
Co-Borrower or Subsidiary thereof shall default in the performance or
observance of any term, covenant, condition or agreement contained in this
Agreement (other than as specifically provided for otherwise in this Section
10.1) or any other Loan Document and such default shall continue for a period
of ten (10) days after written notice thereof has been given to such
Co-Borrower or Subsidiary by the Lender.
(f) Debt Cross-Default. Either Co-Borrower or any of its
Subsidiaries shall (i) default in the payment of any Debt (exceeding five
million ($5,000,000) in outstanding principal amount) beyond the period of
grace, if any, provided in the instrument or agreement under which such Debt
was created; or (ii) default in the observance or performance of any other
agreement or condition relating to any Debt (exceeding five million
($5,000,000) in outstanding principal amount) or contained in any instrument or
agreement evidencing, securing or relating thereto or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Debt (or a
trustee or agent on behalf of such holder or holders) to cause, with the giving
of notice if required, any such Debt to become due prior to its stated maturity
(any applicable grace period having expired).
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(g) Other Cross-Defaults. Either Co-Borrower or any of their
Subsidiaries shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any Material Contract the breach
of which could reasonably be expected to have a Material Adverse Effect unless,
but only as long as, the existence of any such default is being contested by
such Co-Borrower or such Subsidiary in good faith by appropriate proceedings
and adequate reserves in respect thereof have been established on the books of
or such Subsidiary to the extent required by GAAP. There shall have occurred an
event of default under either (i) the Three-Year Credit Agreement and such
event of default shall not have been waived by the requisite lenders under Co-
Borrower's Three-Year Credit Agreement, or (ii) the Existing Letter of Credit
and Reimbursement Agreement and such event of default shall not have been
waived by the issuing bank under the Existing Letter of Credit and
Reimbursement Agreement.
(h) Change in Control. A Change in Control shall occur.
(i) Voluntary Bankruptcy Proceeding. Either Co-Borrower or any
Subsidiary thereof shall (i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect); (ii) file a petition seeking
to take advantage of any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or composition for
adjustment of debts; (iii) consent to or fail to contest within sixty (60) days
of the filing thereof any petition filed against it in an involuntary case
under such bankruptcy laws or other laws; (iv) apply for or consent to, or fail
to contest in a timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee, or liquidator of
itself or of a substantial part of its property; (v) fail or admit in writing
its failure or inability to pay its debts as they become due; (vi) make a
general assignment for the benefit of creditors; or (vii) take any corporate
action for the purpose of authorizing any of the foregoing; provided that it
shall not constitute an event of default for a debtor relief proceeding to be
instituted and remain unstayed if instituted under laws other than the federal
or state laws of the United States of America by a Subsidiary not constituting
a Material Subsidiary or by a Person or Persons not controlled, directly or
indirectly by either Co-Borrower (including the Subsidiary itself, if its board
of directors is not subject to control by a Co-Borrower).
(j) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against either Co-Borrower or any Subsidiary thereof in any
court of competent jurisdiction seeking (i) relief under the federal bankruptcy
laws (as now or hereafter in effect) or under any other laws, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, winding up or
adjustment of debts; or (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like for either Co-Borrower or any Subsidiary thereof or for
all or any substantial part of their respective assets, and such case or
proceeding shall continue undismissed or unstayed for a period of sixty (60)
consecutive calendar days, or an order granting the relief requested in such
case or proceeding (including, but not limited to, an order for relief under
such federal bankruptcy laws) shall be entered; provided that it shall not
constitute an event of default for a debtor relief proceeding to be instituted
and remain unstayed if instituted under laws other than the federal or state
laws of the United States of America against a Subsidiary not constituting a
Material Subsidiary or by a Person or Persons not controlled, directly or
indirectly by either Co-Borrower (including the Subsidiary itself, if its board
of directors is not subject to control by a Co-Borrower).
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(k) Failure of Agreements. Any material provision of any other Loan
Document shall for any reason cease to be valid and binding on either
Co-Borrower or Subsidiary thereof party thereto.
(l) Termination Event. The occurrence of any of the following
events: (i) either Co- Borrower or any ERISA Affiliate fails to make full
payment when due of all amounts which, under the provisions of any Pension Plan
or Section 412 of the Code, such Borrower or ERISA Affiliate is required to pay
as contributions thereto; (ii) an accumulated funding deficiency in excess of
$250,000 occurs or exists, whether or not waived, with respect to any Pension
Plan; (iii) a Termination Event; or (iv) either Co-Borrower or any ERISA
Affiliate as employers under one or more Multiemployer Plan makes a complete or
partial withdrawal from any such Multiemployer Plan and the plan sponsor of
such Multiemployer Plan notifies such withdrawing employer that such employer
has incurred a withdrawal liability requiring payments in an amount exceeding
$250,000.
(m) Judgment. A judgment or order for the payment of money (other
than the judgment in the amount of $7,000,000 (the "Existing Judgment") entered
by Seguros del Estudo against Scientific Games Inc. and described on Schedule
5.1(t) hereof ) which exceeds in amount the Material Judgment Amount shall be
entered formally against either Co-Borrower or any of their Subsidiaries by any
court and such judgment or order shall continue undischarged or unstayed for a
period of sixty (60) days. The Existing Judgment is not discharged or stayed
within 10 Business Days after the date any Lien is imposed or created in
connection with the Existing Judgment.
(n) Attachment. A warrant or writ of attachment or execution or
similar process shall be issued against any property of either Co-Borrower or
any Subsidiary thereof which exceeds in value the Material Judgment Amount and
such warrant or process shall continue undischarged or unstayed for a period of
thirty (30) days.
SECTION 10.2 Remedies. Upon the occurrence of an Event of Default and
at any time thereafter so long as such Event of Default shall be continuing,
the Lender shall by notice to the Co-Borrowers:
(a) Acceleration: Termination of Facilities. Declare the principal
of and interest on the Loans and the Notes at the time outstanding, and all
other amounts owed to the Lender under this Agreement or any of the other Loan
Documents and all other Obligations, to be forthwith due and payable, whereupon
the same shall immediately become due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the other Loan Documents to the contrary
notwithstanding, make the election regarding interest on the Loans pursuant to
Section 3.1(e)(ii), and terminate the Credit Facility and the Commitment and
any right of the Co-Borrowers to request borrowings thereunder; provided, that
upon the occurrence of an Event of Default specified in Section 10.1(j) or (k),
the Credit Facility and the Commitment shall be automatically terminated and
all Obligations shall automatically become due and payable, and the interest
rate election pursuant to Section 3.1(e)(ii) shall be deemed to have been made.
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(b) Rights of Collection. Exercise all of its other rights and
remedies under this Agreement, the other Loan Documents and Applicable Law, in
order to satisfy all of the Co-Borrowers' Obligations.
SECTION 10.3 Rights and Remedies Cumulative; Non-Waiver; etc. The
enumeration of the rights and remedies of the Lender set forth in this
Agreement is not intended to be exhaustive and the exercise by the Lender of
any right or remedy shall not preclude the exercise of any other rights or
remedies, all of which shall be cumulative, and shall be in addition to any
other right or remedy given hereunder or under the Loan Documents or that may
now or hereafter exist in law or in equity or by suit or otherwise. No delay or
failure to take action on the part of the Lender in exercising any right, power
or privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or
shall be construed to be a waiver of any Event of Default. No course of dealing
between the Co-Borrowers, the Lender or their respective agents or employees
shall be effective to change, modify or discharge any provision of this
Agreement or any of the other Loan Documents or to constitute a waiver of any
Event of Default.
SECTION 10.4 Set-off. Except to the extent prohibited by law, in
addition to any rights now or hereafter granted under Applicable Law and not by
way of limitation of any such rights, upon and after the occurrence of any
Event of Default and during the continuance thereof after acceleration pursuant
to Section 10.2(a), the Lender and any assignee or participant of a Lender in
accordance with Section 11.9 are hereby authorized by the Co-Borrowers at any
time or from time to time, without notice to the Co-Borrowers or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates
of deposit, whether matured or unmatured, excluding government securities
required by Applicable Law to be held as security for worker's compensation and
similar claims) and any other indebtedness at any time held or owing by the
Lender, or any such assignee or participant to or for the credit or the account
of the Co-Borrowers against and on account of the obligations irrespective of
whether or not (a) the Lender shall have made any demand under this Agreement
or any of the other Loan Documents or (b) the Lender shall have declared any or
all of the Obligations to be due and payable as permitted by Section 10.2.
SECTION 10.5 Consents. The Co-Borrowers acknowledge that certain
transactions contemplated by this Agreement and the other Loan Documents and
certain actions which may be taken by the Lender in the exercise of its rights
under this Agreement and the other Loan Documents may require the consent of a
Governmental Authority. If counsel to the Lender reasonably determines that the
consent of a Governmental Authority is required in connection with the
execution, delivery and performance of any of the aforesaid Loan Documents or
any Loan Documents delivered to the Lender in connection therewith or as a
result of any action which may be taken pursuant thereto, then the
Co-Borrowers, at the Lender's sole cost and expense, agree to use their
reasonable efforts to secure such consent and to cooperate with the Lender in
any action commenced by the Lender to secure such consent.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to
be received by a party hereto (i) on the date of delivery if a Business Day (or
the next Business Day is the day of delivery is not a Business Day) if
delivered by hand or sent by telecopy and if delivered or transmitted during
normal business hours, otherwise on the next Business Day, (ii) on the next
Business Day if sent by recognized overnight courier service and (iii) on the
third Business Day following the date sent by certified mail, return receipt
requested. A telephonic notice to the Lender as understood by the Lender will
be deemed to be the controlling and proper notice in the event of a discrepancy
with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it
at the following addresses, or any other address as to which all the other
parties are notified in writing.
If to either Co-Borrower: Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway.
Alpharetta, Georgia 30004
Attention: Chief Financial Officer
Telephone No.: (770) 664-3700
Telecopy No.: (770) 772-7620
If to First Union: First Union National Bank
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Wes Burton
Telephone No.: (404) 827-7580
Telecopy No.: (404) 225-4255
SECTION 11.2 Expenses. Subject to the limitations contained in the Term
Sheet, the Co-Borrowers will pay the reasonable out-of-pocket expenses of the
Lender in connection with: (i) the preparation, execution and delivery of this
Agreement and each of the other Loan Documents, whenever the same shall be
executed and delivered, including all syndication and due diligence expenses,
appraiser's fees, search fees, recording fees, taxes and the reasonable fees
and disbursements of counsel for the Lender; (ii) the preparation, execution
and delivery of any waiver, amendment or consent by the Lender requested by the
Co-Borrowers relating to this Agreement or any of the other Loan Documents
including reasonable fees and disbursements of counsel for the Lender, search
fees, appraiser's fees, recording fees and taxes imposed in connection
therewith; and (iii) after the occurrence and during the continuance of an
Event of Default, consulting with one or
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more Persons, including appraisers, accountants, engineers and attorneys,
concerning or related to the nature, scope or value of any right or remedy of
the Lender hereunder or under any of the other Loan Documents, including any
review of factual matters in connection therewith, which expenses shall include
the reasonable fees and disbursements of such Persons. In addition, after the
occurrence and during the continuance of an Event of Default, the Co-Borrowers
will pay the reasonable out-of-pocket expenses of the the Lender in connection
with prosecuting or defending any claim in any way arising out of, related to,
connected with, or enforcing any provision of, this Agreement or any of the
other Loan Documents, which expenses shall include the reasonable fees and
disbursements of counsel and of experts and other consultants retained by the
Lender; provided, however, that in connection with any litigation or other
proceeding (i) between the Co-Borrowers and the Lender, the Co-Borrowers shall
not be obligated to pay any expenses or costs of the Lender (including, without
limitation, reasonable attorneys' fees and expenses) that are attributable to
any issue raised in such litigation or other proceeding with respect to which
the Co-Borrowers shall have prevailed (the determination, if necessary, of
which party shall have prevailed may be made by the court or arbitration panel
in the trial or appeal of such action or other proceeding) and (ii) solely
between the Lender and the lenders under the Three-Year Credit Agreement, the
Co-Borrowers shall not be obligated to pay any expenses or costs of the Lender,
the lenders under the Three-Year Credit Agreement or the Administrative Agent.
SECTION 11.3 Governing Law. This Agreement, the Notes and the other
Loan Documents, unless otherwise expressly set forth therein, shall be governed
by, construed and enforced in accor dance with the laws of the State of
Georgia, without reference to the conflicts or choice of law principles
thereof.
