<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14A OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SCIENTIFIC GAMES HOLDINGS CORP.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.001 per share
(2) Aggregate number of securities to which transactions applies: 11,923,077
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and how it was determined): X $26.00 per share
(4) Proposed maximum aggregate value of transaction: $310,000,000
(5) Total fee paid: 62,000
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date Filed:
<PAGE> 2
(SCIENTIFIC GAMES LOGO)
SCIENTIFIC GAMES HOLDINGS CORP.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
July 12, 2000
Dear Stockholder:
The Board of Directors of Scientific Games Holdings Corp. has unanimously
approved a business combination with Autotote Corporation. This business
combination will create a leading world-wide gaming company. Pursuant to the
merger agreement, a subsidiary of Autotote will merge with Scientific Games and
each outstanding share of Scientific Games common stock will be converted into
the right to receive $26 in cash, without interest.
You are cordially invited to attend a special meeting of stockholders of
Scientific Games to vote on the proposed business combination. The meeting will
be held at 9:00 a.m., local time, on Tuesday, August 8, 2000 at the Atlanta
Windward Hilton Garden Inn, 4025 Windward Concourse, Alpharetta, Georgia 30005.
We can not complete the proposed business combination unless we obtain the
approval of the stockholders of Scientific Games owning at least a majority of
the outstanding shares of Scientific Games' common stock.
We urge you to take the time to vote on the proposed business combination
by designating a proxy to vote your shares. You may designate a proxy by signing
and dating the enclosed Proxy/Voting Instruction Card and returning it in the
enclosed postage paid return envelope, regardless of whether you plan to attend
the meeting. If you do attend the meeting, you may vote your shares in person
even if you previously designated a proxy. It is important that your shares be
represented at the meeting no matter how many shares you own. An abstention or a
failure to vote will have the same effect as a vote against the merger agreement
and the transactions contemplated thereby. If you have any questions about the
matters being voted upon or require assistance in completing your Proxy/Voting
Instruction Card, you may contact Cliff O. Bickell at (770) 664-3700.
The formal Notice of the special meeting and the proxy statement relating
to the special meeting appear on the following pages of this document. The proxy
statement gives you detailed information about the business combination we're
proposing, and it includes our merger agreement as an appendix. You can also
obtain information about Scientific Games from publicly available documents
filed with the Securities and Exchange Commission. We encourage you to read this
entire document carefully.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE BUSINESS COMBINATION IS IN
THE BEST INTERESTS OF SCIENTIFIC GAMES AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE
BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Very truly yours,
/S/ William G. Malloy
William G. Malloy
Chairman of the Board, Chief Executive
Officer
and President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATORS
HAVE DETERMINED WHETHER THE ACCOMPANYING PROXY STATEMENT IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
(SCIENTIFIC GAMES INTERNATIONAL LOGO)
SCIENTIFIC GAMES HOLDINGS CORP.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
770.664.3700
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 8, 2000
To the Stockholders of
Scientific Games Corp.:
A special meeting of stockholders will be held 9:00 a.m., local time, on
Tuesday, August 8, 2000 at the Atlanta Windward Hilton Garden Inn, 4025 Windward
Concourse, Alpharetta, Georgia 30005 for the purpose of considering and voting
on:
- A proposal to approve and adopt the Agreement and Plan of Merger, dated
as of May 18, 2000, by and among Autotote Corporation, ATX Enterprises,
Inc. and Scientific Games Corp. and the transactions contemplated
thereby, as described in the proxy statement that accompanies this
notice; and
- Any other matters that may properly come before the special meeting or
any adjournments or postponements of the meeting.
The close of business on June 9, 2000 has been fixed as the date of record
for those stockholders entitled to notice of and to vote at the special meeting.
Only holders of record of Scientific Games common stock at that time are
entitled to vote at the meeting or any adjournments or postponements of the
meeting. A list of these stockholders will be maintained and open for
examination by any stockholder for any purpose germane to the meeting during
ordinary business hours at the above address of Scientific Games for ten (10)
days prior to the meeting. Please review the proxy statement and related
materials that accompany this notice for information regarding the proposed
merger and the meeting.
By order of the Board of Directors,
/s/ C. GRAY BETHEA, JR.
C. Gray Bethea, Jr.
Secretary
Alpharetta, Georgia
July 12, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE> 4
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUMMARY..................................................... 1
General................................................... 1
The Merger................................................ 1
Exchange Procedures....................................... 1
Dissenters' Appraisal Rights.............................. 2
Material Federal Income Tax Consequences.................. 2
Market Price Information.................................. 2
Opinion of Financial Advisor to Scientific Games.......... 3
The Companies............................................. 3
Scientific Games....................................... 3
Autotote............................................... 3
The Special Meeting....................................... 3
Record Date; Vote Required................................ 4
Recommendation of the Scientific Games Board.............. 4
Reasons for the Merger.................................... 4
Conditions to Completion of the Merger.................... 4
Regulatory Approvals...................................... 4
Termination of the Merger Agreement....................... 5
Interests in the Merger that Differ from Your Interests... 5
THE SPECIAL MEETING......................................... 6
General................................................... 6
Matters to be Considered.................................. 6
Proxies................................................... 6
Solicitation of Proxies................................... 7
Record Date and Voting Rights............................. 7
Recommendation of the Scientific Games Board.............. 7
Additional Information on How to Vote Your Proxy.......... 8
THE MERGER.................................................. 8
General................................................... 8
Background of the Merger.................................. 8
Reasons for the Merger.................................... 11
Opinion of Financial Advisor to Scientific Games.......... 11
Implied Merger Premiums................................ 13
Historical Stock Trading Analysis...................... 14
Sum of the Parts Discounted Cash Flow Analysis......... 14
Leveraged Buyout Analysis.............................. 15
Selected Companies Analysis............................ 15
Precedent Transactions Analysis........................ 16
Miscellaneous.......................................... 16
THE MERGER AGREEMENT........................................ 16
Effective Time............................................ 17
The Merger................................................ 17
Conversion of Capital Stock and Stock-Based Awards........ 17
Scientific Games Common Stock.......................... 17
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
<S> <C>
Scientific Games Stock Options and Other Stock-Based
Awards................................................ 17
Payment Procedures; Lost Certificates.................. 18
Representations and Warranties............................ 19
Conduct of the Business Pending the Merger................ 19
Other Agreements of Scientific Games and Autotote......... 20
Employee Benefit Plans.................................... 21
Conditions to Completion of the Merger.................... 22
All Parties............................................ 22
Autotote and ATX....................................... 22
Scientific Games....................................... 23
Termination of the Merger Agreement....................... 23
Amendment; Waiver......................................... 25
Expense and Termination Fee............................... 25
Events Requiring Payment of Termination Fee............... 26
Autotote Fees and Expenses............................. 26
Scientific Games' Fees and Expenses.................... 26
Regulatory Matters........................................ 27
Material Federal Income Tax Consequences.................. 28
Interests of Certain Persons in the Merger................ 28
Certain Agreements Containing Change in Control and
Severance Provisions.................................. 28
Stock Options and Other Stock Based Awards............. 30
Indemnification and Insurance.......................... 30
PRINCIPAL STOCKHOLDERS...................................... 31
PRICE RANGE OF SCIENTIFIC GAMES COMMON STOCK AND
DIVIDENDS................................................. 33
Price Range............................................... 33
Dividend Policy........................................... 33
PARTIES TO THE MERGER....................................... 33
Scientific Games.......................................... 33
Autotote.................................................. 34
ATX Enterprises, Inc...................................... 34
ADDITIONAL INFORMATION...................................... 34
Dissenters' Appraisal Rights.............................. 34
Stockholder Proposals..................................... 35
Other Matters............................................. 36
Independent Public Auditors............................... 36
Where You Can Find More Information....................... 36
Forward-Looking Statements May Prove Inaccurate........... 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
SCIENTIFIC GAMES..........................................
APPENDIX A MERGER AGREEMENT............................. A-1
APPENDIX B OPINION OF SALOMON SMITH BARNEY INC.......... B-1
APPENDIX C DISSENTERS APPRAISAL RIGHTS (SECTION 262 OF
THE
DELAWARE GENERAL CORPORATION LAW)...... C-1
</TABLE>
ii
<PAGE> 6
(SCIENTIFIC GAMES LOGO)
SCIENTIFIC GAMES HOLDINGS CORP.
1500 BLUEGRASS LAKES PARKWAY
ALPHARETTA, GEORGIA 30004
770.664.3700
---------------------
PROXY STATEMENT, DATED JULY 12, 2000
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 8, 2000
---------------------
SUMMARY
This summary highlights certain information from the proxy statement. It
does not contain all of the information that is important to you. We urge you to
read carefully the entire proxy statement and the other documents to which this
document refers so that you fully understand the merger. See "Additional
Information -- Where You Can Find More Information" on page 36.
GENERAL
We propose a combination of Scientific Games and Autotote in which a
Delaware subsidiary of Autotote will merge with Scientific Games. Scientific
Games will become a subsidiary of Autotote.
THE MERGER (PAGE 8)
WE HAVE ATTACHED THE MERGER AGREEMENT TO THIS DOCUMENT AS APPENDIX A.
PLEASE READ THE MERGER AGREEMENT. IT IS THE LEGAL DOCUMENT GOVERNING THE MERGER.
EXCHANGE PROCEDURES (PAGE 17)
When the merger is completed, each of your shares of Scientific Games
common stock will automatically be converted into the right to receive $26 in
cash, without interest, from Autotote, unless you have dissented from the merger
and sought appraisal of the fair value of your shares as described under the
heading "Additional Information -- Dissenters' Appraisal Rights" on page 34.
You must surrender your Scientific Games common stock certificates to
receive the $26 per share merger consideration from Autotote. DO NOT SEND US
YOUR CERTIFICATES UNTIL AFTER YOU RECEIVE WRITTEN INSTRUCTIONS ON HOW TO
SURRENDER YOUR CERTIFICATES IN EXCHANGE FOR THE CASH MERGER CONSIDERATION, WHICH
WILL BE SENT TO YOU PROMPTLY AFTER THE MERGER IS COMPLETED.
<PAGE> 7
DISSENTERS' APPRAISAL RIGHTS (PAGE 34)
Under Delaware law, you have the right to dissent from the merger and have
the appraised fair value of your shares of Scientific Games common stock paid to
you in cash. The value of the Scientific Games common stock for this purpose
will exclude any element of value arising from the accomplishment or expectation
of the merger. In order to dissent and receive the appraised fair value of your
shares, you must:
- make a proper demand for appraisal in accordance with the Delaware law as
more fully described on pages 34 through 36 (simply voting against
adoption of the merger agreement will not be considered a demand for
appraisal);
- hold your shares of Scientific Games common stock until the merger is
completed;
- not vote in favor of the merger (including by appointing a proxy to vote
your shares); and
- otherwise comply with Delaware law.
Within ten days after the merger, if you have satisfied the requirements of
Delaware law, the surviving company of the merger will give you written notice
of the completion of the merger. Within 120 days after the merger, you, any
other dissenting stockholder or the surviving company may file a court petition
demanding a determination of the fair value of the shares of Scientific Games
common stock that you hold. If a petition for appraisal is timely filed, the
court will determine which stockholders are entitled to appraisal rights and the
fair value of the shares of Scientific Games common stock held by dissenting
stockholders. You can withdraw your demand for appraisal by delivering written
notice to Scientific Games or to the surviving company within 60 days after the
merger. If a petition for appraisal isn't filed within 120 days after the
merger, your right to an appraisal will cease and you'll be entitled to receive
only the cash merger consideration. Appendix C contains a copy of the applicable
section of the Delaware General Corporation Law and is incorporated by reference
into this proxy statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 28)
The merger will be a taxable transaction to you. If you receive the cash
merger consideration, you will recognize gain or loss in the merger in an amount
determined by the difference between the cash merger consideration received and
your tax basis in the Scientific Games common stock you exchange for that cash
payment.
MARKET PRICE INFORMATION (PAGE 33)
Scientific Games common stock is listed on the New York Stock Exchange,
which is the principal market for Scientific Games common stock, under the
symbol "SG."
On April 18, 2000, one month before Scientific Games issued its initial
public announcement regarding the merger, the closing price quoted on the New
York Stock Exchange Composite Tape was $15.875.
On May 12, 2000, one week before Scientific Games issued its initial public
announcement regarding the merger and the last trading day prior to an
inadvertent public disclosure by Autotote with respect to a potential
transaction between Scientific Games and Autotote, including reference to a
potential merger consideration per share of $26.00, the closing sale price per
share of Scientific Games common stock quoted on the New York Stock Exchange
Composite Transactions Tape was $18.00.
On May 17, 2000, the last trading date before the joint public announcement
by Scientific Games and Autotote of the execution of the merger agreement, the
closing sale price per share of Scientific Games common stock quoted on the New
York Stock Exchange Composite Transactions Tape was $17.88.
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<PAGE> 8
On July 6, 2000, a recent trading day prior to the date of this proxy
statement, the closing price per share of Scientific Games common stock quoted
on the New York Stock Exchange Composite Transactions Tape was $24.5625.
OPINION OF FINANCIAL ADVISOR TO SCIENTIFIC GAMES (PAGE 11)
In connection with the merger, the Scientific Games Board received a
written opinion from Salomon Smith Barney Inc. as to the fairness, from a
financial point of view, of the merger consideration to the holders of
Scientific Games common stock. The full text of Salomon Smith Barney's written
opinion dated May 18, 2000 is attached to this proxy statement as Appendix B. We
encourage you to read this opinion carefully in its entirety for a description
of the assumptions made, matters considered and limitations on the review
undertaken by Salomon Smith Barney in providing its opinion. SALOMON SMITH
BARNEY'S OPINION IS ADDRESSED TO THE SCIENTIFIC GAMES BOARD AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER
RELATING TO THE PROPOSED MERGER.
THE COMPANIES (PAGE 33)
Scientific Games
Scientific Games is a leading provider of lottery products, integrated
systems and support services to lotteries worldwide. We also provide promotional
games and related services to customers in the private sector and produce
pre-paid phone cards for the telecommunications industry. By population served,
Scientific Games is the second largest provider of lottery products and
services. We are the only full-service provider to the global lottery industry,
offering products, services and systems for both instant ticket and on-line
lotteries. We have the experience and capability to manage every component of a
lottery, including administration, prize structure, game design, marketing
distribution, communications, back-office accounting, validation and
fulfillment. We reported consolidated revenues of approximately $228.6 million
for the fiscal year ended December 31, 1999 and reported consolidated net
revenues of approximately $59.1 million for the fiscal quarter ended March 31,
2000. Our principal executive offices are located at 1500 Bluegrass Lakes
Parkway, Alpharetta, Georgia 3004 and our telephone number is 770.664.3700.
AUTOTOTE
Autotote is a leading worldwide supplier of technologically advanced
computerized wagering systems and related equipment, as well as a licensed
international operator of gaming venues. It provides technology, software,
equipment and services for pari-mutual wagering conducted at thoroughbred,
harness and greyhound racetracks, off-track betting establishments ("OTBs") and
jai alai frontons. It is a leading provider of sophisticated, customized
computer software, equipment and data communication services to
government-sponsored and privately operated lotteries. It also provides
operations management for domestic and international OTBs and gaming venues.
Autotote's principal executive offices are located at 750 Lexington Avenue, New
York, New York 10022 and its telephone number is 212.754.2233.
THE SPECIAL MEETING (PAGE 6)
The Scientific Games special meeting will be held at 9:00 a.m., local time,
on Tuesday, August 8, 2000 at the Atlanta Windward Hilton Garden Inn, 4025
Windward Concourse, Alpharetta, Georgia 30005. At the Scientific Games meeting,
you will be asked to approve and adopt the merger agreement and the transactions
contemplated thereby and to act on any other matters that may properly be
brought before the meeting.
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<PAGE> 9
RECORD DATE; VOTE REQUIRED (PAGE 7)
You can vote at the special meeting if you owned Scientific Games common
stock at the close of business on June 9, 2000. To adopt the merger agreement,
the holders of at least a majority of the outstanding shares of Scientific Games
common stock entitled to vote at the meeting must vote in favor of adoption.
Thus, a failure to vote or an abstention has the same effect as a vote against
the merger agreement.
You may vote your shares in person by attending the meeting or by
designating a proxy to vote your shares in the manner in which you direct the
proxy to vote. You may designate a proxy by completing and returning the
enclosed proxy/voting instruction card. At any time before the vote at the
meeting, you can revoke your proxy by sending a written notice revoking the
proxy or by sending a later dated proxy to the Secretary of Scientific Games or
by attending the meeting and voting in person.
RECOMMENDATION OF THE SCIENTIFIC GAMES BOARD (PAGE 7)
The Board of Directors of Scientific Games believes that the merger is in
your best interests and unanimously recommends that you vote "FOR" approval and
adoption of the merger agreement.
REASONS FOR THE MERGER (PAGE 11)
The Board of Directors of Scientific Games approved the merger agreement
based on its consideration of a number of factors, including:
- the strategic options available to Scientific Games;
- the premium to market prices represented by the $26 per share to be
received by Scientific Games stockholders;
- the opinion of Scientific Games' financial advisor as to the fairness,
from a financial point of view, and as of the date of the opinion, of the
$26 per share merger consideration to the holders of Scientific Games
common stock;
- the likelihood of approval of the merger by regulators;
- the opportunities afforded to Scientific Games' employees and the
likelihood of their support of the merger; and
- the belief that the merger will enable Scientific Games to better serve
the convenience and needs of its customers.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 22)
The obligation of each party to complete the merger depends on a number of
conditions being met, including Scientific Games stockholder approval and
regulatory approvals. Any party to the merger agreement can choose to complete
the merger even if one or more conditions to that party's obligations have not
been met, as long as the law allows it to do so. We can't be certain when, or
if, the conditions to the merger will be met or that the merger will be
completed.
REGULATORY APPROVALS (PAGE 27)
We, along with Autotote, made the required filings with the Antitrust
Division of the U.S. Department of Justice and the Federal Trade Commission
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the applicable rules of the Federal Trade Commission on June 1,
2000 and June 2, 2000, respectively. We supplemented our filing on June 7, 2000.
The Department of Justice contacted Scientific Games and Autotote for purposes
of conducting a preliminary
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inquiry with respect to our respective filings. We each provided additional
information to the Department of Justice in connection with such inquiry. As of
the date of this proxy statement the waiting period for both Scientific Games
and Autotote had expired. However, on June 30, 2000, Lottomatica S.p.A., an
affiliate of Olivetti Corporation, submitted a Hart-Scott filing in connection
with its investment in Autotote as described under Parties to
Merger -- Autotote. Receipt of clearance under the Hart-Scott-Rodino Act is a
condition to Olivetti's investment in Autotote and Olivetti's investment in
Autotote is a condition to certain commitment letters to Autotote to provide it
with additional financing. Although Autotote's obligations under the Merger
Agreement are not contingent on financing, the Merger Agreement limits
Autotote's liability, if the Merger is not consummated because Autotote does not
receiving the proceeds of financing therefor, to payment of the Company Fee and
Company Expenses. The Lottomatica waiting period is expected to expire on or
about August 1, 2000. While clearance by Lottomatica under all applicable
antitrust laws has not been obtained as of the date of this proxy statement,
such clearance may be obtained prior to the special meeting.
Other regulatory filings and approvals in countries outside the United
States may also be required or advisable before we can complete the merger, and
Scientific Games and Autotote are currently in the process of determining
whether additional foreign competition filings are necessary or desirable.
Certain of our contracts permit the applicable lottery authority to
terminate the contract in the event a change in control occurs, unless such
lottery authority consents to such change.
The obligations of Autotote and Scientific Games to complete the merger
were subject to the expiration or termination of the waiting period under the
Hart-Scott-Rodino Act as to them and are subject to approvals of the transaction
by various other governmental lottery authorities and agencies, as well as the
absence of any injunction, decree, order or other legal restraint or prohibition
preventing the completion of the merger. Approvals and clearances under certain
customer contracts with various lottery authorities and agencies may not occur
or be completed until after the special meeting.
TERMINATION OF THE MERGER AGREEMENT (PAGE 23)
At any time before or after the special meeting we can agree with Autotote
to terminate the merger agreement without completing the merger. Also, either of
us can decide to terminate the merger agreement in a number of other situations,
including a final regulatory determination prohibiting the merger, the failure
of Scientific Games stockholders to approve the merger or the failure to
complete the merger by September 30, 2000.
Whether or not the merger is completed, we will pay our own fees and
expenses, except that we will evenly divide the costs and expenses of printing
and mailing this proxy statement and the fees that have been paid to the
Securities and Exchange Commission in connection with the merger between us, on
the one hand, and Autotote, on the other.
In some circumstances, if we or Autotote terminate the merger agreement, we
will be required to pay Autotote and ATX's reasonable attorney fees and
out-of-pocket expenses up to $1 million, plus a termination fee of approximately
$9.3 million. In general, the fee would be payable if the merger agreement is
terminated by Scientific Games or Autotote in connection with an alternative
transaction or a competing acquisition proposal.
INTERESTS IN THE MERGER THAT DIFFER FROM YOUR INTERESTS (PAGE 28)
Some of our directors and executive officers have interests in the merger
that are different from yours. For instance, completion of the merger will
constitute a change in control of Scientific Games for purposes of determining
the entitlement of some of our executive officers to severance and other
benefits. In addition, it is expected that certain executive officers of
Scientific Games will enter into employment
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agreements and that our chief executive officer will enter into a consulting
agreement that will, in each case, become effective upon completion of the
merger. Also, as a result of the merger, all stock options and other stock based
awards, including those held by our directors and executive officers, will vest
in full and become exchangeable for the merger consideration, despite any
current restrictions on vesting, exercise, payment or distribution. In addition,
after the merger, the surviving company will indemnify the officers and
directors of Scientific Games for events occurring before the merger. The
Scientific Games Board knew about these additional interests and considered them
when it approved the merger.
THE SPECIAL MEETING
GENERAL
We are first mailing this proxy statement on or about July 12, 2000. We are
also sending a notice of the special meeting of stockholders and a proxy/voting
instruction card that the Scientific Games Board is soliciting for use at the
meeting and at any adjournments or postponements of the meeting. The meeting
will be held at 9:00 a.m., local time, on August 8, 2000 at the Atlanta Windward
Hilton Garden Inn, 4025 Windward Concourse, Alpharetta, Georgia 30005.
MATTERS TO BE CONSIDERED
At the meeting, you will be asked to consider and vote on the proposal to
approve and adopt an agreement and plan of merger, dated as of May 18, 2000, by
and among Autotote, a company organized under the laws of the State of Delaware,
ATX Enterprises, Inc., a corporation organized under the laws of the State of
Delaware and Scientific Games Holdings Corp., a corporation organized under the
laws of the State of Delaware, and the transactions contemplated thereby, as
well as any other matters that may properly be submitted to a vote at the
meeting. You may also be asked to vote on a proposal to adjourn or postpone the
meeting, which adjournment or postponement could be used for, among other
things, soliciting votes to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement.
PROXIES
If you don't want to, or can't, attend the meeting, you should designate a
proxy to vote your shares. You may designate a proxy by signing and dating the
enclosed proxy/voting instruction card and returning it in the enclosed postage
paid return envelope. You may revoke your proxy at any time before the vote is
taken at the meeting by submitting a written notice of revocation to the
Secretary of Scientific Games, by properly executing a later dated proxy or by
attending the meeting and voting in person. Written notices of revocation and
other communications concerning the revocation of a previously executed proxy
should be addressed to:
Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30004
Attention: Secretary
All shares represented by valid proxies that we receive as a result of this
solicitation (other than those proxies that are revoked before they are voted)
will be voted in the manner specified by you. If you return a proxy but do not
specify how to vote your proxy, your shares will be voted "FOR" the approval and
adoption of the merger agreement and the transactions contemplated thereby. The
Scientific Games Board is not currently aware of any other matters that may be
presented for action at the meeting, but if other matters do properly come
before the meeting, we intend that shares represented by proxies solicited by
the Scientific Games Board will be voted by the named proxies in their
discretion. However, proxies that are
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voted against approval and adoption of the merger agreement will not be voted in
favor of any adjournment or postponement of the meeting proposed in order to
solicit additional proxies to approve and adopt the merger agreement.
SOLICITATION OF PROXIES
The entire cost of soliciting proxies from you and the other Scientific
Games stockholders will be borne by us, except that Autotote has agreed to pay
one-half of the printing and mailing costs of this proxy statement and related
materials. In addition to the solicitation of proxies described in this proxy
statement, we will request banks, brokers and other record holders to send
proxy/voting instruction cards and proxy materials to the beneficial owners of
Scientific Games common stock to secure their voting instructions, if necessary.
We will reimburse those record holders for their reasonable expenses in so
doing. We have also made arrangements with Corporate Investors Communications,
Inc. to assist us in soliciting proxies at fees that in our estimation will not
exceed $10,000. If necessary, we may also use our regular employees, who will
not be specially compensated, to solicit proxies.
RECORD DATE AND VOTING RIGHTS
In accordance with Delaware law, Scientific Games' By-Laws and the rules of
the New York Stock Exchange, the Scientific Games Board has fixed June 9, 2000
as the record date for determining the Scientific Games stockholders entitled to
notice of and to vote at the meeting. Accordingly, you are entitled to notice of
and to vote at the meeting only if you were a record holder of Scientific Games
common stock at the close of business on that date. At that time, there were
11,924,151 shares of Scientific Games common stock outstanding, including
509,200 treasury shares. In order to have a quorum that will permit us to
conduct business at the meeting, we need to have at least a majority of the
shares of Scientific Games common stock outstanding on the record date
(excluding treasury shares) represented at the meeting, whether in person or by
proxy. You are entitled to one vote for every share of Scientific Games common
stock that you held as of the close of business on the record date. Shares of
Scientific Games common stock represented in person at the meeting but not
voting, and shares of Scientific Games common stock for which we have received
proxies but with respect to which holders of those shares have abstained, will
be counted as present at the meeting for purposes of determining the presence or
absence of a quorum permitting us to conduct business at the meeting. Brokers
who hold shares of Scientific Games common stock in nominee or "street" name for
customers who are the beneficial owners of those shares cannot give a proxy to
vote those shares without specific instructions from those customers. Shares
represented by proxies returned by a broker holding shares in "street" name will
be counted for purposes of determining whether a quorum exists, even though
those shares will not be voted in matters where discretionary voting by the
broker is not allowed ("broker non-votes").
Under Delaware law, approval and adoption of the merger agreement requires
the affirmative vote of at least a majority of the shares of Scientific Games
common stock outstanding on the record date.
BECAUSE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE SHARES OF
SCIENTIFIC GAMES COMMON STOCK OUTSTANDING ON THE RECORD DATE, ABSTENTIONS AND
BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES AGAINST APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
ACCORDINGLY, THE SCIENTIFIC GAMES BOARD URGES YOU TO DESIGNATE A PROXY TO VOTE
YOUR SHARES. YOU MAY DESIGNATE A PROXY BY SIGNING AND DATING THE ENCLOSED
PROXY/VOTING INSTRUCTION CARD AND RETURNING IT IN THE ENCLOSED POSTAGE PAID
RETURN ENVELOPE.
RECOMMENDATION OF THE SCIENTIFIC GAMES BOARD
The Scientific Games Board has unanimously approved the merger agreement
and the transactions contemplated by the merger agreement. The Scientific Games
Board believes that the merger agreement and the transactions contemplated by
the merger agreement are in the best interests of Scientific Games
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and its stockholders and recommends that you and the other Scientific Games
stockholders vote "FOR" approval and adoption of the merger agreement and the
transactions contemplated thereby. See "The Merger -- Reasons for the Merger" on
page 11.
ADDITIONAL INFORMATION ON HOW TO VOTE YOUR PROXY
If you are a holder of record of Scientific Games common stock to vote your
proxy: sign, date and mail the enclosed proxy/voting instruction card, using the
postage paid return envelope provided.
If your shares of Scientific Games common stock are held in "street name"
by a broker, bank or other nominee, you will receive instructions from them on
how to have your shares voted. If you have shares of Scientific Games common
stock allocated to your account in the Scientific Games Retirement Savings Plan
or any of our other employee stock ownership plans, proxies signed, dated and
returned will be considered voting instructions to the trustee to vote the
shares credited to such accounts.