SECTION 11.4 Consent to Jurisdiction. The Co-Borrowers hereby
irrevocably consent to the personal jurisdiction of the state and federal
courts located in Fulton County, Georgia, in any action, claim or other
proceeding arising out of any dispute in connection with this Agreement, the
Notes and the other Loan Documents, any rights or obligations hereunder or
thereunder, or the performance of such rights and obligations. The Co-Borrowers
and the Lender hereby irrevocably consent to the service of a summons and
complaint and other process in any action, claim or proceeding brought by any
party hereto in connection with this Agreement, the Notes or the other Loan
Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations, on behalf of itself or its
property, in the manner specified in Section 11.1, if and to the extent
otherwise in compliance with Applicable Law. Nothing in this Section 11.4 shall
affect the right of the Co-Borrowers or the Lender to serve legal process in
any other manner permitted by Applicable Law or affect the right of the
Co-Borrowers or the Lender to serve legal process in any other manner permitted
by Applicable Law or affect the right of the Lender to bring any action or
proceeding against any party hereto or its properties in the courts of any
other jurisdictions.
SECTION 11.5 Arbitration.
(a) Binding Arbitration. Upon demand of any party, whether made
before or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to the Notes or any
other Loan Documents ("Disputes"), between or among parties
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<PAGE> 59
to the Notes or any other Loan Document shall be resolved by binding
arbitration as provided herein. Institution of a judicial proceeding by a party
does not waive the right of that party to demand arbitration hereunder.
Disputes may include, without limitation, tort claims, counterclaims, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims concerning any aspect of the past, present or future
relationships arising out of or connected with the Loan Documents. Arbitration
shall be conducted under and governed by the Commercial Financial Disputes
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and Title 9 of the U.S. Code. All arbitration hearings
shall be conducted in Atlanta, Georgia. The expedited procedures set forth in
Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted. The arbitrators shall be appointed as provided in the Arbitration
Rules.
(b) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the Lender preserves, without diminution,
certain remedies that the Lender may employ or exercise freely, either alone,
in conjunction with or during a Dispute. The Lender shall have and hereby
reserve the right to proceed in any court of proper jurisdiction or by self
help to exercise or prosecute the following remedies: (i) all rights to
foreclose against any real or personal property or other security by exercising
a power of sale granted in the Loan Documents or under applicable law or by
judicial foreclosure and sale, (ii) all rights of self help including peaceful
occupation of property and collection of rents, set off, subject to the
provisions of Section 10.4, and peaceful possession of property, (iii) when
applicable, a judgement by confession of judgement and (iv) obtaining
provisional or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and in filing an involuntary
bankruptcy proceeding. Preservation of these remedies does not limit the power
of an arbitrator to grant similar remedies that may be requested by a party in
a Dispute.
SECTION 11.6 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, THE LENDER AND EACH CO-BORROWER HEREBY IRREVOCABLY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER
PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE
NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
SECTION 11.7 Reversal of Payment. To the extent any Co-Borrower makes a
payment or payments to the Lender which payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then,
to the extent of such payment or proceeds repaid, the Obligations or part
thereof intended to be satisfied shall be revived and continued in full force
and effect as if such payment or proceeds had not been received by the Lender.
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SECTION 11.8 Injunctive Relief. The Co-Borrowers and the Lender
recognize that, in the event any of them fail to perform, observe or discharge
any of their obligations or liabilities under this Agreement, any remedy of law
may prove to be inadequate relief to the other parties. Therefore, the
Co-Borrowers and the Lender agree that the other parties, at such parties'
option, shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages.
SECTION 11.9 Successors and Assigns; Participations.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that the Co-Borrowers may not assign or otherwise transfer
any of their rights under this Agreement. The Lender and each Eligible Assignee
who becomes a Lender under this Agreement may assign to one or more other
Eligible Assignees or, during the existence and continuance of an Event of
Default, to any Person (each, an "Assignee"), all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the outstanding Loans made by it and the Note or
Notes held by it); provided, however, that if a Default or Event of Default has
not occurred and is not continuing, any such assignment (other than an
assignment by the Lender to an Affiliate of such Lender) shall not be made
without the prior written consent of the Co-Borrowers, which consent shall not
be unreasonably withheld.
(b) The Lender may, without the consent of the Co-Borrowers, sell to
one or more other Persons (each, a "Participant") participations in any portion
comprising less than all of its rights and obligations under this Agreement
(including, without limitation, a portion of its Commitment, the outstanding
Loans made by it and the Note or Notes held by it); provided, however, that (i)
such Lender's obligations under this Agreement shall remain unchanged and such
Lender shall remain solely responsible for the performance of such obligations,
(ii) any such participation shall not exceed fifty percent (50%) of the
Lender's post assignment Commitment, (iii) the Co-Borrowers shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement, and the Lender shall not permit
any Participant to have any voting rights or any right to control the vote of
the Lender with respect to any amendment, modification, waiver, consent or
other action hereunder or under any other Loan Document (except as to actions
that would (w) reduce or forgive the principal amount of, or rate of interest
on, any Loan, or reduce or forgive any fees or other Obligations, (x) extend
any date (including without limitation, the Termination Date) fixed for the
payment of any principal of or interest on any Loan, any fees or any other
Obligations, or (y) increase any Commitment of the Lender), and (iv) no
Participant shall have any rights under this Agreement or any of the other Loan
Documents, each Participant's rights against the granting Lender in respect of
any participation to be those set forth in the participation agreement, and all
amounts payable by the Co-Borrowers hereunder shall be determined as if the
Lender had not granted such participation.
(c) Nothing in this Agreement shall be construed to prohibit the
Lender from pledging or assigning all or any portion of its rights and interest
hereunder or under any Note to any Federal Reserve Bank as security for
borrowings therefrom; provided, however, that no such pledge or assignment
shall release the Lender from any of its obligations hereunder.
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<PAGE> 61
(d) Disclosure of Information; Confidentiality. The Lender shall
treat as confidential all non-public information, including, without
limitation, all financial projections, obtained pursuant to the Loan Documents
and shall disclose such information outside their organizations only as may be
deemed appropriate by the Lender in the exercise of its or its rights under the
Loan Documents with respect to the repayment or administration of, or transfer
or assignment of participations or interests in, the Loans or, to the extent
permitted by Applicable Law, upon reasonable prior notice to the Co-Borrowers,
as compelled by judicial or administrative process or by other requirements of
Applicable Law.
SECTION 11.10 Amendments, Waivers and Consents: Renewal. Except as set
forth below, any term, covenant, agreement or condition of this Agreement or
any of the other Loan Documents may be amended or waived by the Lender upon
request of the Co-Borrowers, and any consent given by the Lender in response to
a request by the Co-Borrowers, if, but only if, such amendment, waiver or
consent is in writing signed by the Lender and, in the case of an amendment,
signed by the Co-Borrowers.
SECTION 11.11 Performance of Duties. The Co-Borrowers' obligations
under this Agreement and each of the Loan Documents shall be performed at the
joint and several sole cost and expense of the Co-Borrowers.
SECTION 11.12 Indemnification.
(a) Each Co-Borrower jointly and severally agrees to reimburse the
Lender for all reasonable costs and expenses, including reasonable counsel or
other out-of-pocket fees and disbursements reasonably incurred, and the
Co-Borrowers hereby indemnify and hold the Lender (collectively, the
"Indemnified Parties" and individually, an "Indemnified Party") harmless from
and against all losses suffered by the Lender in connection with (i) the
exercise by the Lender, after the occurrence and during the continuance of an
Event of Default, of any remedy granted to them by Co-Borrowers under this
Agreement or any of the other Loan Documents, (ii) any claim by any third party
against the Lender arising out of or in any way connected with the acts or
omissions of the Co-Borrowers or any Subsidiary thereof under or pursuant to
this Agreement or any of the other Loan Documents, and (iii) the collection or
enforcement of the Obligations or any of them against the Co-Borrowers, after
the occurrence and during the continuance of an Event of Default; provided,
that no reimbursement obligation or undertaking to indemnify contained herein
shall apply (A) to any expenses that are attributable to any issue raised in
any litigation or other proceeding with respect to which the Co-Borrowers shall
have prevailed (the determination, if necessary, of which party shall have
prevailed may be made by the court or arbitration panel in the trial or appeal
of such action or other proceeding), or (B) to the extent that such losses,
claims, damages, liabilities or other expenses result from the breach by any
Indemnified Party of its obligations hereunder or under any Loan Document, the
violation of Applicable Law, gross negligence or willful misconduct of any
Indemnified Party.
(b) The following shall apply to all claims for indemnity under this
Section 11.12 or otherwise under the Loan Documents:
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<PAGE> 62
(i) If any Indemnified Party has knowledge of any claim or
matter for which it believes it is entitled to indemnification hereunder, it
shall give prompt written notice thereof to the Co- Borrowers; provided,
however, that the failure of an Indemnified Party to give such notice shall not
relieve the Co-Borrowers of its obligations hereunder.
(ii) Each claim against an Indemnified Party by a third party
shall, if reasonably requested by the Co-Borrowers, be contested by the
Indemnified Party in good faith by appropriate proceedings, provided that the
Co-Borrowers shall indemnify such Indemnified Party in full in respect of any
out-of-pocket fees, costs or expenses actually incurred by such Indemnified
Party in conducting such contest and the amount of any interest or penalties,
if any, which are required to be paid as a direct result of contesting such
claim.
(iii) In connection with any litigation or other proceeding
between the Co-Borrowers and the Lender, the Co-Borrowers shall not be
obligated to pay any expenses or costs of the Lender (including, without
limitation, reasonable attorneys' fees and expenses) that are attributable to
any issue raised in such litigation or other proceeding with respect to which
the Co-Borrowers shall have prevailed (the determination, if necessary, of
which party shall have prevailed may be made by the court or arbitration panel
in the trial or appeal of such action or other proceeding).
SECTION 11.13 All Powers Coupled with Interest. All powers of attorney
and other authorizations granted to the Lender and any Persons designated by
the Lender pursuant to any provisions of this Agreement or any of the other
Loan Documents shall be deemed coupled with an interest and shall be
irrevocable so long as any of the Obligations remain unpaid or unsatisfied or
the Credit Facility have not been terminated.
SECTION 11.14 Survival of Indemnities. Notwithstanding any termination
of this Agreement, the indemnities to which the Lender is entitled under the
provisions of this Article XI and any other provision of this Agreement and the
Loan Documents shall continue in full force and effect and shall protect the
Lender against events arising after such termination as well as before.
SECTION 11.15 Titles and Captions. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and
neither limit nor amplify the provisions of this Agreement.
SECTION 11.16 Severability of Provisions. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 11.17 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
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SECTION 11.18 Term of Agreement. This Agreement shall remain in effect
from the Closing Date through and including the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full and the
Commitment have been terminated. No termination of this Agreement shall affect
the rights and obligations of the parties hereto arising prior to such
termination.
[Remainder of page intentionally blank; next page is signature page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, all as of the day and year first
written above.
[CORPORATE SEAL] SCIENTIFIC GAMES HOLDINGS CORP.
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
[CORPORATE SEAL] SCIENTIFIC GAMES INC.
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
FIRST UNION NATIONAL BANK, as
Lender
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
Lending Office
999 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: Wes Burton
Telephone No.: (404) 827-7580
Telecopy No.: (404) 225-4255
[SIGNATURE PAGE TO 364-DAY CREDIT AGREEMENT]
<PAGE> 1
EXHIBIT 11
SCIENTIFIC GAMES HOLDINGS CORP.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three-month period Year
Ended December 31 ended December 31
------------------ -----------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net earnings $ 4,679 $ 5,497 $ 5,108 20,488 $19,409 $ 8,972
======= ======= ======= ======= ======= =======
Weighted Average Common stock outstanding 11,640 11,912 11,876 11,828 12,108 12,020
Effect of common stock equivalents (stock) 103 115 399 116 190 407
------- ------- ------- ------- ------- -------
Total 11,743 12,027 12,275 11,944 12,298 12,427
======= ======= ======= ======= ======= =======
Net earnings per common share - diluted $ .40 $ .46 $ .42 $ 1.72 $ 1.58 $ .72
======= ======= ======= ======= ======= =======
</TABLE>
28
<PAGE> 1
CONSOLIDATED FINANCIAL STATEMENTS
SCIENTIFIC GAMES HOLDINGS CORP.
YEARS ENDED DECEMBER 31, 1999 AND 1998 WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Five-Year Selected Financial Data 14
Management's Discussion and Analysis 15
Consolidated Statements of Income 23
Consolidated Balance Sheets 24
Consolidated Statements of Cash Flows 25
Consolidated Statements of Shareholders' Equity 26
Notes to Consolidated Financial Statements 28
Report of Independent Auditors 44
Corporate Information 45
</TABLE>
13
<PAGE> 2
FIVE-YEAR SELECTED FINANCIAL DATA
SCIENTIFIC GAMES HOLDINGS CORP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
(In thousands, except per share data) 1999 1998 1997(1) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $228,573 $213,800 $197,456 $146,620 $149,240
----------------------------------------------------------------------------
Net income 20,488 19,409 8,972 18,726 22,428
----------------------------------------------------------------------------
Earnings per common share (diluted) 1.72 1.58 .72 1.41 1.64
============================================================================
BALANCE SHEET DATA
Total assets 203,633 179,633 164,410 127,529 110,186
----------------------------------------------------------------------------
Bank debt 23,547 12,482 32,716 4,429 376
----------------------------------------------------------------------------
Shareholders' equity 123,542(2) 111,906(3) 98,127(4) 93,789(5) 94,580
============================================================================
</TABLE>
(1) Includes the operations of SGIL for the full year and SG Austria since the
acquisition in April 1997 and includes two one-time write-offs.
(2) Reflects the purchase of $8.0 million in company stock.
(3) Reflects the purchase of $10.5 million of company stock.
(4) Reflects the purchase of $5.8 million of company stock.
(5) Reflects the purchase of $24.6 million of company stock.
14
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SCIENTIFIC GAMES HOLDINGS CORP.
GENERAL
Our revenues are generated primarily from the sale of our products and services
to governmentally operated or sanctioned lotteries worldwide and, to a lesser
extent, non-lottery related entities both in the United States and worldwide.
We categorize our sales into two main segments: (1) Instant Tickets and Related
Services and (2) Systems.
In the Instant Tickets and Related Services segment, we primarily supply game
design, sales and marketing support, instant ticket manufacturing and delivery,
inventory management and distribution, and retailer telemarketing and field
services to our customers. In addition, this segment includes promotional
instant tickets and pull-tab tickets that we sell to both lottery and
non-lottery customers and pre-paid phone cards that we sell to
telecommunications companies.
In the Systems segment, we primarily supply transaction processing software that
accommodates instant ticket accounting and validation and on-line lottery games,
point-of-sale terminal hardware which connects to these systems, central site
computers and communication hardware which run these systems, and ongoing
support and maintenance services for these products. This segment also includes
software, hardware and support for sports betting and credit card processing
systems for non-lottery customers. In addition, we refer to our Cooperative
Services contracts in various sections of this report. Cooperative Services is
the branded marketing name that we give to customer contracts where we provide
some combination of products and services offered in our Instant Tickets and
Related Services segment and our Systems segment.
Instant Tickets and Related Services revenues are generally based on a price per
1,000 tickets delivered or based upon a percentage of the lottery's sales to the
public over a contract period. Systems revenues may be based on a fixed price
for the product or service or based upon a percentage of the lottery's sales to
the public over a contract period.
Our operating results may vary significantly from period to period. Our revenues
and capital expenditures may be difficult to forecast because our sales cycles
may vary and depend upon factors such as the size and timing of awarded
contracts, changes in customer budgets, ticket inventory position, lottery
retail sales and general economic conditions. Contracts with governmental
entities operating newly authorized instant lotteries tend to generate higher
levels of sales in the initial months. All of our domestic lottery contracts
currently are with jurisdictions whose lotteries have been in operation at least
one year. Our operating results may be affected by the working capital
requirements associated with preparing facilities and equipment, establishing a
distribution system and printing tickets for recently awarded contracts, and by
the amount of time elapsing before the receipt and/or recognition of revenues
from the sale of lottery tickets. Our operating results may also be affected by
the utilization of overtime labor costs and our ability to smoothly integrate
new and/or upgraded production equipment with our existing production
operations. Lottery revenues and particular product sales to lotteries may vary
in a quarter causing fluctuations in our revenue from quarter to quarter.
Additionally, circumstances encountered in international markets, including the
substantial amount of time involved in bidding on an international contract, the
evaluation of such bid and the resultant contract award or rejection, may vary
significantly from that originally anticipated when the bid is prepared. All of
these factors may make it difficult to forecast revenues and expenditures
related to our operations over extended periods and may result in fluctuations
in our quarterly financial results.
Our U.S. lottery contracts typically have an initial term of from one to five
years and usually provide the customer with options to extend the contract one
or more times under the same, or mutually agreeable, terms and conditions for
additional periods generally ranging from one to five years. Our customers have
exercised extension options in our U.S. instant lottery contracts a majority of
the time. Our international lottery contracts are less likely to have firm
contract periods and, historically, international lottery instant ticket
customers have sought competitive bids for such contracts more frequently. Upon
the expiration of a contract (including any extensions that may have been
exercised), lottery authorities often award new contracts through a competitive
procurement process. During any quarter, some lottery contract is typically
expiring and/or reaching an optional extension date. Instant ticket contracts
may be for the supply of tickets on either a primary or back-up basis. A primary
supplier has a contract to supply a majority of the lottery's ticket needs, and
a back-up supplier has a contract to supply a smaller portion of the lottery's
ticket needs.
15
<PAGE> 4
We sell our goods and services to customers outside the United States, as well
as to customers in countries in which our foreign subsidiaries have operating
facilities, and our foreign subsidiaries also sell to customers located outside
the country in which their production facilities are located. Although we do
business worldwide, a majority of our current foreign operations are conducted
in, and U.S. export sales are made to, customers located in Europe. For segment
and geographic information on our business, please see Note 11 of the Notes to
the Financial Statements set forth elsewhere in this report.
During 1999, in the Instant Tickets and Related Services segment, we had 12 U.S.
contracts subject to extensions or scheduled to expire. With respect to the
foregoing contracts, we received 11 contract extensions and were the successful
bidder on a contract re-bid with an existing customer.
We estimate, based in part upon industry and lottery furnished information, that
our U.S. customers with contracts which were scheduled to expire in 1999
(regardless of whether renewal options were available under such contracts)
represented, in the aggregate, retail sales equal to approximately 41.9% of
total 1999 instant lottery ticket retail sales by U.S. government lotteries
("1999 U.S. Lottery Sales"). Industry sources estimate that 1999 U.S. Lottery
Sales were approximately $14.2 billion in both 1999 and 1998. In comparison,
seven U.S. contracts held by our competitors were scheduled to expire
(regardless of whether renewal options were available under such contracts) in
1999. We estimate that our competitors' domestic customers with contracts which
were scheduled to expire in 1999 represented aggregate retail sales equal to
approximately 22.4% of 1999 U.S. Lottery Sales. Of the contracts formerly held
by the Company's competitors in 1999, we were the successful bidder on one
contract and we estimate that this contract accounted for approximately 9.9% of
1999 U.S. Lottery Sales. For a listing of our U.S. contracts and the scheduled
expiration dates, also see Item I Business "Markets" in our Annual Report on
Form 10-K.
Our results with respect to contracts previously held by our competitors in 1999
are as follows: We were awarded an instant ticket contract by the Texas Lottery
Commission. Under this contract, we will provide instant tickets and related
services for a three-year period. We were awarded an instant ticket
telemarketing and distribution services contract by the New York State Lottery.
This contract began in January 2000 and runs through January 2002, with an
optional extension for up to one additional year. We also were awarded a
two-year backup contract for instant tickets and related services by the Idaho
Lottery.
During the year we lost our backup contract with the Wisconsin Lottery to a
competitor.
Internationally, we received the following contracts in 1999: A new three-year
contract to supply instant tickets and related services to An Post National
Lottery Corporation, the operator of the national lottery in Ireland, and a new
contract to provide the perpetual license for SciTrak, an inventory and
distribution lottery system in Spain.
We also produced more telephone cards for various international
telecommunication companies in 1999 than we did in 1998.
For our Systems segment during 1999, we were the apparent winner of the
on-line/instant lottery gaming system, retailer terminals and associated instant
gaming products and services to the Maine State Lottery. Our preliminary
contract award from the Maine State Lottery was invalidated by the Appeal Panel
of the Maine Department of Administrative and Financial Services in February
2000, and we anticipate that the contract may be re-bid. Internationally, we
signed a contract with the Western Canada Lottery Corp. ("WCLC") to provide an
on-line game management control system and related services. We also completed
the connection of seven German lotteries to our SGI-Net system for the express
purpose of supporting the Oddset sports game. Oddset is an on-line game in which
players can wager weekly on national and international soccer matches.
Our business is highly competitive and continues to be in a period of intense
price-based competition, particularly from other instant ticket suppliers. Many
of the lottery contracts awarded or re-awarded to us in 1999 (and the orders
thereunder) have certain lower equivalent prices than charged in the previous
contracts. To the extent such contracts contain lower equivalent prices, our
profit margins are adversely affected. The impact of lower equivalent prices in
certain of our contracts may be offset, in part, by other factors, including
higher order levels from new and existing customers, increased production
efficiencies, consolidation of our production operations, introduction of new
equipment (as discussed in "Recent Developments") and other savings associated
with economies of scale. We cannot predict with certainty either the continued
duration or extent of
16
<PAGE> 5
such pricing factors or our ability to offset such factors either in whole or in
part. The current period of price-based competition and the resulting cycle of
lower customer pricing has existed for approximately three years.
While we frequently are awarded new contracts when our U.S. contracts and
extensions expire, we cannot be assured that any of our particular contracts
will be extended or that we will be awarded new contracts as a result of future
competitive procurement processes, nor can there be any assurances with respect
to our ability to offset, in whole or in part, the effects of any intensified or
prolonged price competition.
We have nine Instant Tickets and Related Services contracts in the U.S. which
are subject to extensions or scheduled to expire during 2000. We estimate that
these nine U.S. contracts had aggregate retail sales equal to approximately
18.5% of 1999 U.S. Lottery Sales. We also estimate that there are five U.S.
contracts of competitors subject to extensions or scheduled to expire in 2000
which had aggregate retail sales equal to approximately 15.4% of 1999 U.S.
Lottery Sales.
RECENT DEVELOPMENTS
With respect to the contracts described above, the Colorado Lottery and the
Washington State Lottery have already announced the award of new contracts to
us. On January 25, 2000, we announced that we had been awarded a three-year
contract to provide instant tickets and related services to the Washington State
Lottery. The award includes the option of an additional three-year extension. On
February 7, 2000, we announced that we had been awarded a new Scratch Games
Services contract to provide instant tickets, distribution and related services,
including research, tel-sell support and packaging and distribution to the
Colorado Lottery. The award is for a four-year term with the option of an
additional one-year extension. The Colorado and Washington State lotteries had
combined retail sales equivalent of 3.3% of the total U.S. instant ticket market
in 1999.
The Kentucky Lottery Corporation Board also has exercised an option to extend
and has amended its existing contract with us to provide for the statewide sale
of instant lottery ticket probability games using "Player's Choice" probability
tickets. The agreement also calls for us to install 1,000 SciScan validation
terminals at lottery retailers across Kentucky.
As previously announced, we are consolidating our printing operations in our
Georgia facility and plan to close our instant ticket printing operation in
Gilroy, California in June 2000. These decisions were prompted by our decision
to replace aging equipment with new state-of-the-art printing technologies that
should result in significant cost savings. We estimate that the combination of
the efficiencies from a new press and the consolidation into one facility will
reduce our total production costs by over $5 million per year. We estimate that
the closure costs for Gilroy will be approximately $2.6 million. Such costs
include approximately $2.0 million in restructuring costs as defined by FASB
Emerging Issues Task Force Issue No. 94-3 and other costs. The restructuring
costs primarily include the cost of involuntary employee severance and
separation benefits and lease termination payments. The other costs of
approximately $600,000 primarily include certain relocation expenses and
incentive pay to retain certain employees until the plant is closed.
RESULTS OF OPERATIONS
The following table illustrates certain components of the consolidated results
of operations expressed as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Gross margin 34.9 35.2 36.8
Selling, general and
administrative 12.7 12.4 13.0
Depreciation and
amortization 7.9 7.6 6.7
One-time write-offs 0.0 0.0 6.8
Interest income 0.2 0.2 0.2
Gain (loss) on
foreign currency 0.2 0.0 0.3
Interest expense 0.3 0.6 0.5
Minority interest in
subsidiaries income (0.2) 0.0 0.0
Income before income taxes 14.2 14.8 10.3
Income tax expense 5.2 5.7 5.8
Net income 9.0% 9.1% 4.5%
</TABLE>
17
<PAGE> 6
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
Revenues for the year ended December 31, 1999, increased $14.8 million or 6.9%
over the revenues for the year ended December 31, 1998. The increase was
primarily due to increased Instant Tickets and Related Services revenues of
approximately $12.7, which represented a 7.5% increase for the segment. This
increase was due to a $16.6 million increase in sales of international pre-paid
telephone cards, which was a 500% increase in sales of this product over the
previous year. Partially offsetting the segment's increase in revenue was a $3.9
million decrease in other product revenues due primarily to lower international
instant ticket sales volumes and continued lower equivalent sales prices as a
result of competitive pricing pressures as discussed above and in the Company's
prior periodic reports. The remainder of the increase in total revenues of $2.1
million came from the Systems segment and was due primarily to implementation of
new international customer contracts obtained during the past two years. Instant
Tickets and Related Services revenues accounted for approximately 79.3% of the
Company's gross revenues in 1999 versus 78.9% in 1998. Total international
revenues based on the customers' country of domicile accounted for approximately
38.1% of the Company's gross revenues in 1999 versus 35.4% for 1998.