THE MERGER
GENERAL
The information contained in this proxy statement with respect to Autotote
Corporation and its equity and debt financing commitments, including from the
Olivetti Group S.p.A. ("Olivetti"), set forth under the headings "Summary -- The
Companies" on page 3 and "Parties to the Merger -- Autotote" on page 34 has been
supplied by Autotote, for inclusion in this proxy statement, and we have not
independently verified the information that it provided.
BACKGROUND OF THE MERGER
From time to time over the past several years, Scientific Games has
considered potential strategic transactions involving companies in related or
complementary businesses. We have completed several strategic acquisitions and
alliances. In considering any possible business combinations, Scientific Games
has taken into account the current business environment, including intense price
based and non-price based competition in the lottery industry, capital
requirements associated with any significant expansion of our systems business,
the focus of the investment community on large capitalization and internet
related companies, limited equity research coverage of Scientific Games, the
limited number of significant acquisition candidates, and the strategic fit
between our businesses, the geographic markets we serve and our management and
employee cultures relative to those of potential business combination partners.
In May 1999, our management met with Salomon Smith Barney to discuss
strategic opportunities, including a potential combination with a publicly
traded company in the gaming business. From June 1999 through October 1999,
Scientific Games had several preliminary and informal discussions regarding a
potential combination with such company. Scientific Games and the other company
were not able to agree on the general terms of an agreement. The discussions
ended in October 1999.
In early November 1999, we asked Salomon Smith Barney to help us explore
strategic alternatives. On November 19, 1999, Scientific Games was contacted by
financial advisors of Autotote regarding a potential transaction between the
companies.
Based on our decision to explore alternatives to enhance stockholder value
and in light of the proposal we received from Autotote, in December 1999, a
public information package was distributed and expressions of interest were
solicited from ten potential buyers, including Autotote. Autotote and two other
parties ultimately requested confidential information concerning Scientific
Games and executed confidentiality agreements. Only one of the other parties
conducted even preliminary due diligence, which was conducted shortly before the
Merger Agreement was signed. No further inquiries were received and the
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<PAGE> 14
Board concluded such preliminary discussions were not likely to result in a
transaction as favorable or better than the proposed transaction with Autotote.
Discussions with that party were terminated when the Merger Agreement was signed
pursuant to the requirements imposed by the Merger Agreement.
Scientific Games was familiar with Autotote and its operations prior to
receiving an indication of interest. We also had studied it during our periodic
strategic review of competitors. In addition, we interacted with Autotote in our
1997 acquisition from Autotote of the business operations of our SG-Austria
subsidiary.
On January 12, 2000, Mr. Malloy and Mr. Lorne Weil, chairman, president and
chief executive officer of Autotote, initially met to discuss a potential
combination. At that meeting, Mr. Weil confirmed that Autotote might be
interested in a strategic combination between Scientific Games and Autotote. Mr.
Malloy agreed that a combination might be mutually beneficial to the companies
and their stockholders. Messrs. Malloy and Weil informally discussed a possible
combination in light of industry and market trends and the complementary
business strengths of Scientific Games and Autotote.
Following the January 12, 2000 meeting, Mr. Malloy contacted each of the
other members of the Scientific Games Board to inform them of his meeting with
Mr. Weil and his belief that a business combination involving Scientific Games
and Autotote might be beneficial to Scientific Games and its stockholders. Mr.
Malloy suggested that Scientific Games explore a potential business combination
with Autotote in more detail. The members of the Scientific Games Board agreed
and authorized the management team to further explore a potential business
combination, while continuing to review other strategic options that might be
available to Scientific Games.
By letter dated January 27, 2000, Autotote indicated in writing its
interest in pursuing a transaction and, on January 31, 2000, Autotote executed a
confidentiality agreement, including a two year "standstill" agreement with
respect to Scientific Games.
Additional meetings were held thereafter between Scientific Games' and
Autotote's senior management and their respective advisors to discuss the
possible terms upon which a strategic combination might be undertaken. They did
not agree on any definitive terms during the course of those meetings.
In early February, 2000, Mr. Malloy again contacted members of the
Scientific Games Board to inform them of the progress that was being made in the
discussions with Autotote. At the regular meeting of the Scientific Games Board
held on February 10, 2000, Mr. Malloy and other members of Scientific Games'
senior management updated the Board as to the progress of the discussions
between the parties. Representatives from Salomon Smith Barney were then asked
to join the meeting to discuss alternative proposals to increase shareholder
value and to update the Board on responses to the information package sent to
potential interested parties. The Scientific Games Board encouraged Mr. Malloy
to continue to explore a possible business combination with Autotote. Salomon
Smith Barney was requested to assist Scientific Games in this process and to
update the Board concerning proposals to increase shareholder value.
In March and April, 2000, Autotote conducted due diligence investigations
of Scientific Games. Negotiations with respect to the terms of a potential
transaction continued. Financial terms were discussed at an April 26, 2000
meeting in Atlanta, involving the parties and their legal and financial
advisors. As part of the process, during this time frame, legal counsel to
Autotote, together with Scientific Games' regular outside general counsel, began
drafting and negotiating definitive documentation with respect to the proposed
business combination, including drafts of the merger agreement.
At a special meeting of the Scientific Games Board held on May 1, 2000, Mr.
Malloy and other members of Scientific Games' senior management reviewed the
reasons for, and the potential benefits of, a proposed business combination in
light of the complementary nature of the companies' businesses and the
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<PAGE> 15
global environment for the gaming industry. Mr. Malloy also reviewed the current
status of the discussions between the parties.
At such meeting, Mr. Malloy informed the Board that the negotiations were
progressing with Autotote for a possible acquisition of the Company in an all
cash merger. Mr. Malloy reviewed the history of events leading up to these
negotiations and strategic alternatives considered by the Board to enhance
shareholder value, including potential business combinations with other
well-known companies in the gaming industry.
At the same meeting, Mr. C. Gray Bethea, Jr., the Company's General
Counsel, described for the Board the due diligence conducted by Autotote to
date, including inquiries and investigations at the Company's U.S., Austrian and
U.K. facilities. Mr. Bethea and our legal advisors then discussed various
proposed contractual provisions which might be embodied in a definitive
agreement with Autotote. It was noted that the Board would have a customary
"fiduciary out" in the event that an offer more beneficial to the shareholders
was received after any agreement with Autotote was signed, although a break-up
fee would be payable in that event.
At a special meeting of the Scientific Games Board held on May 3, 2000,
senior management and Salomon Smith Barney again reviewed for the Scientific
Games Board various strategic alternatives for Scientific Games, including
remaining independent or engaging in a business combination with other parties
or with Autotote, although Scientific Games had not recently engaged in
negotiations with any other company.
At the May 3, 2000 meeting, the Board reviewed with Scientific Games'
management and legal and financial advisors, the potential transaction with
Autotote, based on a potential all cash structure. A summary of the material
terms of the proposal had been distributed to the Board prior to the meeting.
Based on the progress of negotiations and the previous Board meetings at
which the Scientific Games Board members had discussed the proposed transaction,
the Scientific Games Board authorized senior management to continue to pursue
discussions with Autotote.
At a regularly scheduled meeting of the Scientific Games Board held on May
18, 2000, the Board reviewed with Scientific Games' senior management and legal
and financial advisors the progress of the negotiations with Autotote since the
Board's last update on May 3, 2000, including the financial and other terms of
the proposed transaction. Financial terms discussed included, among other
things, the $26 per share offer price. Scientific Games' legal advisors reviewed
for the Scientific Games Board the discussions and contacts with Autotote
occurring after the May 3 meeting. Scientific Games' legal advisors also
reviewed the final terms of the merger agreement and again discussed the legal
principles applicable to the Scientific Games Board's decision to adopt the
merger agreement and related legal matters. Salomon Smith Barney then reviewed
with the Board its financial analysis of the merger consideration and delivered
to the Board its oral opinion (subsequently confirmed by delivery of a written
opinion dated May 18, 2000) to the effect that, as of that date and based on and
subject to the matters described in its opinion, the $26 per share merger
consideration was fair, from a financial point of view, to holders of Scientific
Games common stock. See "Opinion of Financial Advisor to Scientific Games" on
page 11.
Following these discussions and questions by the Scientific Games Board to
Scientific Games senior management and legal and financial advisors, the
Scientific Games Board approved the proposed transaction and authorized senior
management of Scientific Games to complete any necessary final negotiations and
enter into a definitive merger agreement incorporating the terms substantially
as discussed with the Scientific Games Board. Autotote and Scientific Games
entered into the merger agreement and issued a joint press release announcing
the proposed transaction.
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<PAGE> 16
REASONS FOR THE MERGER
In concluding that the merger is in the best interests of Scientific Games
and its stockholders, in approving the merger agreement and the transactions
contemplated by the merger agreement (including the merger) and in recommending
that the Scientific Games stockholders vote for approval and adoption of the
merger agreement and the transactions contemplated thereby, the Scientific Games
Board considered and reviewed with senior management, as well as its legal and
financial advisors, the following material factors:
- Scientific Games' knowledge of the current, and its beliefs about the
prospective, environment in which it operates, including domestic and
global economic conditions, competition in the lottery industry and its
other business segments and the impact of these factors on Scientific
Games' opportunities as a stand-alone entity;
- the strategic options available to Scientific Games and Scientific Games'
assessment that none of these options was reasonably likely to present
superior opportunities, or was reasonably likely to create greater value
for Scientific Games stockholders, than the prospects presented by the
merger;
- the fact that the merger consideration on a per share basis represented a
substantial premium over recently prevailing market prices of Scientific
Games common stock;
- the financial presentation of Salomon Smith Barney, including its
opinion, as to the fairness from a financial point of view, and as of the
date of the opinion, of the $26 per share merger consideration to holders
of Scientific Games common stock, as described below under "Opinion of
Financial Advisor to Scientific Games;"
- the terms of the merger and the merger agreement as negotiated, including
(1) the $26 per share merger consideration, and (2) the possibility that
the proposed merger agreement might discourage other parties that might
have an interest in a business combination with Scientific Games;
- the likelihood of the merger being approved by requisite regulatory
authorities, including lottery authorities and agencies;
- Scientific Games' assessment that the needs and interests of its
customers would be served equally well or better through a combination
with Autotote than through operation as a stand-alone entity; and
- the interests of certain officers and directors that are different from,
or in addition to, the interests of Scientific Games stockholders
generally, as described under "Interests of Certain Persons in the
Merger" on page 28.
This discussion of the information and factors considered by the Scientific
Games Board is not meant to be exhaustive, but includes the material information
and factors considered by the Scientific Games Board. In reaching its
determination to approve the merger agreement and the transactions contemplated
thereby, the Scientific Games Board did not assign any relative or specific
weight to the information and factors discussed above, and individual directors
may have assessed various factors differently. The Board considered all of the
factors as a whole and considered the factors in their totality to be favorable
to and to support the decision to approve the merger agreement and the merger
and to recommend them to Scientific Games' stockholders. The Scientific Games
Board is unanimous in its recommendation that Scientific Games stockholders vote
to approve the merger agreement.
OPINION OF FINANCIAL ADVISOR TO SCIENTIFIC GAMES
The Scientific Games Board retained Salomon Smith Barney to act as its
financial advisor with respect to the proposed merger or other business
combinations. In connection with its engagement, Scientific Games requested that
Salomon Smith Barney evaluate the fairness, from a financial point of
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<PAGE> 17
view, of the consideration to be received in the merger by holders of Scientific
Games common stock. On May 18, 2000, at a meeting of the Scientific Games Board
held to evaluate the proposed merger, Salomon Smith Barney delivered to the
Scientific Games Board an oral opinion, subsequently confirmed by delivery of a
written opinion dated May 18, 2000, to the effect that, as of the date of the
opinion and based on and subject to the matters described in the opinion, the
merger consideration was fair, from a financial point of view, to the holders of
Scientific Games common stock.
In arriving at its opinion, Salomon Smith Barney:
- reviewed the merger agreement;
- held discussions with senior officers, directors and other
representatives and advisors of Scientific Games and with senior officers
and other representatives and advisors of Autotote concerning the
business, operations and prospects of Scientific Games;
- examined publicly available business and financial information relating
to Scientific Games;
- examined financial forecasts and other information and data for
Scientific Games which were provided to or otherwise discussed with
Salomon Smith Barney by the management of Scientific Games;
- reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of Scientific Games common stock, the
financial condition and historical and projected earnings and other
operating data of Scientific Games, and the capitalization of Scientific
Games;
- considered, to the extent publicly available, the financial terms of
other transactions recently effected which Salomon Smith Barney
considered relevant in evaluating the merger;
- analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon
Smith Barney considered relevant in evaluating those of Scientific Games;
and
- conducted other analyses and examinations and considered other financial,
economic and market criteria as Salomon Smith Barney deemed appropriate
in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, on the accuracy and completeness of all financial and
other information and data that it reviewed or considered. With respect to these
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with Salomon Smith Barney by Scientific Games, the
management of Scientific Games advised Salomon Smith Barney that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of Scientific Games as to the future financial
performance of Scientific Games. Salomon Smith Barney did not make and was not
provided with an independent evaluation or appraisal of the assets or
liabilities, contingent or otherwise, of Scientific Games, and did not make any
physical inspection of the properties or assets of Scientific Games.
In connection with its engagement, Salomon Smith Barney was requested to
approach, and held discussions with, third parties to solicit indications of
interest in the possible acquisition of Scientific Games. Salomon Smith Barney
expressed no view as to, and its opinion does not address, the relative merits
of the merger as compared to any alternative business strategies that might
exist for Scientific Games or the effect of any other transaction in which
Scientific Games might engage. Salomon Smith Barney's opinion was necessarily
based on information available, and financial, stock market and other conditions
and circumstances existing and disclosed, to Salomon Smith Barney as of the date
of its opinion. Although Salomon Smith Barney evaluated the merger consideration
from a financial point of view, Salomon Smith Barney was not asked to and did
not recommend the specific consideration payable in the merger, which was
determined through negotiation between Scientific Games and Autotote.