On a comparative basis, gross margin increased $4.6 million or 6.1% while gross
margin as a percentage of revenues decreased to 34.9% from 35.2% for the years
ended December 31, 1999 and 1998, respectively. The dollar margin increase was
primarily due to the increased sales volumes of pre-paid telephone cards. The
percentage margin decline was mainly attributable to Instant Tickets and Related
Services contracts awarded or extended having lower equivalent sales prices than
charged in previous contracts and lower instant ticket export sales, offset in
part by continued efficiency improvements in instant ticket and pre-paid
telephone card manufacturing.
Selling, general and administrative ("SG&A") expenses increased $2.5 million for
the year ended December 31, 1999 over the same period of 1998. SG&A expenses
increased as a percentage of revenues to 12.7% from 12.4%. The increase was due
primarily to the full year operation of the French joint venture formed in
December 1998 and additional expenses required to support increased
sales activity in new and existing markets, including pre-paid telephone cards.
Depreciation and amortization expenses increased for the year ended December 31,
1999 by $1.7 million over the comparable period of 1998. The increase was due
primarily to the full year operation of the French joint venture and the
acceleration of depreciation of equipment to be disposed of earlier than
originally anticipated.
Operating income for the year ended December 31, 1999 increased $370,000 or 1.1%
from the year ended December 31, 1998. The increase was attributable to the same
reasons as noted above.
Interest income for the year ended December 31, 1999 increased by $18,000 from
the year ended December 31, 1998. The increase was attributable to higher
average cash and cash equivalents balances during the same comparable periods.
Other income for the year ended December 31, 1999 decreased $184,000 compared to
the year ended December 31, 1998. The decrease was mainly due to net losses
incurred in the disposition of assets in 1999 versus gains in 1998.
We experienced a net gain of $437,000 on foreign currency in the year ended
December 31, 1999, compared to a loss of approximately $65,000 in the year ended
December 31, 1998. The gains primarily resulted from the positive exchange rate
effect of the strengthening U.S. dollar on certain foreign denominated
liabilities.
Interest expense for the year ended December 31, 1999 decreased approximately
$765,000 from the year ended December 31, 1998. The decrease was mainly
attributable to the decrease in the average balance outstanding under the
Company's Bank Credit Facility compared to the prior period. Also contributing
to the decrease was the transfer of a portion of the Company's debt to
borrowings with lower interest rates.
The effective tax rate for the year ended December 31, 1999 was 36.9% as
compared to 38.6% for the year ended December 31, 1998. The lower effective tax
rate for the year was primarily a result of adjustments to tax liabilities, due
to the favorable resolution of certain contingencies.
Net income was $20.5 million for the year ended December 31, 1999 compared to
$19.4 million for the year ended December 31, 1998.
18
<PAGE> 7
Earnings per common share (diluted) for the year ended December 31, 1999 were
$1.72 cents per share compared to $1.58 for the comparable period in 1998. The
increase in earnings per common share was primarily due to the increase in
earnings and a decrease in the weighted-average number of common equivalent
shares outstanding. The weighted-average number of diluted shares outstanding
decreased from 12.3 million in 1998 to 11.9 million in 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997.
Revenues for the year ended December 31, 1998 increased $16.3 million or 8.3%
over the revenues for the year ended December 31, 1997. The increase was
primarily due to additional Systems revenues of approximately $20.1 million.
Contributing to this increase was a full year of operations for our Scientific
Games Kommunikations - und Computersysteme GmbH subsidiary ("SG Austria"), which
was acquired in April 1997, and sales to new international customers, including
La Francaise des Jeux, operator of the French National Lottery, and Praxa
Limited, prime contractor to the Golden Casket Lottery Corporation in Australia.
The increase in revenues was partially offset by a decline of $4.0 million in
Instant Tickets and Related Services revenues which was primarily attributable
to lower international sales volumes and continued lower equivalent sales prices
as a result of competitive pricing pressures as discussed above and in our prior
periodic reports. Instant Tickets and Related Services revenues accounted for
approximately 78.9% of our gross revenues in 1998 versus 87.4% in 1997. Total
international revenues based on the customer's country of domicile accounted for
approximately 35.4% of our gross revenues in 1998 versus 34.0% for 1997.
Gross margins decreased to 35.2% for the year ended December 31, 1998, from
36.8% for the year ended December 31, 1997. The margin decline was mainly
attributable to Instant Tickets and Related Services contracts awarded or
re-awarded having lower equivalent sales prices than charged in previous
contracts and lower international sales volumes, partially offset by continued
efficiency improvements in domestic instant ticket manufacturing. Also partially
offsetting the decline was the full year ownership of SG Austria and the new
Systems sales discussed previously.
Selling, general and administrative ("SG&A") expenses increased $865,000 for the
year ended December 31, 1998, over the same period of 1997. SG&A expenses
decreased as a percentage of revenues to 12.4% from 13.0%. The dollar increase
was primarily attributable to a full year ownership of SG Austria, additional
expenses related to the joint venture with La Francaise des Jeux, an increase in
international sales efforts, including the expanded activities of a sales branch
in South Africa, and sales efforts related to The Daily Race Game joint venture
with Telecom Productions Inc., which was introduced in 1998.
Depreciation and amortization expenses increased for the year ended December 31,
1998 by $3.1 million over the comparable period of 1997. The increase was due
primarily to the full year ownership of SG Austria and additional SciScan
terminals placed in services during the second half of 1997 and the beginning of
1998.
During 1997, we recognized a one-time write-off of $10.1 million for in-process
technology acquired in connection with the April 15, 1997 acquisition of SG
Austria. In addition, in July 1997 we discontinued our charity pull-tab ticket
business line that was produced and distributed by our then-named subsidiary
GameTec Inc. ("GameTec"). In October 1997, we sold substantially all of the
assets of GameTec to International Gamco, Inc. ("Gamco"). We also entered into a
three year extendible marketing agreement with Gamco in 1997 to provide
marketing and related services to state lotteries for pull-tab tickets printed
by Gamco. We continue to provide pull-tab tickets to our lottery customers
through such marketing agreement. A one-time write-off of $3.4 million (pre-tax)
was recognized in the year ended December 31, 1997 for losses from the
disposition of the assets of our pull-tab ticket business line. We did not have
similar write-offs in 1998.
Operating income for the year ended December 31, 1998 increased $11.9 million or
58.6% from the year ended December 31, 1997. The increase was primarily
attributable to the pull-tab business and in-process technology one-time
write-offs in 1997, as discussed previously, and additional Systems sales during
1998. Partially offsetting the operating income increase was a decline in
operating income in the Instant Tickets and Related Services segment due mainly
to pricing pressures discussed previously.
19
<PAGE> 8
Interest income for the year ended December 31, 1998 increased by approximately
$130,000 from the comparable year ended December 31, 1997. The increase was
mainly due to the interest related to an employee benefit plan, which was offset
by a comparable charge to compensation expense.
We experienced a net loss of $65,000 on foreign currency in the year ended
December 31, 1998, compared to a gain of approximately $507,000 in the year
ended December 31, 1997. The losses primarily resulted from fluctuations in
exchange rates on non-U.S. dollar currency holdings. The 1997 gains were
primarily attributable to gains on the hedging of the purchase price of SG
Austria as well as net gains on non-U.S. dollar transactions in the normal
course of business.
Interest expense for the year ended December 31, 1998 increased approximately
$442,000 from the year ended December 31, 1997. The increase in interest expense
resulted from higher average borrowings under our credit facility for year ended
December 31, 1998.
The effective tax rate for the year ended December 31, 1998 was 38.6% as
compared to 55.9% for the year ended December 31, 1997. The higher than normal
effective tax rate for 1997 was primarily a result of a one-time write-off of
$10.1 million for in-process technology.
Net income was $19.4 million for the year ended December 31, 1998, compared to
$9.0 million for the year ended December 31, 1997. The increase in net income of
$10.4 million was primarily due to the one-time write-offs in 1997 for the
pull-tab business and in-process technology. Comparative net income excluding
these one-time write-offs decreased by $1.7 million in 1998.
Earnings per common share (diluted) for the year ended December 31, 1998 were
$1.58 cents per share compared to $0.72 for the comparable period in 1997. The
increase in earnings per share was primarily due to the one-time write-offs in
1997 as discussed above. Earnings per common share (diluted) for the year ended
December 31, 1997, excluding the one-time write-offs, would have been $1.70. The
decrease in earnings per share, excluding the write-offs, was partially offset
by a reduction in the weighted-average number of common equivalent shares
outstanding resulting from the lower average share price in 1998 and the related
effects on dilutive stock options. The weighted-average number of diluted shares
outstanding decreased from 12.4 million in 1997 to 12.3 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are accumulated cash and cash equivalents, cash
provided by operations and borrowings under our credit facilities. Our primary
uses of cash are for working capital, capital expenditures and general corporate
purposes, which may include common stock repurchases, acquisitions and strategic
investments in joint ventures or other businesses.
During the year ended December 31, 1999, our major cash requirements were for
the repurchase of common stock and purchase of additional property and
equipment. In comparison, during the year ending December 31, 1998, along with
common stock repurchases and capital expenditures, we also used a portion of our
cash and cash equivalents to make an earnout payment of $4.5 million to Hilton
Hotels Corporation (successor by merger to Bally Entertainment Corporation).
This earnout payment, made on October 26, 1998, arose in connection with the
October 1, 1991, acquisition of our assets from Bally.
Our cash and cash equivalents balance increased by approximately $5.5 million
during 1999, increasing from $9.3 million to $14.8 million, while our debt
increased from approximately $12.5 million to $23.5 million. We increased our
net borrowings under our credit facilities by $11.0 million. We currently have
two such facilities: an $80 million credit facility and a $25 million credit
facility. Such facilities were entered into in December 1999 and replaced our
former bank credit facility. The increased borrowings were primarily due to an
increased investment in property and equipment. Increases in total shareholders'
equity resulted from current year earnings and option exercises in the period
which were partially offset by the repurchases under our stock repurchase
program.
In 1999, we generated $26.3 million in cash from operating activities, as
compared to $45.5 million in 1998. The decline in cash from operations was
primarily related to a $6.6 million increase in tax payments and increases in
accounts receivable and other assets.
20
<PAGE> 9
Cash used in investing activities increased from $14.6 million in 1998 to $23.5
million in 1999. Cash was used to acquire an interest in businesses for $1.3
million and net purchases of additional property and equipment in the amount of
approximately $22.3 million.
Financing activities provided cash of approximately $3.5 million in 1999 as
compared to utilizing approximately $24.1 million in 1998. The primary reasons
for the change were an increase to the outstanding borrowings under our former
bank credit facility due to a net increase in borrowings thereunder of $11.0
million, and the decrease in the amount of common stock repurchased to 509,200
shares for an aggregate cost of approximately $8.0 million versus the repurchase
of 559,000 shares for an aggregate cost of approximately $10.5 million in the
prior year. We currently have authorization from our Board of Directors to
purchase, from time to time, depending on market conditions, up to 1,370,600
additional shares of our common stock.
As of December 31, 1999, we had outstanding borrowings of approximately $23.5
million under our $80 million credit facility and zero under our $25 million
credit facility. Both credit facilities offer borrowing rate options under prime
rate, London Interbank Offered Rate ("LIBOR") or Interbank Offered Rate
("IBOR"), plus or minus an applicable margin depending on the type of borrowing
and our debt to total capitalization ratio as defined in such agreement. Both
credit facilities contain covenants that, among other things, require a defined
debt to total capitalization ratio and a certain fixed charge ratio, that limit
our ability to grant security interest in our assets and that restrict asset
sales.
Our $80 million credit facility expires in November 2002 and gives us the
ability to borrow in U.S. dollars, German deutsche marks, French francs, British
pounds sterling and Euros. Our $25 million credit facility expires in November
2000 and gives us the ability to borrow thereunder in U.S. dollars. As of
December 31, 1999, our outstanding borrowings under the credit facilities were
in a mix of British pounds sterling, Euros and U.S. dollars.
While we estimate we will spend over $45 million in capital expenditures in
2000, we believe that the availability of funds under our credit facilities,
cash flows from operations and our ability to obtain alternative sources of
financing will permit us to fund our operations, working capital requirements
and obligations, as well as other potential investment or business
opportunities. In the event we have additional capital requirements for new
business opportunities, we believe we have the ability to obtain additional
capital from the capital markets. For a discussion of a dispute under a foreign
contract of an affiliated company in Colombia, see Note 10 of the Notes to the
Financial Statements set forth elsewhere in this report and Part I, Item 3 of
the Company's Annual Report on Form 10-K, "Legal Proceedings."