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<PAGE> 18
Scientific Games imposed no other instructions or limitations on Salomon Smith
Barney with respect to the investigations made or procedures followed by Salomon
Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED MAY 18, 2000,
WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX B AND IS
INCORPORATED INTO THIS PROXY STATEMENT BY REFERENCE. SALOMON SMITH BARNEY'S
OPINION IS ADDRESSED TO THE SCIENTIFIC GAMES BOARD AND RELATES ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT
RELATED TO ANY OTHER ASPECT OF THE MERGER OR ANY RELATED TRANSACTION AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER
RELATING TO THE PROPOSED MERGER.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
Scientific Games. No company, transaction or business used in those analyses as
a comparison is identical to Scientific Games or the proposed merger, and an
evaluation of those analyses is not entirely mathematical. Rather, the analyses
involve complex considerations and judgments concerning financial and operating
characteristics and other factors that could affect the acquisition, public
trading or other values of the companies, business segments or transactions
analyzed.
The estimates contained in Salomon Smith Barney's analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of various
factors considered by the Scientific Games Board in its evaluation of the merger
and should not be viewed as determinative of the views of the Scientific Games
Board or management with respect to the merger consideration or the proposed
merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with its opinion dated May 18, 2000 to the
Scientific Games Board:
Implied Merger Premiums
Salomon Smith Barney reviewed the premiums implied in the merger based on
closing stock prices of Scientific Games common stock over the 12-month period
ended May 17, 1999. Salomon Smith Barney noted that the merger consideration
represented a premium of:
- 41.5% to the closing stock price on May 17, 2000 of $17.88;
- 41.7% to the 30-day trailing average closing stock price from May 17,
1999 of $17.60;
- 55.7% to the 180-day trailing average closing stock price from May 17,
1999 of $16.70;
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<PAGE> 19
- 79.3% to the 52-week trading low of $14.50, which occurred on November
23, 1999; and
- 23.0% to the 52-week trading high of $21.00, which occurred on September
7, 1999.
Historical Stock Trading Analysis
Salomon Smith Barney reviewed the historical trading prices and historical
trading volumes of Scientific Games' common stock from May 17, 1998 to May 17,
2000. This review indicated that 100% of the trading activity during that period
had occurred at prices below the merger consideration of $26.00 per share, and
that over 80% of the trading activity had occurred at prices below $20.00 per
share. Salomon Smith Barney also noted that the trading volume of Scientific
Games' common stock from May 17, 1998 to May 17, 2000 was 127% of the total
shares outstanding.
Sum of the Parts Discounted Cash Flow Analysis
Salomon Smith Barney performed a discounted cash flow analysis of the
projected free cash flows that each of Scientific Games' business operations or
prospects could generate during calendar years 2000 through 2004 based on
information provided by Scientific Games' management:
- the core business, which includes all domestic and international instant
lottery ticket manufacturing, cooperative service contracts and existing
on-line systems contracts ("Core Business");
- probability instant ticket business, including all associated SciScan
Technology(R) terminal sales ("Probability Tickets");
- potential future U.S. on-line lottery contracts ("Future U.S. On-Line");
and
- the prepaid phonecard manufacturing business ("Phonecards").
The discounted cash flow analysis was based on three scenarios. Two
scenarios were based on internal estimates of Scientific Games' management, one
of which consisted of the operating plan prepared by management in late December
1999 and reviewed by Scientific Games' Board in early February 2000 (the
"December Plan") and one of which consisted of management's operating plan
developed in April 2000 (the "April Plan"). The April Plan incorporated
revisions made to the December Plan based on the financial results for the
quarter ended March 31, 2000 and reflected a more optimistic outlook for
Scientific Games' business and financial performance. The third scenario (the
"Sensitized April Plan") was based on adjustments to the April Plan discussed
with the management of Scientific Games to reflect the potential impact of lower
sales growth in the Phonecards and Probability Tickets businesses and the
potential inability to win new contracts in the Future U.S. On-Line business.
In order to derive an implied equity reference range for Scientific Games,
Salomon Smith Barney aggregated the present value of the free cash flows of each
of Scientific Games' businesses over the forecasted period with the present
value of a range of terminal values. To calculate the terminal values of the
Core Business, and the Probability Tickets and Future U.S. On-Line businesses,
Salomon Smith Barney applied terminal value multiples ranging from 3.5x to 4.5x
to the earnings before interest, taxes, depreciation and amortization (commonly
referred to as "EBITDA") of those businesses in the final year of the forecasted
period. To calculate the terminal value of the Phonecards business, Salomon
Smith Barney applied a perpetuity growth rate of 6% under the April Plan and 3%
under both the December Plan and the Sensitized April Plan to that business'
EBITDA in the final year of the forecasted period. In all three scenarios,
Salomon Smith Barney discounted the future cash flows and terminal values to
present value using selected discount rates ranging from 11% to 13% in the case
of the Core Business, Probability Tickets and Future U.S. On-Line businesses,
and 19% to 22% in the case of the Phonecards business.
This analysis resulted in an implied equity reference range for Scientific
Games of approximately $23.00 to $29.25 per share based on the December Plan,
approximately $33.75 to $43.00 per share based
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<PAGE> 20
on the April Plan and approximately $25.85 to $31.75 per share based on the
Sensitized April Plan, as compared to the merger consideration of $26.00 per
share.
Leveraged Buyout Analysis
Salomon Smith Barney derived an implied equity reference range for
Scientific Games by performing a leveraged buyout analysis utilizing
management's April Plan and assuming a range of required rates of return to a
financial buyer of approximately 19% to 46% and a range of EBITDA terminal
multiples of 3.0x to 5.0x. This analysis indicated an implied equity reference
range for Scientific Games of approximately $24.00 to $28.00 per share, as
compared to the merger consideration of $26.00 per share.
Selected Companies Analysis
Using publicly available information, Salomon Smith Barney analyzed the
market values and trading multiples of the seven selected publicly traded
companies in the gaming systems and equipment manufacturing industry listed
below. Since no publicly traded companies are engaged in entirely the same
businesses as Scientific Games, the following companies were selected because
each is engaged in one or more of Scientific Games' lines of business:
- Alliance Gaming Corp.
- Anchor Gaming
- GTECH Holdings Corp.
- International Game Technology
- Autotote
- Casino Data Systems, Inc.
- WMS Industries Inc.
All multiples were based on closing stock prices on May 17, 2000. Estimated
financial data for the selected companies were based on publicly available
research analysts' estimates, and estimated financial data for Scientific Games
were based on internal estimates of or discussions with the management of
Scientific Games. Salomon Smith Barney compared firm values of Scientific Games
and the selected companies as a multiple of latest 12 months and estimated
calendar year 2000 EBITDA. Salomon Smith Barney also compared market values of
Scientific Games and the selected companies as a multiple of estimated calendar
years 2000 and 2001 earnings per share. Salomon Smith Barney then applied a
range of selected multiples derived from the selected companies of latest 12
months and estimated calendar year 2000 EBITDA and estimated calendar years 2000
and 2001 earnings per share to corresponding financial data of Scientific Games
in order to derive an implied equity reference range for Scientific Games. This
analysis resulted in an implied equity reference range for Scientific Games of
approximately $17.00 to $22.00 per share, as compared to the merger
consideration of $26.00 per share.
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Precedent Transactions Analysis
Using publicly available information, Salomon Smith Barney reviewed the
implied transaction value multiples paid or proposed to be paid in the following
six selected merger and acquisition transactions in the gaming systems and
equipment manufacturing industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
-------- ------
<S> <C>
International Game Technology................ Sodak Gaming, Inc.
Anchor Gaming................................ Powerhouse Technologies, Inc.
Mikohn Gaming Corp........................... Progressive Systems, Inc.
International Game Technology................ Olympic Amusements Pty. Ltd.
International Game Technology................ Barcrest Ltd.
Bally Entertainment Corp. (a/k/a/ Bally
Alliance Gaming Corp......................... Wulff)
</TABLE>
Salomon Smith Barney compared transaction values in the selected
transactions as a multiple of latest 12 months EBITDA. All multiples were based
on publicly available financial information for the selected transactions.
Salomon Smith Barney then applied a range of selected multiples derived from the
selected transactions of latest 12 months EBITDA to corresponding financial data
for Scientific Games in order to derive an implied equity reference range for
Scientific Games. This analysis resulted in an implied equity reference range
for Scientific Games of approximately $24.00 to $28.00 per share, as compared to
the merger consideration of $26.00 per share.
Miscellaneous
Under the terms of its engagement, Scientific Games has agreed to pay
Salomon Smith Barney for its financial advisory services upon completion of the
merger an aggregate fee based on a percentage of the total consideration,
including liabilities assumed, payable in the merger. The fee payable to Salomon
Smith Barney is currently estimated to be approximately $3.1 million. Scientific
Games also has agreed to reimburse Salomon Smith Barney for reasonable travel
and other expenses incurred by Salomon Smith Barney in performing its services,
including reasonable fees and expenses of its legal counsel, and to indemnify
Salomon Smith Barney and related persons against certain liabilities, including
liabilities under the federal securities laws, arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of Scientific Games and Autotote for
their own account or for the account of customers and, accordingly, may at any
time hold a long or short position in those securities. Salomon Smith Barney and
its affiliates have in the past provided investment banking services to
Scientific Games unrelated to the proposed merger, for which services Salomon
Smith Barney has received compensation. In addition, Salomon Smith Barney and
its affiliates, including Citigroup Inc. and its affiliates, may maintain
relationships with Scientific Games, Autotote and their respective affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by Scientific Games based on its experience, expertise and
familiarity with Scientific Games and its business. Salomon Smith Barney
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes.
THE MERGER AGREEMENT
This section of the proxy statement describes the principal provisions of
the merger agreement. The following information, insofar as it relates to
matters contained in or contemplated by the merger agreement, is qualified in
its entirety by reference to the full text of the merger agreement, which we
have
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attached as Appendix A to this proxy statement and which we incorporate by
reference into this document. We encourage you to read the merger agreement in
its entirety.
EFFECTIVE TIME
The effective time of the merger will occur at the time indicated on a
certificate of merger that we will file with the Secretary of State of the State
of Delaware on the closing date of the merger. The closing date will occur as
soon as practical after all of the conditions set forth in the merger agreement
have been satisfied (or waived), unless we agree with Autotote to complete the
transaction on another date. When we refer to the effective time of the merger
in this proxy statement, we mean the date and time when the merger becomes
effective as described in this paragraph.
THE MERGER
At the effective time of the merger, ATX Enterprises will merge into
Scientific Games, with Scientific Games surviving the merger. Immediately after
the merger is completed, Scientific Games will be a subsidiary of Autotote, with
all of its common stock owned, directly or indirectly, by Autotote. All of
Scientific Games' properties, assets, rights, privileges, immunities, powers and
purposes, and all of its liabilities, obligations and penalties will become
those of the surviving company. Following completion of the merger, the
Scientific Games common stock will be delisted from New York Stock Exchange,
deregistered under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") and no longer publicly traded. When we refer to the "surviving
company" in this agreement, we mean Scientific Games as it will exist after the
merger.
CONVERSION OF CAPITAL STOCK AND STOCK-BASED AWARDS
Scientific Games Common Stock
At the effective time of the merger, each share of Scientific Games common
stock issued and outstanding immediately prior to the effective time of the
merger will be converted into the right to receive $26 in cash, without
interest.
Certain shares of Scientific Games common stock will not be converted in
the merger. These shares include those shares:
- held in Scientific Games' treasury immediately prior to the effective
time of the merger;
- held by Autotote or any direct or indirect wholly owned subsidiary of
Autotote which will be cancelled at the effective time of the merger
without any payment; and
- as to which Scientific Games stockholders demand appraisal rights in
compliance with Delaware law. See "Additional Information -- Dissenters'
Appraisal Rights" on page 34.
Scientific Games Stock Options and Other Stock-Based Awards Exchange
Procedures
At the effective time of the merger, all stock options and other
stock-based awards will become fully vested and exercisable, fully payable or
distributable, as the case may be, and any performance targets related to the
vesting of those awards will be deemed to have been fully achieved. At the
effective time of the merger, in exchange for the option or award held:
- each holder of options will be entitled to receive a cash payment equal
to (1) $26 minus the exercise price of the option times (2) the number of
shares of Scientific Games common stock subject to the option (minus any
applicable withholding taxes); and
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- each holder of restricted stock awards will be entitled to receive a cash
payment equal to $26 times the number of shares of Scientific Games
common stock subject to the award (minus any applicable withholding
taxes).
Payment Procedures; Lost Certificates
At the effective time of the merger, Autotote will cause cash sufficient to
pay the merger consideration to each holder of shares of Scientific Games common
stock to be deposited with a bank or trust company (the "Exchange Agent")
designated by Autotote and reasonably acceptable to us. Promptly after the
effective time of the merger, the Exchange Agent will mail a letter of
transmittal and other instructional materials to you and the other Scientific
Games stockholders. The letter of transmittal and other materials will tell you
how to surrender your Scientific Games common stock certificates in exchange for
the merger consideration of $26 per share of Scientific Games common stock. If
you have shares of Scientific Games common stock allocated to your accounts in
the Scientific Games Retirement Savings Plan or the Scientific Games Employee
Stock Purchase Plan or have restricted shares awarded under any other employee
benefit plan, you will receive separate instructions from the combined company
on how you will receive the merger consideration.
YOU SHOULD NOT RETURN YOUR SCIENTIFIC GAMES COMMON STOCK CERTIFICATES WITH
THE ENCLOSED PROXY/ VOTING INSTRUCTION CARD. FURTHERMORE, YOU SHOULD NOT FORWARD
THOSE CERTIFICATES TO THE EXCHANGE AGENT, SCIENTIFIC GAMES OR AUTOTOTE UNLESS
AND UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL FOLLOWING THE EFFECTIVE TIME OF
THE MERGER.
You will not be entitled to receive the merger consideration until you
surrender your Scientific Games common stock certificate or certificates to the
Exchange Agent, together with a properly completed and signed letter of
transmittal. When you surrender your certificates, you will be entitled to
receive in exchange for them a check in an amount equal to the product of the
merger consideration and the number of shares of Scientific Games common stock
represented by the certificates you surrender, and the surrendered certificates
will be cancelled. No interest will accrue or be paid on the merger
consideration. Any person presenting share certificates for exchange in a name
other than the name registered in our transfer records either will have to pay
to the Exchange Agent any transfer or similar taxes required to be paid because
of the payment of the merger consideration to a person other than the registered
holder or will have to establish that any taxes have been paid or are not
applicable.
At the effective time of the merger, our transfer record books will be
closed and there will be no transfers on our books of shares of Scientific Games
common stock, other than entries reflecting any open market purchases to the
extent necessary to satisfy our matching obligations under our 401(k) plan for
purposes, in each case, of paying the merger consideration. If shares are
presented for transfer after that time, they will be surrendered and cancelled
in exchange for the merger consideration (subject to Delaware law regarding
dissenting shares).
Autotote will be entitled to deduct and withhold from the merger
consideration any amounts that it is required to deduct and withhold under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are withheld, the
withheld amounts (other than amounts withheld as a result of any foreign tax
law) will be treated for all purposes of the merger agreement as having been
paid to the holder of the surrendered certificate.
At any time after the one year anniversary of the effective time of the
merger, the surviving company will be entitled to take back any funds from the
Exchange Agent that the Exchange Agent has not yet paid, and after that time,
holders of Scientific Games certificates will have to surrender their
certificates to the surviving company to receive the merger consideration.
Neither Scientific Games, Autotote, ATX, the surviving company nor the Exchange
Agent will be responsible to any former Scientific Games stockholder for any
amounts delivered to a public official under any abandoned property, escheat or
similar laws.
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If you have lost a certificate, or if it has been stolen or destroyed,
before you will be entitled to receive the merger consideration, you will have
to make an affidavit that your certificate was lost, stolen or destroyed and if
Autotote requires, you'll have to post a bond indemnifying Autotote, the
surviving company and the Exchange Agent against any claims made against them
with respect to that certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by Scientific
Games, on the one hand, and Autotote and ATX, on the other hand. Scientific
Games made representations and warranties that relate to, among other things, it
and its subsidiaries' corporate organization and qualification; certificate of
incorporation and by-laws and similar organizational and governance documents;
capitalization; power and authority to enter into the merger agreement and
complete the transactions contemplated by the agreement; absence of violation of
organizational documents, law or contracts; filings and consents required to be
made in connection with the merger; possession of and compliance with permits
required to conduct business; Securities and Exchange Commission filings and the
financial statements contained in those filings; absence of material adverse
changes since December 31, 1999; employment, employee benefits and related
matters; validity of certain material contracts, the absence of material
defaults under those contracts; absence of material legal proceedings; absence
of material environmental liabilities; ownership and possession of rights to use
trademarks, patents, copyrights and other proprietary rights; filing and
accuracy of tax returns; existence or absence of non-competition agreements; our
stockholders rights agreement; the Scientific Games Board's determinations and
resolutions regarding the merger agreement; receipt of the opinion of Scientific
Games' financial advisor; and broker's fees.
Autotote and ATX also have made representations and warranties. Their
representations and warranties relate to, among other things: corporate
organization; power and authority to enter into the merger agreement and
complete the transactions contemplated by the merger agreement; absence of
violation of organizational documents, law or contracts; filings and consents
required to be made in connection with the merger; absence of material legal
proceedings; broker's fees; solvency and possession of financing sufficient to
complete the transactions contemplated by the merger agreement.
CONDUCT OF THE BUSINESS PENDING THE MERGER
Under the merger agreement, we have agreed that we will (and that we will
require our subsidiaries to) conduct business only in the ordinary course and
that we will (and that we will require our subsidiaries to) use reasonable
commercial efforts to keep substantially intact our business organization; to
maintain the services of our key officers and employees and to preserve our
relationships with customers, suppliers and others with whom we have significant
business relations. In addition, we have agreed that we will not (and that we
will not permit our subsidiaries to) take any of the following actions without
Autotote's consent, except for actions contemplated by the merger agreement or
disclosed to Autotote prior to signing the merger agreement:
- amend our certificate of incorporation or by-laws or the similar
organizational and governance documents of our subsidiaries;
- issue, sell, pledge or otherwise dispose of or encumber (or authorize any
of those actions with respect to) shares of our capital stock or that of
our subsidiaries, securities convertible into shares of our capital stock
or that of our subsidiaries, or rights to acquire shares of our capital
stock or that of our subsidiaries, except for the issuance of shares as a
result of the exercise of Scientific Games stock options or stock awards
existing when we entered into the merger agreement or pursuant to any
stock fund under any benefit plan or in the ordinary course of business
consistent with past practice, or that we otherwise grant, pursuant to
employment offers, as permitted under the merger agreement;
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- except in the ordinary course of business or in non-material
transactions, issue, sell, pledge or otherwise transfer or encumber (or
authorize any of those actions with respect to) any of our property or
assets or any of the property or assets of our subsidiaries;
- declare, set aside, make or pay any dividend or other distribution other
than the dividends made to us by our subsidiaries or to our subsidiaries
by our other subsidiaries, subject to limits for cross border
transactions, or in connection with tax withholding obligations, or in
settlement or discharge of claims by our stockholders based on their
equity interest in the Company;
- reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire any of our capital stock, except pursuant to existing employee
benefit plans;
- acquire any interests in any corporation or other business entity or any
portion of any other business entity other than specific permitted
transactions; incur indebtedness or issue debt securities or assume,
guarantee or otherwise become responsible for the debts of another
person, except for indebtedness incurred under our existing credit
facilities, or other indebtedness not in excess of $500,000 in the
aggregate; make or authorize any material capital expenditures, other
than pursuant to our existing capital expenditure budget or in excess of
$1 million; or enter into any contract that would not be permitted by the
foregoing;
- increase the compensation or severance payable to directors, officers or
employees, except for increases in salary or wages of employees in the
ordinary course of business, grant any severance or termination pay or
make any loan to any director, officer or employee (except to make
payments required to be made under obligations existing of the date of
the merger agreement; enter into or modify any severance benefit
agreement in excess of specified limits; establish, adopt, enter into or
amend any collective bargaining agreement, employee plan, trust, fund,
policy or arrangement for the benefit of any current or former directors,
officers or employees or any of their beneficiaries, except, in each
case, as may be required by law, or as would not result in a material
increase in the cost of maintaining such collective bargaining agreement,
employee plan, trust, fund, policy or arrangement and would not otherwise
impose any material restraint on our business or operations;
- modify our accounting policies or procedures, other than in the ordinary
course of business or as required by law or GAAP;
- make any tax election or settle or compromise any United States federal,
state, local or non-United States tax liability if the effect thereof
would be adverse in any material respect to Scientific Games;
- pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise)
except for the payment, discharge or satisfaction in the ordinary course
of business of liabilities reflected or reserved against in the financial
statements or incurred in the ordinary course of business and except for
any other payment, discharge or satisfaction in an amount not to exceed
$75,000 in the aggregate;
- authorize or enter into any agreement or make any commitment to do any of
the foregoing;
OTHER AGREEMENTS OF SCIENTIFIC GAMES AND AUTOTOTE
In addition to our agreements regarding the conduct of our business,
Scientific Games and Autotote have also agreed to take several other actions:
- we have agreed, along with Autotote, to give each other prompt notice of
certain events, such as any communication from any governmental entity
and any event that is likely to be materially adverse to us or to our
ability, or the ability of Autotote to complete the merger;
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- we have agreed to provide Autotote with reasonable access to our
properties, information and personnel and to furnish any information
regarding our properties, information and personnel to Autotote as it may
reasonably request;
- Autotote has agreed to arrangements regarding the liability,
indemnification of and insurance for our officers and directors, as more
fully discussed in "Interests of Certain Persons in the Merger" on page
28;
- we have agreed, along with Autotote to take all reasonable and lawful
actions necessary or appropriate to complete the merger, to use
commercially reasonable efforts to obtain all consents, waivers,
approvals, authorizations or orders required in connection with the
merger agreement and the transactions contemplated by the merger
agreement, and to use commercially reasonable efforts to make all
necessary filings and other submissions required or appropriate,
including under federal securities laws and state "blue sky" laws, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any other
applicable laws;
- we have agreed, along with Autotote, to consult and coordinate with each
other in issuing any press release or other public statement related to
the merger, and to not issue any release or other statement without the
consent of the other parties unless required by law or the rules of
certain self-regulatory organizations and the New York Stock Exchange;
and
- we have agreed not to (and to not permit any of our subsidiaries or any
of our or our subsidiaries' representatives to) initiate, solicit or
encourage, directly or indirectly, any inquiries or proposals with
respect to any merger, sale of assets, sale of capital stock or similar
transaction involving, or any purchase or sale of all or any significant
portion of our assets, or 20% or more of our equity securities (any
proposal or offer of this nature being referred to as an "Acquisition
Proposal"). We may, however (and may cause our subsidiaries and our
subsidiaries' representatives to) have discussions with or provide
confidential information or data relating to us or our subsidiaries to
any person with respect to an Acquisition Proposal or engage in any
negotiations concerning an Acquisition Proposal, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal or
accept an Acquisition Proposal, if the Acquisition Proposal involves an
unsolicited Superior Proposal (as described below). In this connection,
we may engage in discussions or negotiations with, or provide information
to, a person making an unsolicited written offer to engage in an
Acquisition Proposal or recommend such a proposal to our stockholders, if
(1) the Scientific Games Board concludes in good faith that the proposed
Acquisition Proposal involves a proposal to acquire, for cash and/or
securities, all of the equity securities or substantially all of the
Assets of the Company and would be more favorable to our stockholders
from a financial point of view (a "Superior Proposal"), (2) the
Scientific Games Board determines in good faith after consultation with
independent legal counsel that there is a reasonable risk that taking
action with respect to the proposal is necessary for it to properly
discharge its fiduciary duties, (3) prior to providing any information or
data, we have entered into a confidentiality agreement with the person
making the offer on terms substantially similar to those contained in our
confidentiality agreement with Autotote, and (4) we notify Autotote
promptly of the receipt of the proposal.
EMPLOYEE BENEFIT PLANS
For a period of three years after the effective time of the merger, the
surviving company will maintain employee benefit plans and similar arrangements
that, in the aggregate, provide benefits to our employees covered under such
plans or similar arrangements as of the date of the merger agreement at a level
substantially similar to the level provided under our employee benefit plans and
arrangements as in effect immediately prior to the effective time of the merger,
except that such requirement will not apply to any employee benefit plans under
which employees may receive or which are based on company common stock or which
are inconsistent with any employment agreement. After the effective time of the
merger, the
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surviving company will honor our severance plans (or policies) and all (or
otherwise permitted) existing employment and severance agreements and severance
plans that apply to our current or former employees or directors in accordance
with their terms.
CONDITIONS TO COMPLETION OF THE MERGER
All Parties
The respective obligations of Scientific Games, on the one hand, and
Autotote, on the other, to complete the merger are subject to the satisfaction
at or prior to the effective time of the merger of the following conditions:
- approval and adoption of the merger agreement and the transactions
contemplated by the merger agreement by the stockholders of Scientific
Games;
- absence of any action or proceeding that has resulted in or is reasonably
likely to result in any order, judgment or decree issued by any
governmental entity or any other legal restraint (i) preventing or
seeking to prevent consummation of the merger, or (ii) as a condition to
the obligations of Autotote and ATX, prohibiting or seeking to prohibit,
or limiting or seeking to limit, Autotote from exercising all material
rights and privileges pertaining to its ownership of the surviving
corporation or any investor in Autotote from owning and exercising all
material rights and privileges pertaining to its ownership of its
interest in Autotote or the ownership or operation by Autotote or any of
its subsidiaries of all or a material portion of the business or assets
of the surviving corporation and its subsidiaries, or compelling or
seeking to compel Autotote or any of its subsidiaries to dispose of or
hold separate all or any material portion of the business or assets of
Autotote or any of its subsidiaries (including the surviving corporation
and its subsidiaries) as a result of the merger or the transactions
contemplated by the merger agreement;
- no statute, rule, regulation or order shall be enacted, entered, enforced
or deemed applicable to the merger which makes the consummation of the
merger illegal; and
- expiration or termination of any waiting period applicable to the merger
(which expiration has occurred) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and all clearances and approvals under any
non-U.S. monopoly laws, except where the failure to have obtained any
clearances or approvals with respect to any non-U.S. monopoly laws could
not reasonably be expected to have a material adverse effect on
Scientific Games, Autotote or their respective subsidiaries.
Autotote and ATX
The obligations of Autotote and ATX to complete the merger are subject to
the satisfaction of the following additional conditions, unless waived by
Autotote and ATX: the truth and correctness in all material respects of the
representations and warranties of Scientific Games (without giving effect to
qualifications of materiality contained in such representations and warranties)
on and as of the effective time, with the same force and effect as if made on
and as of the effective time, except for changes contemplated by the merger
agreement, representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date or, if
incorrect, it is certified by Scientific Games that the failure of such
representations and warranties would not have a material adverse effect, or
where the failure to be true and correct would not, individually or in the
aggregate with all other such failures, have a material adverse effect and
Autotote and ATX shall have received a certification of Scientific Games to such
effect); Scientific Games shall, in all material respects, have performed or
complied with the agreements and covenants required to be performed or complied
with by it on or prior to the effective time; all material consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made for the authorization, execution and delivery of the merger
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agreement and the consummation by Scientific Games of the contemplated
transactions shall have been obtained and made by Scientific Games, except where
the failure to receive such consents, waivers, approvals, authorizations or
orders would not, individually or in the aggregate with all other such failures,
have a material adverse effect on Scientific Games or Autotote and a
distribution date shall not have occurred under our rights agreement.