INFLATION, CHANGING PRICES, FOREIGN CURRENCY FLUCTUATIONS AND MARKET RISK
We believe that inflation has not had an abnormal or unanticipated effect on our
operations. Inflationary pressures would be significant to our business if raw
materials used for instant lottery ticket production are significantly affected.
Available supply from the paper industry tends to fluctuate, and prices may be
affected by supply.
In 1999, inflation was not a significant factor in our results of operations,
and we were not impacted by significant pricing changes in our costs, except for
personnel related expenditures. We are unable to forecast the prices or supply
of substrate or other raw materials in 2000 but we currently do not anticipate
any substantial changes that will materially affect our operating results.
In certain limited cases, our contracts with our customers contain provisions to
adjust for inflation on an annual basis, but we cannot be assured that this
adjustment would cover raw material price increases. While we have long-term and
generally satisfactory relationships with most of our suppliers, we also believe
alternative sources to meet our raw material needs are available.
We manage our foreign currency exchange risks on a global basis by one or more
of the following: (i) securing payment from our customers in U.S. dollars, when
possible, (ii) utilizing borrowings denominated in foreign currency, and (iii)
entering into foreign currency exchange contracts. In addition, a significant
portion of the cost attributable to our foreign operations is incurred in the
local currencies. We believe that a 10% adverse change in currency exchange
rates would not have a significant adverse effect on the net earnings or cash
flows of the Company.
21
<PAGE> 10
We may, from time to time, enter into foreign currency exchange or other
contracts to hedge the risk associated with certain firm sales commitments,
anticipated revenue streams and certain assets and liabilities denominated in
foreign currencies. One of our credit facilities also allows us to borrow in
certain European currencies. We do not engage in currency speculation. Assets
and liabilities of foreign operations are translated from the local currency
into U.S. dollars at the approximate rate of currency exchange at the end of the
fiscal period. Translation gains and losses of foreign operations that use local
currencies as the functional currency are accumulated and reported as a separate
component of shareholders' equity. Revenues and expenses are translated at
average monthly exchange rates for the month. Transaction gains and losses
arising from exchange rate fluctuations on transactions denominated in a
currency other than the local functional currency are included in our results of
operations.
To the extent we do not hedge our foreign currency exchange risk, such
transactions may have the effect of reducing or increasing the amount of revenue
recorded in dollars or which is actually repatriated to the United States.
Conversely, by entering into hedging contracts, we may, in exchange for
minimizing the risk of potential losses associated with foreign currency
transactions, also thereby necessarily minimize the potential for additional
gain associated with foreign currency translation. While we have always been
able to enter into foreign currency exchange hedging transactions when we have
sought such arrangements, no assurances can be given that our ability to enter
into such transactions will not adversely be affected in the future by one or
more of the following: (i) doing business in a country with limitations on the
expatriation of earnings or other governmental regulations, (ii) doing business
in a country for which there is only limited international interest in the
provision of hedging arrangements by financial institutions, and (iii) the
inability to procure hedging agreements as the result of some financial crisis
associated with that country or which has otherwise affected the interest of
financial institutions in entering into hedging transactions in general.
IMPACT OF YEAR 2000
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed our remediation and testing of systems.
As a result of those planning and implementation efforts, we experienced no
significant disruptions in mission-critical information technology and
non-information technology systems, and we believe those systems successfully
responded to the Year 2000 date change. We expensed approximately $785,000
during 1999 in connection with remediating our systems. We are not aware of any
material problems resulting from Year 2000 issues, either with our products, our
internal systems, or the products and services of third parties supplied to us.
We will continue to monitor our mission-critical computer applications and those
of our suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
22
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
(In thousands, except per share data) 1999 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 228,573 $ 213,800 $197,456
Cost of revenues 148,826 138,630 124,718
----------------------------------------
79,747 75,170 72,738
Selling, general and administrative expenses 29,031 26,518 25,653
Depreciation and amortization 18,024 16,330 13,229
Pull-tab business write-off -- -- 3,376
In-process technology write-off -- -- 10,102
Interest income 502 484 354
Other income (expense) (37) 147 --
Gain (loss) on foreign currency 437 (65) 507
Interest expense 588 1,353 911
Minority interest in subsidiaries' (income) loss (531) 85 --
----------------------------------------
Income before income taxes 32,475 31,620 20,328
Income tax expense 11,987 12,211 11,356
----------------------------------------
Net income $ 20,488 $ 19,409 $ 8,972
==============================================================================================
Basic net income per common share $ 1.73 $ 1.60 $ 0.75
==============================================================================================
Diluted net income per common share $ 1.72 $ 1.58 $ 0.72
==============================================================================================
Average common shares outstanding - basic 11,828 12,108 12,020
Dilutive effect of stock options and non-vested
restricted stock awards 116 190 407
==============================================================================================
Average common shares outstanding - diluted 11,944 12,298 12,427
==============================================================================================
</TABLE>
See accompanying notes.
23
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
SCIENTIFIC GAMES HOLDINGS CORP.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
(In thousands, except share numbers and par value) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,775 $ 9,270
Trade receivables 48,655 39,445
Inventories 15,281 15,090
Pre-paid expenses and other current assets 2,706 2,111
Deferred income tax benefits 1,053 1,032
-------------------------
Total current assets 82,470 66,948
Property and equipment, at cost:
Land 2,404 2,521
Buildings 12,535 11,664
Production and other equipment 110,219 101,098
Construction-in-progress 12,526 2,047
-------------------------
137,684 117,330
Less accumulated depreciation and amortization (68,705) (57,386)
-------------------------
68,979 59,944
Goodwill 31,473 35,282
Other assets 20,711 17,459
-------------------------
$ 203,633 $ 179,633
================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,912 $ 16,270
Accrued liabilities 23,397 17,822
Credit facilities -- 12,482
Income taxes payable 1,827 3,932
-------------------------
Total current liabilities 41,136 50,506
Credit facilities 23,547 --
Other long-term liabilities 5,677 8,221
Deferred income taxes payable 6,727 6,694
Minority interest in consolidated subsidiaries 3,004 2,306
Shareholders' equity:
Preferred stock - 3,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock - par value $.001 per share: 25,750,000 shares
authorized; 11,915,702 shares and 11,875,737 shares issued at
December 31, 1999 and 1998, respectively 12 12
Additional paid-in capital 66,060 65,551
Accumulated earnings 66,689 46,201
Accumulated other comprehensive income (1,198) 142
Treasury stock, at cost - 509,200 shares at December 31, 1999 (8,021) --
-------------------------
Total shareholders' equity 123,542 111,906
-------------------------
$ 203,633 $ 179,633
================================================================================================
</TABLE>
See accompanying notes.
24
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
SCIENTIFIC GAMES HOLDINGS CORP.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 20,488 $ 19,409 $ 8,972
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 12,813 12,012 10,361
Amortization 5,211 4,318 2,868
In-process technology write-off -- -- 10,102
Pull-tab business write-off -- -- 3,376
Loss (gain) on disposal of property and equipment 32 (5) --
Deferred income taxes 12 4,407 (1,513)
Stock compensation expense 64 563 1,313
Minority interest 531 (85) --
Changes in operating assets and liabilities:
Accounts receivable (9,319) (4,416) 536
Inventories (466) (3,470) 1,376
Accounts payable 298 9,751 (4,256)
Other (3,384) 3,039 (11,670)
--------------------------------------
Net cash provided by operating activities 26,280 45,523 21,465
INVESTING ACTIVITIES
Proceeds from sale of assets 174 188 800
Payments for property and equipment (22,470) (8,359) (22,280)
Acquisitions of businesses, net of cash acquired (1,250) (6,469) (24,091)
--------------------------------------
Net cash used in investing activities (23,546) (14,640) (45,571)
FINANCING ACTIVITIES
Payments on notes receivable from officers -- 71 --
Borrowings under credit facilities 65,685 3,000 36,060
Payments on credit facilities (54,620) (21,142) (9,420)
Repurchase of common stock (8,021) (10,461) (5,787)
Proceeds from the exercise of common stock options 417 4,427 57
--------------------------------------
Net cash provided by financing activities 3,461 (24,105) 20,910
Effect of exchange rate changes on cash (690) (351) (213)
--------------------------------------
Increase (decrease) in cash and cash equivalents 5,505 6,427 (3,409)
Cash and cash equivalents at beginning of year 9,270 2,843 6,252
--------------------------------------
Cash and cash equivalents at end of year $ 14,775 $ 9,270 $ 2,843
===============================================================================================
</TABLE>
See accompanying notes
25
<PAGE> 14
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SCIENTIFIC GAMES HOLDINGS CORP.
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN
(In thousands) SHARES AMOUNT CAPITAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1997 12,158 $ 12 $56,486
Foreign currency translation adjustment -- -- --
Net income -- -- --
Comprehensive income -- -- --
Exercise of stock options, including tax benefit 20 -- 150
Compensation expense in connection
with stock option plans -- -- 1,313
Repurchase and retirement of common stock (302) -- --
---------------------------------
Balance at December 31, 1997 11,876 $ 12 $57,949
Foreign currency translation adjustment -- -- --
Additional minimum pension liability -- -- --
Net income -- -- --
Comprehensive income -- -- --
Exercise of stock options, including tax benefit 659 1 7,039
Compensation expense in connection with
stock option plans -- -- 563
Repurchase and retirement of common stock (659) (1) --
Repayment of notes receivable -- -- --
---------------------------------
Balance at December 31, 1998 11,876 12 65,551
Foreign currency translation adjustment -- -- --
Unrealized gain (loss) on investments -- -- --
Additional minimum pension liability -- -- --
Net income -- -- --
Comprehensive income -- -- --
Exercise of stock options, including tax benefit 24 -- 152
Employee stock purchase plan 16 -- 293
Compensation expense in connection with
stock option plans -- -- 64
Repurchase and retirement of common stock -- -- --
Purchase of Treasury stock (509) -- --
BALANCE AT DECEMBER 31, 1999 11,407 $ 12 $66,060
=================================
</TABLE>
See accompanying notes.
26
<PAGE> 15
<TABLE>
<CAPTION>
NOTES
RECEIVABLE OTHER
TREASURY ACCUMULATED FROM THE COMPREHENSIVE
STOCK EARNINGS SALE OF STOCK INCOME TOTAL
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ -- $ 36,671 $(71) $ 691 $ 93,789
-- -- -- (310) (310)
-- 8,972 -- -- 8,972
---------
-- -- -- -- 8,662
---------
-- -- -- -- 150
-- -- -- -- 1,313
-- (5,787) -- -- (5,787)
- -------------------------------------------------------------------------------
-- $ 39,856 $(71) $ 381 $ 98,127
-- -- -- 16 16
-- -- -- (255) (255)
-- 19,409 -- -- 19,409
---------
-- -- -- -- 19,170
---------
-- -- -- -- 7,040
-- -- -- -- 563
-- (13,064) -- -- (13,065)
-- -- 71 -- 71
- -------------------------------------------------------------------------------
-- 46,201 -- 142 111,906
-- -- -- (1,487) (1,487)
-- -- -- 21 21
-- -- -- 126 126
-- 20,488 -- -- 20,488
---------
-- -- -- -- 19,148
---------
-- -- -- -- 152
-- -- -- -- 293
-- -- -- -- 64
-- -- -- -- --
(8,021) -- -- -- (8,021)
$(8,021) $ 66,689 $ -- $(1,198) $ 123,542
===============================================================================
</TABLE>
27
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCIENTIFIC GAMES HOLDINGS CORP.
DECEMBER 31, 1999
1. CORPORATE ORGANIZATION AND BASIS OF PRESENTATION
Scientific Games Holdings Corp. ("Company") provides a full range of lottery
game consulting and production services, including the manufacturing,
warehousing and distribution of instant lottery tickets and related
instant-ticket services such as game design, sales and marketing support,
retailer telemarketing and field services. The Company also provides lottery
systems and systems-related services, including transaction processing software
that accommodates instant ticket game accounting and validation and on-line
games, point-of-sale terminal hardware which connect to these systems, central
site computer and communications hardware which run these systems and ongoing
maintenance for each of these items. These products and services (Instant
Tickets and Related Services and Systems) are provided primarily to domestic and
international governmentally sanctioned lotteries. The Company enters into
short-term and long-term contracts with these lotteries to obtain rights to
provide lottery products and services. Non-lottery products and services include
the production of pre-paid telephone cards. Products and services are provided
through the Company's wholly owned subsidiaries and its joint ventures,
Alpharetta, Georgia-based Scientific Games Inc. ("SGI"), United Kingdom-based
Scientific Games International Limited ("SGIL"), Austria-based Scientific Games
International GmbH ("SG Austria") and France-based SciGames France SAS ("SG
France"). See Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The following summarizes the Company's principal accounting policies.