Scientific Games
The obligation of Scientific Games to complete the merger is subject to the
satisfaction of the following additional conditions, unless waived by Scientific
Games: the representations and warranties of Autotote and ATX contained in the
merger agreement (other than those as to certain conflicts or the absence of any
litigation are true and correct in all respects (without giving effect to
qualifications of materiality contained in such representations and warranties)
on and as of the effective time, with the same force and effect as if made on
and as of the effective time, except for changes contemplated by the merger
agreement, representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date, or, if
incorrect, it is certified by Autotote that the failure of such representations
and warranties to be true would not have a material adverse effect, or where the
failure to be true and correct would not, individually or in the aggregate with
all other such failures, have a material adverse effect, and Scientific Games
shall have received a certification to such effect); Autotote and ATX shall, in
all material respects, have performed or complied with the agreements and
covenants required to be performed or complied with by them on or prior to the
effective time; all material consents, waivers, approvals, authorizations or
orders required to be obtained and all filings required to be made for the
authorization, execution and delivery of the merger agreement and the
consummation by them of the contemplated transaction shall have been obtained
and made by Autotote or ATX, except where the failure to receive such consents,
waivers, approvals, authorizations or orders would not, individually or in the
aggregate with all other such failures, have a material adverse effect; the
opinion of Scientific Games' financial advisor shall not have been withdrawn as
of the date of the proxy statement; and Scientific Games shall have received
from a satisfactory investment banking or accounting firm, a satisfactory
opinion to the effect that the consummation by Autotote and ATX of the
transactions contemplated by the merger agreement, including, without
limitation, the entering into of any financing agreement which may be necessary
in connection therewith, will not render Autotote or the surviving corporation
insolvent or unable to pay its obligations as they mature.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the merger, notwithstanding approval thereof by the stockholders of
Scientific Games:
- by mutual written consent duly authorized by the Boards of Directors of
Autotote and Scientific Games; or
- by either Autotote or Scientific Games if the merger is not consummated
by September 30, 2000 (other than because the Scientific Games special
meeting has not been held by August 8, 2000 or because the stockholders
of Scientific Games have not approved the merger); provided, that any
party whose failure to fulfill any obligation under the merger agreement
has been the principal cause of, or resulted in, the failure of the
merger to be consummated on or prior to such date is not eligible to
terminate the merger under this provision; or
- by either Autotote or Scientific Games, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission having authority with respect thereto shall have issued a
non-appealable final order, decree or ruling or taken any other
non-appealable final action having the effect of permanently restraining,
enjoining or otherwise prohibiting the merger; or
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- by Autotote, if the special meeting has not been held by August 8, 2000,
or by Autotote or Scientific Games if the stockholders of Scientific
Games shall not have approved the merger and merger agreement at the
special meeting; or
- by Autotote, if, whether or not permitted to do so by the merger
agreement, the Board of Directors of Scientific Games or Scientific Games
withdraws, modifies or changes its approval or recommendation of the
agreement or the merger in a manner adverse to Autotote; approves or
recommends to the stockholders of Scientific Games an alternative
transaction; or approves or recommends that the stockholders of
Scientific Games tender their shares in any tender or exchange offer that
is an Alternative Transaction, or takes any position or makes any
disclosure to Scientific Games' stockholders permitted under the merger
agreement which has the effect of any of the foregoing; or
- by Scientific Games, in order to accept a Superior Proposal, if the
merger and the merger agreement have not already been approved at the
special meeting, the Board of Directors of Scientific Games determines in
good faith (on the advice of independent counsel), that there is a
reasonable risk that the Board is required to accept such proposal in
order to discharge properly its fiduciary duties, Scientific Games, in
fact, accepts such proposal and Scientific Games has complied with the
non-solicitation provisions of the merger agreement; or
- by Autotote or Scientific Games, if any representation or warranty of
Scientific Games, Autotote or ATX, respectively, set forth in the merger
agreement shall be untrue in any material respect when made, such that a
material adverse effect exists as a result thereof (a "Terminating
Misrepresentation"); provided that, if such Terminating Misrepresentation
is curable prior to September 30, 2000 by Scientific Games or Autotote,
as the case may be, through the exercise of its reasonable best efforts
to eliminate, undo or reverse the event or circumstance giving rise to
such Terminating Misrepresentation and for so long as the Scientific
Games or Autotote, as the case may be, continues to exercise such
reasonable best efforts, neither Scientific Games nor Autotote,
respectively, may terminate the merger agreement under this provision; or
- by Autotote, if any representation or warranty of Scientific Games shall
have become untrue in any material respect such that a material adverse
effect exists as a result thereof, or by Scientific Games, if any
representation or warranty of Autotote and ATX shall have become untrue
in any material respect such that a material adverse effect exists as a
result thereof (in each case, a "Terminating Change"), in either case,
other than by reason of a Terminating Breach (as hereinafter defined);
provided that, if any such Terminating Change is curable prior to
September 30, 2000 by Scientific Games or Autotote, as the case may be,
through the exercise of its reasonable best efforts, and for so long as
Scientific Games or Autotote, as the case may be, continues to exercise
such reasonable best efforts, neither Scientific Games or Autotote,
respectively, may terminate this Agreement under this provision; or
- by Scientific Games or Autotote, upon a material breach of any covenant
or agreement on the part of the Scientific Games or Autotote set forth in
the merger agreement such that a material failure to perform would result
(in each case, a "Terminating Breach"); provided that, except for any
breach of Scientific Games' non-solicitation obligations, if such
Terminating Breach is curable prior to September 30, 2000 by Scientific
Games or Autotote, as the case may be, through the exercise of its
reasonable best efforts and for so long as Scientific Games or Autotote,
as the case may be, continues to exercise such reasonable best efforts,
neither Scientific Games nor Autotote, respectively, may terminate this
Agreement under this provision.
As used in the merger agreement, "Alternative Transaction" means any of (i)
a transaction pursuant to which any person other than Autotote or its affiliates
(a "third party") acquires or would acquire more than 20% of the outstanding
shares of any class of equity securities of Scientific Games, whether from
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Scientific Games or pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger or other business combination involving Scientific Games, pursuant
to which any third party acquires more than 20% of the outstanding equity
securities of Scientific Games, or the entity surviving such merger or business
combination, or (iii) any transaction pursuant to which any third party acquires
or would acquire control of assets (including for this purpose the outstanding
equity securities of subsidiaries of Scientific Games and securities of the
entity surviving any merger or business combination including any of Scientific
Games' subsidiaries) of the Scientific Games, or any of its subsidiaries, having
a fair market value (as determined by the Board of Directors of Scientific
Games, in good faith) equal to more than 20% of the fair market value of all the
assets of Scientific Games and its subsidiaries, taken as a whole, immediately
prior to such transaction, or (iv) any other material consolidation, business
combination, recapitalization, redemption, extraordinary dividend or similar
transaction involving Scientific Games or any of Scientific Games' significant
subsidiaries (other than any acquisition by Scientific Games, for fair market
value, of any business, or any equity interest therein, having a fair market
value (as determined by the Board of Directors of Scientific Games, in good
faith) equal to no more than 20% of the fair market value of all the assets of
Scientific Games and its subsidiaries, taken as a whole, immediately prior to
such transaction), other than the transactions contemplated by the merger
agreement; provided, however, that an Alternative Transaction will not include
any acquisition of securities by a broker dealer in connection with a bona fide
public offering of such securities. In the case of any Alternative Transaction
which has not, directly or indirectly, through any officer, director, employee,
representative or agent of Scientific Games or any of its subsidiaries, been
solicited or encouraged by Scientific Games, and which the Board of Directors of
Scientific Games has rejected, recommended that stockholders of Scientific Games
do not accept or approve, and used reasonable best efforts in good faith to
prevent, the applicable percentage is 35% instead of 20%.
Whether or not we complete the merger, all fees and expenses incurred in
connection with the merger will be paid by the party incurring the expenses.
However, the costs and expenses of printing and mailing this proxy statement and
all filing and other fees paid to the Securities and Exchange Commission in
connection with the merger will be shared equally by Scientific Games, on the
one hand, and Autotote, on the other. In addition, under the circumstances
described below under "Termination Fee," Scientific Games will be obligated to
pay certain costs and expenses of Autotote.
AMENDMENT; WAIVER
The merger agreement may be amended in writing by mutual agreement of the
parties by action taken by or on behalf of the parties' respective boards of
directors at any time prior to the effective time of the merger. However, after
adoption of the merger agreement by the Scientific Games stockholders, no
amendment may be made that would reduce the amount or change the type of
consideration that you are to receive under the merger agreement. At any time
prior to the effective time of the merger, any party to the merger agreement may
extend the time for the other party to perform its obligations under the
agreement, waive any inaccuracy in the other party's representations and
warranties or waive the other party's obligation to comply with any agreement or
condition contained in the merger agreement.
EXPENSE AND TERMINATION FEE
We have agreed that if the merger agreement is terminated under certain
circumstances described below, we will pay expenses of up to $1,000,000 and 3%
of the total cash merger consideration (an aggregate termination fee of
approximately $9.3 million based on the number of outstanding non-treasury
shares as of June 9, 2000) to Autotote.
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<PAGE> 31
EVENTS REQUIRING PAYMENT OF TERMINATION FEE
Autotote Fees and Expenses
Except as described below, all fees and expenses incurred by Autotote and
ATX in connection with the merger agreement and the transactions contemplated
thereby shall be paid by Autotote and ATX, whether or not the merger is
consummated; provided, however, that Autotote and Scientific Games will share
equally all SEC filing fees and printing expenses incurred in connection with
the printing and filing of the proxy statement (including any preliminary
materials related thereto) and any amendments or supplements thereto.
Scientific Games will pay to all of Autotote's and ATX's actual, documented
and reasonable out-of-pocket expenses, relating to the transactions contemplated
by the merger agreement (including reasonable fees and expenses of counsel and
accountants, commitment fees with respect to the financing of the merger and
out-of-pocket expenses and reasonable fees of financial advisors) ("Autotote
Expenses"), such payment of Autotote Expenses not to exceed $1,000,000, and a
fee of 3% of the total cash merger consideration (the "Autotote Fee"), in each
case, upon the first to occur of any of the following events:
- the termination of the merger agreement by Autotote or Scientific Games
if the merger agreement is not approved by the Scientific Games
stockholders at a timely meeting or if the Scientific Games Board
recommendation of the transaction is withdrawn, provided that, if the
merger agreement is terminated because the stockholders have not approved
and adopted the merger at the special stockholders meeting, the Autotote
Fee and Autotote Expenses are only payable if there has been a Payment
Trigger (as defined below); or
- the termination of the merger agreement by Autotote if the Scientific
Games Board approves or recommends an Alternative Transaction (whether by
tender or exchange offer, or otherwise) or takes a position which has the
effect of the foregoing; or
- the termination of the merger agreement by Scientific Games to accept a
Superior Proposal; or
- the termination of the merger agreement by Autotote as a result of a
Terminating Breach by Scientific Games; provided that the Autotote Fee
and Autotote Expenses are payable under this provision only if there has
been a Payment Trigger.
The term "Payment Trigger" means either at the time of the special meeting,
or at the time of the Terminating Breach, there shall be outstanding or purport
to be outstanding an Acquisition Proposal which has been made directly to
stockholders of Scientific Games or has otherwise become publicly known or known
to holders of 10% or more of Scientific Games' Common Stock or there shall be
outstanding an announcement by any credible third party of an intention to make
an Acquisition Proposal which, in either case, would, if consummated, constitute
an Alternative Transaction, or an Alternative Transaction shall be publicly
announced by Scientific Games or any third party and such transaction shall be
consummated within twelve months following the date of termination of the merger
agreement on substantially the terms announced.
Upon a termination of the merger agreement by Autotote as a result of a
Terminating Misrepresentation or a Terminating Breach, Scientific Games will pay
to Autotote the Autotote Expenses relating to the transactions contemplated by
the merger agreement, but in no event more than $1,000,000.
Scientific Games' Fees And Expenses
Except as described below, all fees and expenses incurred by Scientific
Games in connection with the merger agreement and the transactions contemplated
thereby, shall be paid by Scientific Games, whether or not the merger is
consummated; provided, however, that Scientific Games and Autotote will share
equally all SEC filing fees and printing expenses incurred in connection with
the printing and filing of the
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<PAGE> 32
proxy statement (including any preliminary materials related thereto) and any
amendments or supplements thereto.
Autotote shall pay to Scientific Games the actual, documented and
reasonable out-of-pocket expenses of Scientific Games relating to the
transactions contemplated by the merger agreement (including, but not limited
to, reasonable fees and expenses of counsel and accountants, and out-of-pocket
expenses and reasonable fees of financial advisors) ("Scientific Games
Expenses"), such payment of Scientific Games Expenses not to exceed $1,000,000,
and a fee of 1% of the total of the total cash merger consideration (the
"Scientific Games Fee") upon the termination of the merger agreement by
Scientific Games as a result of a Terminating Breach by Autotote or ATX.
Upon a termination of the merger agreement by Scientific Games as a result
of a Terminating Misrepresentation or a Terminating Breach, Autotote will pay to
Scientific Games the Scientific Games Expenses relating to the transactions
contemplated by the merger agreement, but in no event more than $1,000,000.
Scientific Games and Autotote also have agreed that the Scientific Games
Fee and Scientific Games Expenses are payable by Autotote in the event that the
merger is not consummated because Autotote does not receive financing for the
merger.
REGULATORY MATTERS
We cannot complete the merger unless we have filed notifications with the
Antitrust Division of the Department of Justice and the Federal Trade Commission
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the applicable rules of the Federal Trade Commission, and specified waiting
periods have expired or terminated. We, along with Autotote, filed the required
notification and report forms under the Hart-Scott-Rodino Act with the Federal
Trade Commission and the Antitrust Division on June 1, 2000 and June 2, 2000,
respectively. We supplemented our filing on June 7, 2000. The Department of
Justice contacted Scientific Games and Autotote for purposes of conducting a
preliminary inquiry with respect to our respective filings. We each provided
additional information to the Department of Justice in connection with such
inquiry. As of the date of this proxy statement the waiting period for both
Scientific Games and Autotote had expired. However, on June 30, 2000,
Lottomatica S.p.A., an affiliate of Olivetti Corporation submitted a Hart-Scott
filing in connection with its investment in Autotote as described under Parties
to Merger -- Autotote. Receipt of clearance under the Hart-Scott-Rodino Act is a
condition to Olivetti's investment in Autotote and Olivetti's investment in
Autotote is a condition to certain commitment letters to Autotote to provide it
with additional financing. Although Autotote's obligations under the Merger
Agreement are not contingent on financing, the Merger Agreement limits
Autotote's liability, if the Merger is not consummated because Autotote does not
receive the proceeds of financing therefor, to payment of the Company Fee and
Company Expenses. The Lottomatica waiting period is expected to expire on or
about August 1, 2000. Although no assurances can be given, clearance by
Lottomatica under applicable antitrust laws may be obtained prior to the special
meeting. Scientific Games and Autotote believe that the proposed merger is
compatible with U.S. antitrust laws. Nevertheless, there can be no assurance
that completion of the merger will not be delayed or prevented because of the
requirements of the U.S. antitrust laws. In addition, at any time before or
after consummation of the merger, the Antitrust Division, the Federal Trade
Commission, other governmental authorities or private persons could take action
against the merger under the antitrust laws, including seeking to enjoin
consummation of the merger, rescind the merger or cause Scientific Games or
Autotote to divest, in whole or in part, any of their assets or businesses.
Scientific Games and Autotote conduct business in a number of jurisdictions
where regulatory filings or approvals are required or advisable in connection
with the consummation of the merger. We are currently in the process of
evaluating whether any foreign competition filings are required. The obligations
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<PAGE> 33
of the parties to complete the merger are subject to the condition that (1)
there not be any preliminary or permanent injunction decree or order issued by
any governmental entity or any other legal restraint or prohibition preventing
us from completing the transactions contemplated by the merger agreement and (2)
the waiting periods (and any extension of any waiting period) applicable to the
merger under the Hart-Scott-Rodino Act have expired or terminated. Unless
extended, the waiting period will expire prior to the scheduled date of the
special meeting. Clearance under all applicable customer contracts is not likely
to occur until after the special meeting of Scientific Games stockholders.
Scientific Games is not aware of any material governmental approvals or actions
that may be required for consummation of the merger other than as described
above. If any other governmental approval or action is or becomes required, we
currently contemplate that we would seek that additional approval or action.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain U.S. federal income tax consequences
of the merger to the Scientific Games stockholders. The receipt of the cash
merger consideration in exchange for Scientific Games common stock under the
merger will be a taxable transaction for federal income tax purposes and may
also be a taxable transaction under applicable state, local and foreign tax
laws. Scientific Games stockholders will generally recognize gain or loss for
federal income tax purposes in an amount equal to the difference between the
adjusted tax basis in the Scientific Games common stock and the amount of the
cash merger consideration received in exchange for the Scientific Games common
stock. Gain or loss will be a capital gain or loss if the Scientific Games
common stock is held as a capital asset, and will be a long-term capital gain or
loss if, at the effective time of the merger, the Scientific Games common stock
was held for more than one year. This discussion may not apply to the following
Scientific Games stockholders: (1) those who acquired their Scientific Games
common stock by exercising employee stock options or through other compensation
arrangements with Scientific Games, (2) those who are not citizens or residents
of the United States, and (3) those who dissent and receive the appraised fair
value of their shares or who are otherwise subject to special tax treatment.
Each Scientific Games stockholder is urged to consult his, her or its tax
advisor with respect to the tax consequences of the merger, including the
effects of applicable state, local, foreign or other tax laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some of Scientific Games' directors and executive officers have interests
in the merger that are in addition to their interests as Scientific Games
stockholders generally. Also, it is expected that certain executive officers of
Scientific Games will enter into employment agreements with the surviving
corporation and that Mr. Malloy will enter into a consulting agreement with
Autotote that will, in each case, become effective upon completion of the
merger. The Scientific Games Board was aware of these interests and considered
them, among other things, in adopting the merger agreement and approving the
transactions contemplated by the merger agreement.
Certain Agreements Containing Change In Control And Severance Provisions
Mr. Malloy and fourteen other members of senior management of Scientific
Games are parties to agreements with change in control provisions. The Board of
Directors has provided, for purposes of such agreements and the Company's stock
option plans and certain other benefit plans, that a potential change in control
has occurred in connection with the merger and a change in control will occur
upon completion of the merger, notwithstanding the Board's approval of the
merger.
Under Mr. Malloy's existing employment and severance benefits agreement
with Scientific Games, Mr. Malloy is entitled to resign (and, upon the effective
time of the merger will resign) from all positions with Scientific Games -- as
discussed below, Mr. Malloy will enter into a consulting agreement with Autotote
and join Autotote's Board of Directors.
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<PAGE> 34
Upon Mr. Malloy's resignation, Scientific Games will be obligated to pay,
in addition to his base salary through his resignation, a lump payment to him
equal to three times the average of Mr. Malloy's annual base salary plus bonus
paid for the preceding 24 months. All of his options and restricted stock also
will immediately vest. Mr. Malloy and his family also will be entitled to the
continuation of certain life, medical and other insurance benefits for up to
three years and Mr. Malloy will receive title to the motor vehicle provided by
Scientific Games. The amount of such severance payment will be adjusted upward
for the amount of any additional federal tax on Mr. Malloy's severance benefits
due under Section 280G of the Internal Revenue Code in connection with a change
in control of Scientific Games.
Scientific Games' employment and severance benefits agreement with Mr.
Malloy also contains confidentiality, non-competition and non-solicitation
provisions with regard to employment and customers of Scientific Games. Such
provisions will survive the merger generally for at least three years.
Under his consulting agreement with Autotote, Mr. Malloy will serve as a
consultant to Autotote and will be appointed to the Board of Directors of
Autotote as of the effective time of the merger. Under the consulting agreement,
Mr. Malloy will receive $16,667 per month, a lump sum payment of $2 million in
lieu of estimated and potential benefits which would be payable to him under the
Scientific Games Supplemental Executive Retirement Plan, $200,000 for the
extension of the coverage of his non-compete and other restrictive agreements to
cover Autotote in addition to Scientific Games, and certain other benefits,
including continuation of certain life, medical and other benefits and customary
director's fees. Payments in lieu of the actual and potential benefits under
Scientific Games' Supplemental Executive Retirement Plan and for extension of
the scope of his restrictive agreement also will be adjusted upward for the
amount of any tax payable thereon, based on the change in control of Scientific
Games, for purposes of the Code.
Fourteen (14) other members of senior management, including all named
executive officers, ("covered employees") also have severance benefits
agreements, pursuant to which Scientific Games has agreed to pay certain
benefits to such individuals in the event of termination of employment after a
change in control.
In the event of a termination by Scientific Games (other than for defined
cause) or by the covered employees on account of a constructive termination
within two years after the merger, severance benefits would be payable, in
addition to base salary owing and bonus prorated through the date of
termination, each month for three years, in an amount equal to one-twelfth of
the highest rate of base salary and highest bonus paid during the two-year
period immediately preceding the date of termination or the merger, whichever is
higher, and the officer would receive title to the motor vehicle provided by
Scientific Games. Also, Scientific Games would be required to maintain, for up
to three years, all life, medical and other all life, medical and other
insurance benefit plans (to the extent, after the COBRA period of 18 months,
that the covered employee is insurable) in which the covered employee was
entitled to participate prior to termination and to have assigned to him, to the
extent assignable, any such policies at the end of such three-year period. Such
agreements also require Scientific Games to pay the reasonable legal fees and
expenses, if any, incurred by the covered employee in the successful enforcement
of any right or benefit provided under such severance benefits agreements. In
such agreements, each covered employee has committed to remain an employee of
Scientific Games, notwithstanding any commencement of an exchange offer, proxy
contest or other steps to effect a change in control until any such tender
offer, proxy contest or other steps are abandoned or terminated or until a
change in control is actually effected.
It is anticipated that some number of the covered employees and certain
other key employees currently without such agreements will enter into three year
employment agreements providing benefits which, taken as a whole, are believed
to be at least as favorable to the employee as those provided by the severance
benefits agreements. Covered employees with such existing severance benefits
agreements who are offered and accept new employment agreements would terminate
their existing severance benefits agreements as of the effective time and
execution of their new employment agreements. Under the new
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<PAGE> 35
employment agreements, the employee would receive a specified base salary, plus
an annual cash bonus and stock options commensurate with, and based upon,
substantially the same criteria as applicable to Autotote's executive officers.
The employee would also be entitled to participate in disability, medical, life
and other insurance plans, as well as Autotote's retirement or savings plans
based on substantially the same criteria as stated above and would be furnished
with an annual transportation allowance ranging from $8,000 to $16,000. In the
event the employee's employment was terminated without cause by the company, or
by the employee, in the case of certain events of constructive termination,
Scientific Games would pay for up to three years, as severance benefits to such
employee each month, an amount equal to one-twelfth of the employee's highest
annual base salary plus bonus paid during the prior twenty-four months, and
maintain or fund certain benefits for up to three years. Payments of certain
benefits, including base salary, would continue for specified periods of up to
one year in the event of the employee's disability or death. The new employment
agreements also include certain provisions prohibiting the covered employee from
disclosing confidential information of Scientific Games during the term of the
agreement and for up to two years thereafter.
Stock Options and Other Stock Based Awards
As described in "The Merger Agreement -- Conversion of Capital Stock and
Stock Based Awards" on page 17, at the effective time of the merger, all stock
options and other restricted stock will become fully vested and exercisable,
fully payable or distributable, as the case may be, any performance targets
related to the vesting of those options or awards will be deemed to have been
fully achieved, and the options and other awards will be cashed out. Scientific
Games' directors and executive officers are among those persons who own stock
options and other stock based awards that will vest and become payable as a
result of the merger. Each stock option will be converted into the right to
receive a cash payment equal to $26 minus the exercise price of the option times
the number of shares of Scientific Games common stock subject to the option and
each other stock based award will be converted into the right to receive a cash
payment equal to $26 times the number of shares of Scientific Games common stock
subject to the award. Some stock options, however, have exercise prices in
excess of $26 and therefore the holders of those options will not receive any
payment for those options. The Scientific Games Holding Corp. 1998 Stock
Purchase Plan will be suspended as of June 30, 2000 and will terminate if the
merger with Autotote is completed.
Indemnification and Insurance
Autotote has agreed that the certificate of incorporation and by-laws of
the surviving company will contain the same provisions regarding the liability
of directors and the indemnification of directors and officers that were
contained in the certificate of incorporation and by-laws of Scientific Games on
the date we entered into the merger agreement, and that those provisions will
not be amended, repealed or otherwise modified for a period of seven years from
the effective time of the merger. In addition, the surviving company will
indemnify and hold harmless each of our and our subsidiaries' present and former
directors, officers and employees (determined as of the effective time of the
merger) against any costs or expenses, judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to (in whole or in
part) the transactions contemplated by the merger agreement or otherwise with
respect to acts or omissions occurring at or prior to the effective time of the
merger, whether asserted or claimed prior to, at or after the effective time of
the merger, to the same extent as provided under our charter documents or any
applicable contract or agreement (as in effect on the date of the merger
agreement) for a period of seven years after the effective time of the merger.
In addition, Autotote has agreed that, for a period of not less than six years
after the effective time of the merger, the surviving company will provide
directors' and officers' liability insurance with coverage in amount and scope
at least as favorable as our existing policies with respect to claims arising
from facts or
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<PAGE> 36
events that occurred prior to the effective time of the merger, although they
are not obligated to pay any premiums in excess of 150% of the premiums
currently paid by Scientific Games.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 2000, certain information
concerning ownership of common stock by:
- each person who we know owns beneficially more than 5% of our common
stock
- each director individually
- our chief executive officer and each other named executive officer (as
defined) listed in the Summary Compensation Table
- all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
BENEFICIAL OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OR IDENTITY OF GROUP OWNERSHIP(1) SHARES(1)
--------------------------------------------------------- ------------ --------------
<S> <C> <C>
Paul F. Balser(2)........................................... 15,000 *
Mark E. Jennings(3)......................................... 25,000 *
Edith K. Manns(4)........................................... 16,200 *
Dennis L. Whipple(2)........................................ 16,200 *
William G. Malloy(5)........................................ 684,588 5.6%
William F. Behm(6).......................................... 177,608 *
Thomas F. Little(7)......................................... 66,916 *
Cliff O. Bickell(8)......................................... 76,191 *
All Executive Officers and Directors as a group (21
persons)(9)............................................... 1,261,317 9.9%
Merrill Lynch & Co., Inc.(10)............................... 1,285,900 10.8%
Private Capital Management, Inc.(11)........................ 2,273,583 19.1%
Sanford C. Bernstein & Co., Inc.(12)........................ 924,450 7.8%
</TABLE>
---------------
* Less than 1%.
(1) The determinations of "beneficial ownership" of common stock are based upon
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such rule provides that shares will be deemed
"beneficially owned" where a person has, either solely or in conjunction
with others, the power to vote or to direct the voting of shares and/or the
power to dispose, or to direct the disposition of, shares or where a person
has the right to acquire any such power within 60 days after the date such
"beneficial ownership" is determined. Except as disclosed in the other
notes to the table, each person has sole voting and investment power with
respect to the entire number of shares shown as beneficially owned by such
person.
(2) Comprised of options exercisable within 60 days.
(3) Includes 15,000 shares issuable pursuant to options exercisable within 60
days.
(4) Includes 15,400 shares issuable pursuant to options exercisable within 60
days.
(5) Includes 251,748 shares issuable pursuant to options exercisable within 60
days, 952 shares in the company's 401(k) Plan and 4,621 shares under the
employee stock purchase plan ("ESPP") allocated to the named officer.
(6) Includes 136,861 shares issuable pursuant to options exercisable within 60
days and 955 shares in the company's 401(k) Plan allocated to the named
officer.
(7) Includes 59,999 shares issuable pursuant to options exercisable within 60
days, 955 shares in the company's 401(k) Plan and 5,962 shares under the
ESPP allocated to the named officer.
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<PAGE> 37
(8) Includes 63,131 shares issuable pursuant to options exercisable within 60
days, 955 shares in the company's 401(k) Plan and 5,940 shares under the
ESPP allocated to the named officer.
(9) Includes 726,586 shares issuable pursuant to options exercisable within 60
days and 15,578 shares in the company's 401(k) Plan allocated to 14 of the
company's 17 executive officers, and 10,499 shares allocated to 8 of the
company's 17 executive officers under the ESPP.
(10) The following information is based on a Schedule 13G/A dated February 4,
2000. Merrill Lynch & Co. Inc ("Merrill") reports its address as 250 Vesey
Street, World Financial Center North Tower, New York, New York 10381-1334.
Merrill reports that voting and dispositive power with respect to all
1,285,900 shares is shared by Merrill Lynch Global Allocation Fund, Inc.
(the "Fund") and the Merrill Lynch Asset Management Group ("MLAMG"), which
includes Merrill Lynch Asset Management, L.P. ("MLAM"). Merrill reports the
Fund is advised by MLAM. The Fund reports that it is an investment company
registered under Section 8 of the Investment Company Act of 1940. MLAMG
reports that it is an investment advisor registered under Section 203 of
the Investment Advisors Act of 1940.