Consolidated financial statements presented herein include the accounts and
operations of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
REVENUES AND COST OF REVENUES
Revenues from the sales of the Company's products and services are recognized
based upon shipment and delivery, a percentage of the lottery's instant ticket
or on-line sales to the public over a contracted period, as support and
maintenance services are provided under related agreements, or the percentage of
completion method for development projects, or any combination of the foregoing.
All costs related to the design, planning and production of instant ticket
segment products are capitalized as inventories and recognized as cost of
revenues when the products are shipped or when sold to the public. Costs related
to the planning and development of the systems and systems-related services may
be recorded based upon the percentage of completion method, or if the revenue is
recognized based on lottery sales to the public, then the costs may be
recognized over the period of the contract. Costs related to the provision of
support and maintenance services are recorded in costs of revenues, and revenues
are recognized when the service is provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of cash and institutional money
market funds on deposit with banks. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents.
TRADE RECEIVABLES
The Company generally does not require collateral or other security for its
receivables. For certain foreign receivables, the Company requires letters of
credit backing such amounts. Credit losses have been within management's
expectations. The Company had unbilled receivables of $14.0 million and $9.6
million on its percentage of completion contracts at December 31, 1999 and 1998,
respectively. The unbilled receivables are expected to be collected within one
year.
28
<PAGE> 17
INVENTORIES
Inventories consist principally of instant lottery tickets, telephone cards,
materials related to their production and certain electronic components related
to Systems terminals. Inventories are valued at the lower of cost (first-in,
first-out method) or market. Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
(In thousands) 1999 1998
- -------------------------------------------------
<S> <C> <C>
Finished goods $ 8,633 $ 7,939
Work-in-process 2,075 1,087
Raw materials 4,573 6,064
------------------------
$15,281 $15,090
=================================================
</TABLE>
PROPERTY AND EQUIPMENT
Leasehold improvements are amortized on the straight-line method over the lives
of the respective leases or, where applicable, the related lottery game
contracts. Amortization associated with capitalized leases is included in
depreciation expense. Production and other equipment and office furniture and
equipment are depreciated on the straight-line method, generally over 3 to 14
years. Buildings are depreciated on the straight-line method over 31 years.
GOODWILL
Goodwill represents the excess purchase price paid over the net assets acquired
in connection with business combinations accounted for under the purchase
method. Goodwill is being amortized on the straight-line method. Goodwill
related to SGIL, SG Austria and SG France is being amortized over periods of 4
to 30 years. Accumulated amortization of goodwill totaled approximately $5.9
million and $3.5 million at December 31, 1999 and 1998, respectively.
In the event facts and circumstances indicate that goodwill or other long-lived
assets may be impaired, an evaluation of recoverability would then be performed.
If an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine if a write-down to market value or discounted cash flow value is
required.
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------------
<S> <C> <C>
Cash surrender value of life insurance $ 5,513 $ 3,836
Lottery contract costs 3,721 5,509
Intangible pension asset 2,781 3,138
Other 8,696 4,976
------------------------
$20,711 $17,459
========================================================================
</TABLE>
29
<PAGE> 18
ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
(In thousands) 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Potential legal claims and other assessments $ 799 $ 917
Reserves for defective ticket adjustments 549 650
Accrued compensation 4,949 2,920
Amounts due to other entities 4,051 3,283
Accrued contract costs 7,440 7,645
Other 5,609 2,407
------------------------
$23,397 $17,822
==============================================================================
</TABLE>
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated from the local
currency into U.S. dollars at the rate of currency exchange at the end of the
fiscal period. Translation gains and losses of foreign operations that use local
currencies as the functional currency are accumulated and reported as other
comprehensive income in shareholders' equity. Revenues and expenses are
translated at average monthly exchange rates. Transaction gains and losses
arising from exchange rate fluctuations on transactions denominated in a
currency other than the local functional currency are included in the results of
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reflected in the consolidated balance sheets for cash, cash
equivalents, accounts receivable, accounts payable and bank debt approximate
their respective fair values.
ACCOUNTING POLICIES NOT YET ADOPTED
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and for Hedging Activities. Statement 133 provides a comprehensive
standard for the recognition and measurement of derivatives and hedging
activities. Statement No. 133 requires all derivatives to be recorded on the
balance sheet at fair value and establishes "special accounting" for the
different types of hedges. Though the accounting treatment and criteria for each
type of hedge are unique, they all result in recognizing offsetting changes in
value or cash flows of both the hedge and the hedged item in earnings in the
same period. Changes in fair value of derivatives that do not meet the hedge
criteria are included in earnings in the period of the change. The Company does
not believe that the adoption of Statement No. 133 in 2001 will have a
significant impact on its consolidated financial statements.
3. ACQUISITIONS AND DISPOSITIONS
On April 15, 1997, the Company completed its stock acquisition of TeleControl
Kommunikations - und Computersysteme Gesellschaft m.b.h., an Austrian
corporation which was renamed Scientific Games Kommunikations - und
Computersysteme GmbH. ("SG Austria"), an on-line lottery and transaction systems
company located in Vienna, Austria, from Autotote Corporation. The purchase
price was $26.9 million net of $2.8 million of SG Austria's acquired cash. The
purchase was accounted for under the purchase method of accounting. The purchase
price was allocated to approximately $5.1 million of net assets and to a
one-time write-off of $10.1 million in connection with in-process research and
development costs based on an appraisal, with the remainder allocated to
goodwill to be amortized over 15 years.
30
<PAGE> 19
The accompanying financial statements include the results of operation of SG
Austria from the date of such acquisition. The following table summarizes the
Company's estimated pro forma unaudited results of operations as if the purchase
of SG Austria occurred on January 1, 1996:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1997
- --------------------------------------------------------
<S> <C>
Revenues $ 200,225
Net income 18,841
Earnings per common share - basic 1.57
Earnings per common share - diluted 1.51
</TABLE>
The pro forma results presented above include adjustments to reflect interest
expense on borrowings for the acquisitions, amortization of assets acquired
including intangibles, certain management expenses related to the Company's
combined operations and the income tax effect of such pro forma adjustments and
income taxes on earnings.
These pro forma unaudited results of operations do not purport to represent what
the Company's actual results of operations would have been if the SG Austria
acquisition had occurred on January 1, 1997 and should not serve as a forecast
of the Company's operating results for any future periods. The pro forma
adjustments are based solely upon certain assumptions that management believes
are reasonable under the circumstances at this time. However, the full impact of
potential cost savings has not been reflected in the pro forma results presented
above, although there can be no assurances such cost savings will be achieved.
In the fourth quarter of 1998, the Company formed a joint venture with La
Francaise des Jeux, the operator of the French National Lottery. The joint
venture corporation, ("SG France"), was formed to provide systems maintenance
services for the lottery terminal software and hardware of six German provincial
lotteries, terminal maintenance for the French National Lottery and to develop a
lottery terminal to be used by La Francaise des Jeux in France and by the
Company throughout the world. The Company's initial cash contribution to SG
France was approximately $1.9 million which resulted in a 55% ownership
interest. The Company also advanced to SG France approximately $1.4 million as a
loan to acquire inventory to be used in the venture. Goodwill and other
intangibles totaling approximately $2.5 million have been recognized in the
consolidated financial statements in connection with the joint venture.
In 1997, the Company discontinued its charity pull-tab ticket business line
which was produced and distributed by its then-named subsidiary GameTec, Inc.
("GameTec"). A write-off of $3.4 million (pre-tax) was recognized for the
disposition of the assets of this business line in 1997. In connection with the
disposition, the Company sold substantially all of the assets of GameTec. The
Company entered into a three-year extendible marketing agreement with the buyer
to provide marketing and related services to state lotteries for pull-tab
tickets. The Company will continue to provide pull-tab tickets to its lottery
customers through the marketing agreement.
4. CREDIT FACILITY
On November 30, 1999 the Company entered into a three-year, $80 million credit
facility with four banks (the "$80 Million Credit Facility"). The $80 Million
Credit Facility contains provisions for domestic and foreign currency loans
whereby, at the request of the Company, funds may be borrowed and repaid in
either US dollars, British pounds sterling, French francs, deutsche marks, or
the European currency, Euros. In addition, on the same day, the Company also
entered into a separate, 364-day, $25 million credit facility with one of the
participating banks (the "$25 Million Credit Facility"). The $25 Million Credit
Facility expires on November 29, 2000, and can be renegotiated at the mutual
consent of both the bank and the Company
31
<PAGE> 20
for the subsequent 364 days. The interest-rate options available to the Company
under both credit facilities are LIBOR, IBOR and the Base Rate (the higher of
the prime rate, or the federal funds rate plus .5%), plus the applicable margin
as defined in the credit facilities. These interest rates options are applicable
and available in varying circumstances based upon, among other things, the
amount and nature of the borrowings and the Company's leverage ratio at the time
such amounts are borrowed. The weighted-average interest rate on the outstanding
borrowings under the combined credit facilities, including foreign currency
debt, during 1999 and 1998 was 4.9% and 5.0%, respectively. For the $80 Million
Credit Facility exclusively, a per annum fee of .20% is payable on the average,
daily unused portion of the commitment. At December 31, 1999, outstanding
borrowings under the combined credit facilities was $23.5 million. This amount
included $10.5 million British pounds sterling, $5.0 million Euros, and the
balance of $8.0 million was U.S. dollars.
Both credit facilities contain covenants that restrict the Company's ability to
incur additional debt or create liens on any of its property, except as
permitted, and require the Company to maintain a leverage ratio, as defined, at
or below 50% and a fixed charge coverage ratio of at least three to one.
For the year ended December 31, 1999, interest paid totaled $770,000, of which
$101,000 was capitalized. For the year ended December 31, 1998, interest paid
totaled $1.2 million. These amounts include interest on bank debt, interest on
capital leases and commitment fees. For the year ended December 31, 1997,
interest paid and incurred totaled $955,000, of which $44,000 was capitalized.
The outstanding balance under the $80 Million Credit Facility is due on November
30, 2002.
5. SHAREHOLDERS' EQUITY
In July 1997, the Company adopted a shareholders' rights plan, which provided
for the issuance to each holder of the Company's common stock, certain rights
(the "Rights") to purchase shares of the Company's redeemable Series A
Participating Cumulative Preferred Stock pursuant to the terms of a Rights
Agreement. Such Rights are exercisable after distribution by the holders
thereof, other than "Acquiring Persons" as defined in the Rights Agreement, in
the event of certain ownership changes and in connection with certain business
combinations. The Rights have certain anti-takeover effects. The Rights may
cause substantial dilution to a person that attempts to acquire the Company
without a condition to such an offer being that a substantial number of the
Rights to be acquired or that the Rights be redeemed or declared invalid. The
Rights should not interfere with any merger or other business combination
approved by the Board of Directors (under some circumstances with the
concurrence of the continuing directors, as defined) since the rights may be
redeemed by the Company.
6. STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation, requires use of option valuation models
that were not developed for use in valuing employee stock options.
The Company has stock option plans that provide for the granting of
non-qualified options to purchase the Company's common stock to selected key
employees, officers and directors. Such options generally have ratable, annual
vesting periods ranging from 3 to 7 years from the date of the grant, and
maximum terms ranging from 7 to 10 years from the date of the grant.
32
<PAGE> 21
A summary of the Company's stock option activity and related information for the
years ended December 31, 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 1,019 $ 17.72 1,376 $ 12.46 1,271 $ 11.41
Granted 125 17.08 345 19.76 125 20.60
Exercised (25) 5.54 (659) 7.56 (18) 3.17
Forfeited (58) 7.70 (43) 20.68 (2) 3.06
----- ----- -----
Outstanding - end of year 1,061 17.27 1,019 17.72 1,376 $ 12.46
===== ===== =====
Exercisable - end of year 662 $ 16.38 558 $ 15.06 885 $ 9.59
===== ===== =====
</TABLE>
Exercise prices for options ranged from $1.46 to $7.00 for approximately 149,000
options, from $9.44 to $20.00 for approximately 580,000 options, and from $20.00
to $38.00 for approximately 332,000 options. The weighted-average remaining
contractual life of those options is 7.3 years.
The Company charged approximately $64,000, $563,000 and $1.3 million to
operations in 1999, 1998 and 1997, respectively, representing the amortization
of the difference in the option price and the fair market value of the option
shares at the date of grant.
At December 31, 1999, the Company has approximately 518,000 shares of Common
Stock available for future grants.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994, under the fair value method of that Statement. The fair value
of these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for 1999, 1998 and
1997, respectively: risk-free interest rates of 5.4%, 5.2% and 6.7%, a dividend
yield of 0.0%; volatility factors of the expected market price of the Company's
common stock of .41, .41 and .46; and a weighted-average expected life of the
option of 8.0, 8.0 and 8.7 years. The weighted-average fair values of options
granted during 1999, 1998 and 1997 were $9.50, $10.94 and $13.16, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected share price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
33
<PAGE> 22
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $ 19,238 $ 18,352 $ 7,689
Pro forma earnings per share - diluted $ 1.61 $ 1.51 $ .62
</TABLE>
Because Statement 123 is applicable to options granted subsequent to December
31, 1994, its pro forma effect will not be fully reflected until future years.
7. INCOME TAXES
Income tax expense is composed of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
(in thousands) 1999 1998 1997
- ----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 7,329 $ 5,939 $ 10,457
State 984 796 2,600
Foreign 3,662 1,069 842
Deferred:
Federal 1 2,765 (1,433)
State -- 629 (213)
Foreign 11 1,013 (897)
----------------------------------
Income tax expense $11,987 $12,211 $ 11,356
==========================================================
</TABLE>
The difference between the provision for income taxes and amounts computed by
applying federal statutory rates to income before income taxes is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
(in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax expense at statutory rates $ 11,367 $ 11,067 $ 7,115
State income taxes net of federal income tax effect 639 1,082 1,551
Non-deductible expenses 1,236 1,139 450
In-process technology write-off -- -- 3,535
Tax credits (115) (305) (582)
Other (1,140) (772) (713)
--------------------------------------
Income tax provision $ 11,987 $ 12,211 $ 11,356
===============================================================================================
</TABLE>
The pre-tax income (loss) attributed to the Company's foreign operations was
approximately $9.3 million, $7.7 million and ($8.5) million for the years ended
December 31, 1999, 1998 and 1997, respectively.
34
<PAGE> 23
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $5,058 $3,897
Other - net 1,669 2,797
------------------
Total deferred tax liabilities 6,727 6,694
Deferred tax assets:
Accruals and reserves 150 42
Stock compensation 903 902
------------------
Total deferred tax assets 1,053 1,032
------------------
Net deferred tax liabilities $5,674 $5,662
======================================================
</TABLE>
The Company made federal and state income tax payments of approximately $10.1
million, $7.6 million and $11.7 million in the years ended December 31, 1999,
1998 and 1997, respectively. The Company made $4.7 million, $580,000 and
$750,000 in foreign income tax payments in the years ended December 31, 1999,
1998 and 1997, respectively.
8. LEASES
The Company leases certain office and warehouse facilities under operating
leases. Lease expense for operating leases totaled approximately $4.0 million,
$2.8 million and $2.3 million for the years ended December 31, 1999, 1998
and 1997, respectively.
Future minimum lease obligations at December 31, 1999, are summarized as
follows:
<TABLE>
<CAPTION>
(in thousands): OPERATING LEASES
- ------------------------------------------------------------
<S> <C>
2000 $ 3,805
2001 3,066
2002 1,339
2003 829
2004 720
Thereafter 2,245
-------
Total lease obligations $12,004
============================================================
</TABLE>
35
<PAGE> 24
9. BENEFIT PLANS
The Company sponsors the following defined contribution plans for its employees
and directors:
The Company sponsors the Scientific Games Inc. Savings and Investment Plan, a
savings plan which covers all SGI employees who elect to participate. Employees
are eligible for participation on the enrollment date following six months of
service. Prior to 1999, the Company contributed an amount equal to 33% of the
portion of the employee's elective deferral contributions which do not exceed 6%
of the employee's total pay for each payroll period in which an elective
deferral is made, subject to the limitations of the Internal Revenue Code.
Beginning in 1999, the Company contributed an amount equal to 50% of the portion
of the employee's elective deferral contributions which do not exceed 6% of the
employee's total pay for each payroll period in which an elective deferral is
made. The Company's matching portion of employees' contributions is made with
the Company's common stock, which is purchased on the open market. Matching
contributions of the Company are 100% vested upon receipt. Approximately
$581,000, $360,000 and $331,000 was expensed by the Company related to this plan
during 1999, 1998 and 1997, respectively.
On October 1, 1996, the Company established the Scientific Games Inc. Management
Deferred Compensation Plan ("MDCP") to provide deferred compensation for a
select group of management or highly compensated employees. Generally,
participants in the MDCP may elect to defer up to 50% of their salary and up to
100% of their annual cash incentive bonus. Assets of the MDCP may be held by a
rabbi trust and are accounted for as assets of the Company; therefore all
earnings and expenses are recorded in the Company's financial statements. The
net amount of the MDCP's earnings and losses is recorded as additional liability
to the participants and is an expense of the Company. Assets and liabilities of
the MDCP totaled approximately $1.4 million and $1.7 million, respectively, at
December 31, 1999. Compensation expense associated with the MDCP was
approximately $292,000, $546,000 and $649,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
Effective July 11, 1996, the Company established the Scientific Games Holdings
Corp. Directors Deferred Compensation Plan ("DDCP") to provide each member of
the Board of Directors who is not an employee of the Company an opportunity, on
an annual basis, to defer all or any portion of his or her director's fees.
Similar to the MDCP discussed above, assets of the DDCP may be held by a rabbi
trust. Assets and liabilities of the DDCP totaled approximately $279,000 and
$322,000, respectively, at December 31, 1999. Compensation expense associated
with the DDCP was approximately $60,000, $133,000 and $71,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
The Company also sponsors the following defined benefit plans for certain
employees:
Certain employees of SGIL are participants in a defined-benefit pension plan
administered by SGIL. The benefits are based on an average of the employee's
compensation over two years preceding retirement or leave of service.
The Company also sponsors the Scientific Games Inc. Supplemental Executive
Retirement Plan ("SERP") covering certain executives as determined by the
Compensation Committee of the Board. All current participants are 100% vested in
their benefits. Generally, participants will receive benefits for 15 years in an
amount equal to 53% of his or her compensation in the final three calendar years
of employment. Such amounts may be reduced based upon length of service and
vesting schedules for participants entering the SERP after January 1, 1996.
The following tables summarize the SGIL Plan and the SERP. Amounts related to
the SERP for 1997 have not been presented as such amounts were not significant.
36
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------
SGIL SERP
------------------------------------------- ---------------------
(In thousands) 1999 1998 1997 1999 1998
- --------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
CHANGES IN BENEFIT OBLIGATION
Net benefit obligation at
beginning of year $ 11,960 $ 9,634 $ 8,089 $ 5,506 $ 5,252
Service cost 1,018 963 775 283 134
Interest cost 646 631 770 404 394
Actuarial (gain) loss 2,044 732 -- (23) (152)
Gross benefits paid -- -- -- (163) (122)
------------------------------------------- ---------------------
Net benefit obligation at $ 15,668 $ 11,960 $ 9,634 $ 6,007 $ 5,506
end of year =========================================== =====================
CHANGES IN PLAN ASSETS
Fair value of plan assets at
beginning of year $ 11,777 $ 9,883 $ 9,059 $ -- $ --
Actual return on plan assets 1,647 780 49 -- --
Employer contributions 799 963 775 -- --
Plan participants' contribution 476 151 -- -- --
Gross benefits paid -- -- -- -- --
------------------------------------------- ---------------------
Fair value of plan assets at
end of year $ 14,699 $ 11,777 $ 9,883 $ -- $ --
=========================================== =====================
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------
SGIL SERP
------------------------------------------- ---------------------
(In thousands) 1999 1998 1997 1999 1998
- --------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Funded status at end of year $ (969) $ (183) $ 249 $(6,007) $(5,506)
Unrecognized net actuarial gain (loss) 727 (100) (396) 595 623
Unrecognized prior service cost -- -- -- 2,781 3,139
Additional minimum liability -- -- -- (2,910) (3,394)
Intangible asset -- -- -- 2,781 3,139
Accumulated other
comprehensive income -- -- -- 129 255
------------------------------------------- ---------------------
Net amount recognized
at end of year $ (242) $ (283) $ (147) $(2,631) $(1,744)
=========================================== =====================
Service cost $ 1,018 $ 963 $ 775 $ 283 $ 134
Interest cost 646 631 770 404 394
Expected return on plan assets (889) (780) (819) -- --
Amortization of unrecognized
transition obligation -- (16) -- -- --
Amortization of prior service cost -- -- -- 358 358
Amortization of actuarial loss (gain) -- -- -- 4 29
------------------------------------------- ---------------------
Net periodic pension cost $ 775 $ 798 $ 726 $ 1,049 $ 915
=========================================== =====================
</TABLE>
37
<PAGE> 26
Assumptions used in the accounting for the defined benefit plans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
SGIL SERP
----------------------------- --------------
(In thousands) 1999 1998 1997 1999 1998
- ------------------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C>
Weighted-average discount rate 6.0% 5.5% 6.5% 7.5% 7.5%
Rate of increase in future
compensation levels 4.5% 4.0% 4.5% 5.0% 5.0%
Expected long term rate of
return on plan assets 7.5% 7.5% 7.5% -- --
</TABLE>
The SERP is not a qualified plan and has no plan assets. To provide a funding
source for the payment of certain benefits under the SERP, the Company owns
whole-life insurance contracts on certain of the participants. The cash value of
these policies was approximately $2.5 million at December 31, 1998 and
approximately $3.8 million at December 31, 1999. The Company made cash payments
associated with the policies of approximately $787,000 annually during 1999,
1998 and 1997. These policies have been placed in a rabbi trust, which will hold
the policies and death benefits as they are received.
10. CONTINGENCIES
As initially reported in July 1993 and periodically reported thereafter, the
Company's Scientific Games Inc. ("SGI") subsidiary owns a minority interest in
Wintech de Colombia S.A. ("Wintech"), which formerly operated the Colombian
national lottery under contract with Empresa Colombiana de Recursos para la
Salud, S.A. ("Ecosalud"), an agency of the Colombian government. The contract
projected that certain levels of lottery ticket sales would be attained and
provided a penalty against Wintech, SGI and the other shareholders of Wintech of
up to $5.0 million if such performance levels of lottery ticket sales were not
achieved. In addition, with respect to a further guarantee of performance under
the contract with Ecosalud, SGI delivered to Ecosalud a $4.0 million bond issued
by a Colombian surety, Seguros del Estado ("Seguros"). Wintech started the
instant lottery in Colombia, but, due to difficulties beyond its control,
including, among other factors, social and political unrest in Colombia,
frequently interrupted telephone service and power outages, and competition from
another lottery being operated in a province of Colombia in violation of
Wintech's exclusive license from Ecosalud, the projected sales level was not met
for the year ended June 1993. On July 1, 1993, Ecosalud adopted resolutions
declaring, among other things, that the contract was in default and asserted
various claims for compensation and penalties against Wintech, SGI and other
shareholders of Wintech. As the Company has previously disclosed in its filings
with the Commission, litigation is pending in Colombia concerning various claims
among Ecosalud, Wintech and SGI, relating to the termination of the contracts
with Ecosalud (the "Colombian Litigation"). Ecosalud's claims in the Colombian
Litigation were for, among other things, realization on the full amount of the
penalty, plus interest and costs of the bond.
SGI has consulted with Colombian counsel and been advised that SGI has various
legal defenses to Ecosalud's claims. SGI also has certain cross indemnities and
undertakings from the two other privately held shareholders of Wintech for their
respective shares of any liability to Ecosalud. That obligation is secured in
part by a $1.5 million confirmed letter of credit in favor of SGI.
38
<PAGE> 27
The Colombian surety, which issued a $4.0 million bond to Ecosalud under the
contract, paid $2.4 to Ecosalud under the bond and made demand upon SGI for that
amount under the indemnity agreement entered into by the surety and SGI. SGI
declined to make or authorize any such payment and notified the surety that any
payment in response to Ecosalud's demand on the bond was at the surety's risk.
No assurance can be given that the other shareholders of Wintech will, or have
sufficient assets to, honor their indemnity undertakings to SGI when the claims
by Ecosalud against SGI and Wintech are finally resolved, in the event such
claims result in any final liability.
On April 2, 1998, Seguros brought suit against SGI in the United States District
Court for the Northern District of Georgia, Atlanta Division, Civil Action No.
1:98-CV-968-CAM. The plaintiff sought $2.4 million for sums paid by Seguros to
Ecosalud under the surety bond on November 1, 1994, plus interest at the
Colombian bank rate of interest. SGI filed a motion to dismiss based on the
Colombian statute of limitations of two years and, alternatively, sought that
the case be dismissed on other grounds. Seguros filed a motion for summary
judgment with the Court on May 6, 1998 seeking summary judgment on its claim in
the amount of $2.4 million, plus interest.
On September 29, 1999, the District Court issued an order in which it denied
various motions of SGI, including a motion to dismiss, and granted Seguros'
motion for summary judgment. On September 29, 1999, the District Court also
entered judgment for Seguros in the amount of $2.4 million or the equivalent in
Colombian pesos as of the judgment date, plus prejudgment interest at a rate of
38.76% per annum, equivalent to approximately $4.6 million.
SGI has appealed the matters covered by the District Court's order and judgment.
SGI has posted an appeal bond in the amount of $7 million through its existing
bonding arrangements. SGI continues to believe that it has meritorious defenses,
including that the amount paid by Seguros was improperly paid because of the
default by Ecosalud of its obligations to SGI, which claims remain the subject
of separate litigation in Colombia.
In addition to vigorously prosecuting its appeal of the District Court's order
and judgment, SGI continues to vigorously defend the Colombian litigation and
has been advised by counsel that SGI has various defenses on the merits as well
as procedural defenses to the litigation (which it has asserted). Nevertheless,
it is not possible to determine the exact/ultimate outcome of the appeal of the
order and judgment granted to Seguros or the outcome of any litigation in
Colombia. While it is not feasible to predict or determine the final outcome of
these proceedings, management, based on the knowledge of the related facts and
circumstances, does not believe that any potential losses will result in a
materially adverse effect on the Company's financial position, results of
operations, liquidity or capital resources.
At December 31, 1999, the Company had contracts for the completion of the
expansions of the Alpharetta and U.K. facilities totaling approximately $17.5
million.
39
<PAGE> 28
11. SEGMENT INFORMATION
The Company's primary customers are government-sanctioned lotteries worldwide.
The two primary products sold by these lotteries are instant ticket games
(scratch-off lottery tickets) and on-line lottery games (lotto-type games). The
Company's two reportable segments are organized based on the products and
services it supplies to lotteries, Instant Tickets and Related Services and
Systems.
In the Instant Tickets and Related Services segment, the Company primarily
supplies game design, sales and marketing support, instant ticket manufacturing
and delivery, inventory management and distribution, and retailer telemarketing
and field service. In addition, this segment includes the supply of promotional
instant tickets and pull-tab tickets, which are sold to both lottery and
non-lottery customers as well as pre-paid phone cards which are sold to
telecommunications companies. These products represented less than 10% of the
Company's revenue.
In the Systems segment, the Company primarily supplies transaction processing
software that accommodates instant ticket accounting and validation and on-line
games, point-of-sale terminal hardware which connects to these systems, central
site computer and communication hardware which run these systems, and ongoing
maintenance services for each of these items. On-line lottery games include
lotto, daily pick, keno and other games. The Systems segment also includes
software and hardware for sports wagering systems and credit card processing
systems for non-lottery customers.
The Company refers to Cooperative Services in various sections of this annual
report. Cooperative Services is a branded marketing name given to the
combination of any of the products offered by the two segments under one
customer contract. The Company believes the Cooperative Services name assists it
in promoting greater awareness of its capabilities, but does not treat it as a
separate segment. The intersegment sales relate to Systems activity included in
Instant Tickets and Related Services customer contracts. The amount of
intersegment sales was calculated based on the market value of the product or
service provided as if it was sold separately. The Corporate line items in the
schedules relate to general and administrative functions which are not allocated
to the segments.
40
<PAGE> 29
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Segment Information
Revenue from external customers:
Instant Tickets and Related Services $ 188,571 $ 176,676 $ 178,923
Intersegment revenue (7,306) (8,098) (6,353)
Systems 39,716 36,810 18,470
Intersegment revenue 7,306 8,098 6,353
Corporate 286 314 63
-----------------------------------------
Total revenue from external customers $ 228,573 $ 213,800 $ 197,456
===================================================================================================
Depreciation and amortization:
Instant Tickets and Related Services $ 9,186 $ 8,887 $ 8,868
Systems 6,880 6,091 3,406
Corporate 1,958 1,352 955
-----------------------------------------
Total depreciation and amortization $ 18,024 $ 16,330 $ 13,229
===================================================================================================
Operating income (loss):
Instant Tickets and Related Services $ 38,255 $ 34,343 $ 37,707
Pull-tab business write-off -- -- (3,376)
Systems 6,152 7,577 5,553
In-process technology write-off -- -- (10,102)
Corporate (11,715) (9,598) (9,404)
-----------------------------------------
Total operating income $ 32,692 $ 32,322 $ 20,378
Interest expense (588) (1,353) (911)
Other 371 651 861
-----------------------------------------
Income before income taxes $ 32,475 $ 31,620 $ 20,328
===================================================================================================
Assets:
Instant Tickets and Related Services $ 131,101 $ 137,718 $ 136,470
Systems 56,141 26,564 19,485
Corporate 16,391 15,351 8,455
-----------------------------------------
Total assets $ 203,633 $ 179,633 $ 164,410
===================================================================================================
</TABLE>
41
<PAGE> 30
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
GEOGRAPHIC INFORMATION
Net revenues(1):
United States $168,147 $169,360 $158,911
Europe 60,426 44,440 38,545
------------------------------------
Total net revenues $228,573 $213,800 $197,456
=================================================================
Net revenues(2):
United States $141,392 $138,199 $131,335
Europe 69,150 68,250 58,089
Other 18,031 7,351 8,032
------------------------------------
Total net revenues $228,573 $213,800 $197,456
=================================================================
Net long-lived assets:
United States $ 74,467 $ 75,062 $ 80,738
Europe 25,985 20,164 17,460
------------------------------------
Total long-lived assets $100,452 $ 95,226 $ 98,198
=================================================================
</TABLE>
(1) Based on subsidiaries' countries of domicile
(2) Based on customers' countries of domicile
During the year ended December 31, 1999, one customer comprised approximately
10% of the Company's total revenues, and for the years ended December 31, 1998
and 1997, respectively, no single customer accounted for over 10% of the
Company's total revenues.
42
<PAGE> 31
12. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(In thousands, except per share data) QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $52,665 $57,125 $59,511 $59,272
Gross profit 18,947 21,549 20,444 18,807
Income before taxes 8,081 8,628 7,866 7,900
Net income 5,006 5,430 5,373 4,679
----------------------------------------------
Net income per share - basic $ 0.42 $ 0.46 $ 0.45 $ 0.40
==============================================
Net income per share - diluted $ 0.42 $ 0.45 $ 0.45 $ 0.40
==============================================
1998
Revenues $48,419 $51,567 $53,928 $59,886
Gross profit 16,862 18,832 20,116 19,360
Income before taxes 6,229 8,103 9,093 8,195
Net income 3,777 4,853 5,282 5,497
----------------------------------------------
Net income per share - basic $ .32 $ .39 $ .43 $ .46
==============================================
Net income per share - diluted $ .31 $ .39 $ .43 $ .46
==============================================
</TABLE>
43
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
SCIENTIFIC GAMES HOLDINGS CORP.
We have audited the consolidated balance sheets of Scientific Games Holdings
Corp. (the "Company") as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Scientific Games
Holdings Corp. at December 31, 1999 and 1998, and the results of its operations
and cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Atlanta, Georgia
February 10, 2000
44
<PAGE> 33
CORPORATE INFORMATION
SCIENTIFIC GAMES HOLDINGS CORP.
CORPORATE HEADQUARTERS
Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
Tel: 770.664.3700
INDEPENDENT AUDITORS
Ernst & Young LLP
600 Peachtree Street
Atlanta, Georgia 30308-2215
CORPORATE COUNSEL
Smith, Gambrell & Russell, LLP
Suite 3100 Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
TRANSFER AGENT AND REGISTRAR
First Union National Bank of North Carolina
Corporate Trust Client Services NC-1153
1525 West W.T. Harris Boulevard -- 3C3
Charlotte, NC 28288-1153
Tel: 704.590.7375
ANNUAL REPORT ON FORM 10-K
Copies of the Company's Annual Report for the fiscal year ended December 31,
1999, as filed with the Securities and Exchange Commission will be sent to any
shareholder upon request in writing to:
SCIENTIFIC GAMES HOLDINGS CORP.
1500 BLUEGRASS LAKES PARKWAY
ALPHARETTA, GEORGIA 30004
ATTENTION: CORPORATE SECRETARY
INVESTOR/ANALYST CONTACT
Cliff O. Bickell
Chief Financial Officer
Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
Tel: 770.664.3700
Web Site: http://www.scigames.com
For faxed press release:
800.758.5804 ext. 110329
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting will be held at 9:00 a.m. on May 19, 2000 at:
Atlanta/Windward Hilton Garden Inn
4025 Windward Concourse
Alpharetta, Georgia 30005
COMMON STOCK
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol SG. Quarterly high and low closing stock prices for 1998 and 1999 were:
<TABLE>
<CAPTION>
1999 HIGH LOW
<S> <C> <C>
First Quarter $18.25 $16.75
Second Quarter 19.50 15.44
Third Quarter 21.00 19.19
Fourth Quarter 19.75 14.50
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
<S> <C> <C>
First Quarter $23.00 $19.25
Second Quarter 23.44 17.56
Third Quarter 24.00 18.31
Fourth Quarter 19.31 16.00
</TABLE>
NUMBER OF SHAREHOLDERS
As of March 13, 2000, we had approximately 106 shareholders of record. This
number excludes individual shareholders holding stock under nominee security
position listings.
FORWARD-LOOKING INFORMATION
Except for the historical information contained in this Annual Report, certain
matters discussed herein, especially in the narrative portion of this report,
constitute forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the matters discussed in
such statements. Factors which might cause such differences include, but are
not limited to, those discussed under Item 1 of the Company's Annual Report on
Form 10-K.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock. The
Company currently anticipates that its earnings will be retained for
development of the Company's business and does not anticipate paying any cash
dividends on its Common stock in the foreseeable future.
<PAGE> 1
EXHIBIT 21.0
Scientific Games Holdings Corp.
Subsidiaries
<TABLE>
<CAPTION>
State/jurisdiction
of incorporation/ Other names under which
Name organization business is conducted
- -------------------- ------------------- -----------------------------------
<S> <C> <C>
Scientific Games Inc. Delaware
Scientific Games (Greece), Inc. Delaware
Scientific Games Acquisition Corp. Delaware Formerly GameTec Inc.
Scientific Games Foreign Sales Corporation Barbados
Scientific Games International Limited United Kingdom
Line of business: instant ticket manufacturer
Number of subsidiaries within US = 0
Number of subsidiaries outside US = 4
Scientific Games International GmbH Austria
Line of business: on-line lottery systems
Number of subsidiaries within US = 0
Number of subsidiaries outside US = 0
Scientific Games Finance Corporation Delaware
Scientific Games Royalty Corporation Delaware
Scientific Games France Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Scientific Games Holdings Corp. of our report dated February 10, 2000
included in the 1999 Annual Report to Shareholders of Scientific Games Holdings
Corp.
We also consent to the incorporation by reference in the Registration
Statements of Scientific Games Holdings Corp. listed below of our report dated
February 10, 2000 with respect to the consolidated financial statements of
Scientific Games Holdings Corp. incorporated by reference in the Annual Report
(Form 10-K) for the year ended December 31, 1999.
- - Registration Statement No. 33-78322 on Form S-8 dated April 29, 1994 and
related Prospectus.
- - Registration Statement No. 33-78324 on Form S-8 dated April 29, 1994 and
related Prospectus.
- - Registration Statement No. 33-78326 on Form S-8 dated April 29, 1994 and
related Prospectus.
- - Registration Statement No. 33-78328 on Form S-8 dated April 29, 1994 and
related Prospectus.
- - Registration Statement No. 33-78330 on Form S-8 dated April 29, 1994 and
related Prospectus.
- - Registration Statement No. 33-90948 on Form S-8 dated April 5, 1995 and
related Prospectus.
- - Registration Statement No. 33-90950 on Form S-8 dated April 4, 1995 and
related Prospectus.
- - Registration Statement No. 333-3034 on Form S-8 dated April 1, 1996 and
related Prospectus.
- - Registration Statement No. 33-05847 on Form S-8 dated June 12, 1996 and
related Prospectus.
- - Registration Statement No. 333-30637 on Form S-8 dated July 2, 1997 and
related Prospectus.
- - Registration Statement No. 333-42833 on Form S-8 dated December 22, 1997 and
related Prospectus.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 14,775
<SECURITIES> 0
<RECEIVABLES> 48,655
<ALLOWANCES> 310
<INVENTORY> 15,281
<CURRENT-ASSETS> 82,470
<PP&E> 137,684
<DEPRECIATION> 68,705
<TOTAL-ASSETS> 203,633
<CURRENT-LIABILITIES> 41,136
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 123,542
<TOTAL-LIABILITY-AND-EQUITY> 203,633
<SALES> 228,573
<TOTAL-REVENUES> 228,573
<CGS> 148,826
<TOTAL-COSTS> 148,826
<OTHER-EXPENSES> 29,031
<LOSS-PROVISION> 310
<INTEREST-EXPENSE> 588
<INCOME-PRETAX> 32,475
<INCOME-TAX> 11,987
<INCOME-CONTINUING> 20,488
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,488
<EPS-BASIC> 1.73
<EPS-DILUTED> 1.72
</TABLE>