(11) The following information is based on a Schedule 13G/A dated February 15,
2000. Private Capital Management, Inc. ("Private Capital") reports its
address as 3003 Tamiami Trail N., Naples, Florida 34103. Private Capital
reports beneficial ownership of 1,893,883 shares and voting power with
respect to none of the shares. Private Capital reports that it shares
dispositive power with respect to all 1,893,883 shares with Bruce S.
Sherman, Chairman of Private Capital, and that it exercises shared
dispositive power with respect to the shares held by it on behalf of its
clients. Private Capital reports that it is an Investment Adviser
registered under Section 203 of the Investment Advisers Act of 1940.
Private Capital also reports that Mr. Sherman is the managing general
partner of SPS Partners, L.P. ("SPS") which acts as the investment advisor
to the Entrepreneurial Value Fund, L.P. ("EVF") and exercises shared
dispositive power with respect to 368,700 shares owned by EVF. Mr. Sherman
reports that he has sole voting and dispositive power with respect to
11,000 shares. Mr. Gregg J. Powers, President of Private Capital, reports
that he has sole voting and dispositive power with respect to 5,000 shares.
SPS reports it has shared dispositive power with respect to 368,700 shares.
Mr. Sherman thus reports beneficial ownership of a total of 2,273,583
shares and shared dispositive power with respect to all 1,893,883 shares
beneficially held by Private Capital. Mr. Sherman and Mr. Powers disclaim
the existence of a group.
(12) The following information is based on a Schedule 13G dated February 8,
2000. Sanford C. Bernstein & Co., Inc. ("Sanford") reports its address as
767 Fifth Avenue, New York, New York 10153. Sanford reports that it is a
registered investment advisor. Sanford reports that it beneficially owns
924,450 shares, has sole voting power with respect to 755,590 shares,
shared voting power with respect to 13,200 shares with an independent
voting agent who is required to vote the shares in the same manner as
Sanford, and sole dispositive power with respect to all of the 924,450
shares it holds.
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<PAGE> 38
PRICE RANGE OF SCIENTIFIC GAMES COMMON STOCK AND DIVIDENDS
PRICE RANGE
Scientific Games common stock is listed on the New York Stock Exchange
("SG"). The following table sets forth, for the fiscal quarters indicated, the
high and low closing sale prices per share of Scientific Games common stock as
quoted on the New York Stock Exchange Composite Transactions Tape.
<TABLE>
<CAPTION>
1999 HIGH LOW
---- ------ ------
<S> <C> <C>
First Quarter............................................... $18.25 $16.75
Second Quarter.............................................. 19.25 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>
On April 18, 2000, one month before Scientific Games issued its initial
public announcement regarding the merger, the closing price on the New York
Stock Exchange Composite Tape was $15.875.
On May 12, 2000, one week before Scientific Games issued its initial public
announcement regarding the merger and the last trading day prior to an
inadvertent public disclosure by Autotote with respect to a potential
transaction between Scientific Games and Autotote, including reference to a
potential merger consideration per share of $26.00, the closing sale price per
share of Scientific Games common stock quoted on the New York Stock Exchange
Composite Transactions Tape was $18.00.
On May 17, 2000, the last trading date before the joint public announcement
by Scientific Games and Autotote of the execution of the merger agreement, the
closing sale price per share of Scientific Games common stock quoted on the New
York Stock Exchange Composite Transactions Tape was $17.88.
On July 6, 2000, a recent trading day prior to the date of this proxy
statement, the closing price per share of Scientific Games common stock quoted
on the New York Stock Exchange Composite Transactions Tape was $24.5625.
You are urged to obtain current information with respect to the price of
the Scientific Games common stock.
DIVIDEND POLICY
Scientific Games has never declared or paid any dividends on its common
stock. Scientific Games currently anticipates that its earnings will be retained
for development of its business and does not anticipate paying any cash
dividends on its common stock in the foreseeable future.
PARTIES TO THE MERGER
Scientific Games
Additional information regarding our business can be found in the documents
that we have filed with the Securities and Exchange Commission. See "Additional
Information -- Where You Can Find More Information" on page 36.
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<PAGE> 39
Autotote
Autotote is a leading worldwide supplier of technologically advanced
computerized wagering systems and related equipment, as well as a licensed
international operator of gaming venues. It provides technology, software,
equipment and services for pari-mutual wagering conducted at thoroughbred,
harness and greyhound racetracks, off-track betting establishments ("OTBs") and
jai alai frontons. Autotote also is a leading provider of sophisticated,
customized computer software, equipment and data communication services to
government-sponsored and privately operated lotteries. Additionally, Autotote
also provides operations management for domestic and international OTBs and
gaming venues. Related products and services that Autotote offer racetracks,
OTBs and frontons include wagering systems, simulcasting and telecommunications
services, venue management and lottery systems and services.
For fiscal 1999, Autotote generated revenues and EBITDA (earnings before
interest, taxes, depreciation and amortization, gains/loss on sale of businesses
and other income/deductions) of $211.1 million and $40.5 million, respectively.
The majority of its revenues were derived from its pari-mutual systems
operations. Pari-mutual operations accounted for 56%, 56% and 47% of Autotote's
total revenues for the fiscal years 1997, 1998 and 1999, respectively, venue
management operations service revenue accounted for 28%, 32% and 29% of
Autotote's total service revenue for fiscal 1997, 1998 and 1999, respectively,
and lottery operations accounted for 15%, 11% and 23% of Autotote's total
revenues for the fiscal years 1997, 1998 and 1999, respectively.
In a transaction announced at the same time as the merger, Olivetti has
entered into a commitment letter with Autotote pursuant to which Olivetti
committed that it or its affiliates would acquire $100 million of new Autotote
convertible preferred stock, convertible into Autotote common stock, which, upon
conversion, would be equal to approximately 30% of the common entity of
Autotote. Other investors have issued similar commitment letters for an
additional $10 million of convertible preferred stock.
Olivetti, among many businesses is, through Telecom Italia, one of the
world's largest providers of telecommunications services with significant
presences in Europe and South America. Olivetti and Telecom Italia, in addition
to their forty-five percent ownership in Lottomatica, the leading operator in
the lottery business in Italy, provide wagering products and services to sports
betting outlets and pari-mutuel facilities in Italy.
ATX Enterprises, Inc.
ATX Enterprises, Inc. was organized as a Delaware corporation shortly
before we entered into the merger agreement and is currently a wholly owned
subsidiary of Autotote. ATX has not conducted any significant business
operations to date other than in connection with the merger agreement and the
transactions contemplated by the merger agreement. The principal offices of ATX
are located at 750 Lexington Avenue, 25th Floor, New York, New York 10022 and
its telephone number is 212.754.2233.
ADDITIONAL INFORMATION
DISSENTERS' APPRAISAL RIGHTS
You have the right to dissent from the merger and to demand and obtain cash
payment of the appraised value of your shares of Scientific Games common stock
under the circumstances described below. The appraised value that you obtain for
your shares by dissenting may be less than, equal to or greater than the $26 per
share cash merger consideration provided for in the merger agreement but will
not include any element of value arising from the accomplishment or expectation
of the merger. If you fail to comply with the procedural requirements of Section
262 of the Delaware General Corporation Law, you will lose your right to dissent
and seek payment of the appraised value of your shares. The following is a
summary of Section 262, which specifies the procedures applicable to dissenting
stockholders. This
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summary is not a complete statement of the law regarding your right to dissent
under Delaware law, and if you are considering dissenting, we urge you to review
the provisions of Section 262 carefully. The text of Section 262 is attached to
this proxy statement as Appendix C, and we incorporate that text into this proxy
statement by reference. Among other matters, you should be aware of the
following:
- to be entitled to dissent and seek appraisal, you must hold shares of
Scientific Games common stock on the date you make the demand required
under Delaware law, you must continuously hold those shares until the
merger has been completed, you must not vote in favor of the merger and
you must otherwise comply with the requirements of Section 262;
- before the special meeting, you must deliver a written notice that states
your identity and your intent to demand appraisal to Scientific Games
Holdings Corp., 1500 Bluegrass Lakes Parkway, Alpharetta, Georgia 30004
(you should be aware that simply voting against the merger is not a
demand for appraisal rights);
- within ten days after the effective time of the merger, the surviving
company will notify all of the dissenting Scientific Games stockholders
who have complied with Section 262 and who have not voted in favor of the
merger;
- within 120 days after the effective time of the merger, the surviving
company or any stockholder who has complied with the requirements of
Section 262 may file a petition in the Delaware Court of Chancery
demanding a determination of the value of the stock of the dissenting
stockholders;
- the Court of Chancery will determine which dissenting stockholders
complied with the requirements of Section 262 and are entitled to
appraisal rights;
- the Court of Chancery will then appraise the shares, determining their
fair value exclusive of any value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any,
to be paid on the appraised fair value; the Court of Chancery will
consider all relevant factors in determining the fair value and the fair
interest rate (if any);
- the Court of Chancery will then direct the surviving company to pay the
fair value of the dissenting shares, together with any interest, to the
stockholders entitled to payment; payment will be made when the
stockholder surrenders the certificates to the surviving company;
- the costs of the proceeding for appraising the fair value may be
determined by the court and the court may require the parties to bear the
costs in any manner that the court believes to be equitable;
- if you dissent from the merger, you will not be entitled to vote your
shares of Scientific Games common stock for any purpose or to receive
dividends or other distributions (other than dividends or other
distributions payable to stockholders of record at a date prior to the
effective time of the merger); and
- you may withdraw your demand for appraisal and accept the $26 per share
merger consideration provided for in the merger agreement at any time
within 60 days after the effective date of the merger.
STOCKHOLDER PROPOSALS
If the merger is not completed for any reason, we must receive any
stockholder proposal you intend to present at the next annual meeting of
Scientific Games stockholders by December 21, 2000, and any proposal must comply
with the rules of the Securities and Exchange Commission, to be included in our
proxy statement and Proxy/Voting Instruction Card relating to that meeting.
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<PAGE> 41
If a Scientific Games stockholder wishes to submit a proposal at the annual
meeting, but has not sought to have such proposal included in the proxy
statement and form of proxy for such meeting, applicable SEC rules allow us to
use our discretionary authority granted under the form of proxy to vote on such
proposal unless the proponent of such proposal notifies us that he will seek to
offer such proposal at the annual meeting and such notice is given to us no
later than forty-five (45) days prior to the anniversary of the prior year's
proxy statement, i.e., by March 5, 2000 with respect to our next annual meeting;
provided, however, if we change the date of next year's annual meeting by more
than thirty (30) days from the anniversary of the date of this year's meeting,
then notice of the stockholder proposal must be received a "reasonable" time
before we mail our proxy materials for next year's annual meeting.
With respect to nomination of directors, our By-Laws require shareholders
to provide us with advance notice of any intent to nominate anyone for election
to the board whose name is not listed in our proxy materials and generally
require that such notice be given not less than sixty (60) days in advance of
the meeting date. The requirements for giving proper notice are set forth in our
By-Laws.
OTHER MATTERS
The Scientific Games Board knows of no other matters that are likely to be
brought before the special meeting. If any other matters are brought before the
meeting, Messrs. Malloy, Bickell and Bethea, as the proxy agents named in the
enclosed proxy, will vote on those matters in accordance with their best
judgment.
INDEPENDENT PUBLIC AUDITORS
Ernst & Young LLP serves as our independent certified public accountant and
served in that role during the fiscal year ended December 31, 1999. A
representative of Ernst & Young, LLP will be at the special meeting to answer
questions you or other Scientific Games stockholders may have and to make a
statement if they desire to do so.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information under the Exchange
Act. You may read and copy this information at the following locations of the
commission:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
New York Regional Office
7 World Trade Center
Suite 1300
New York, New York 10048
Chicago Regional Office
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You may also obtain copies of this information by mail from the public
reference section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. The Securities and
Exchange Commission maintains an Internet web site that contains reports, proxy
and information statements and other information regarding issuers, like us, who
file electronically with the Securities and Exchange Commission. The address of
that site is
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<PAGE> 42
http://www.sec.gov. You can also inspect reports, proxy statements and other
information concerning us at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements in this proxy statement that are
subject to risks and uncertainties, including statements relating to the cost
savings and opportunities for growth that are expected to result from the
merger. These forward-looking statements include information about possible or
assumed future results of our operations or the performance of the new company
after the merger is completed. When we use any of the words "believes,"
"expects," "anticipates," "estimates," or similar expressions, we are making
forward-looking statements. Many possible events or factors could cause these
results or performance to differ materially from those expressed in our
forward-looking statements. These possible events or factors include the
following:
- an inability to fully realize, or to realize within the anticipated time
frame, the expected cost savings from the merger;
- intensified competitive pressures in the industries in which we and
Autotote compete;
- greater than expected costs or difficulties related to the integration of
our businesses with the businesses of Autotote;
- changes in general economic or capital market conditions, or in the
gaming industry in particular, that adversely affect our operations or
those of Autotote;
- failure to obtain required approvals and consents or to otherwise satisfy
the conditions to the consummation of the merger; and
- legislative or regulatory requirements or changes that adversely affect
our businesses or that of Autotote.
These forward-looking statements speak only as of the date on which the
statements were made, and neither we nor Autotote undertake any obligation to
update any forward-looking statements to reflect events or circumstances arising
after the date on which any of those statements are made.
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<PAGE> 43
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
AUTOTOTE CORPORATION,
ATX ENTERPRISES, INC.
AND
SCIENTIFIC GAMES HOLDINGS CORP.
DATED AS OF MAY 18, 2000
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I The Merger........................................ A-4
SECTION 1.01. The Merger................................. A-4
SECTION 1.02. Effective Time............................. A-4
SECTION 1.03. Effect of the Merger....................... A-5
SECTION 1.04. Certificate of Incorporation; By-laws...... A-5
SECTION 1.05. Directors and Officers..................... A-5
SECTION 1.06. Conversion of Shares....................... A-5
SECTION 1.07. Dissenting Shares.......................... A-6
SECTION 1.08. Surrender of Shares........................ A-6
SECTION 1.09. Options.................................... A-7
SECTION 1.10. No Further Ownership Rights in Company
Common Stock........................................... A-8
SECTION 1.11. Lost, Stolen or Destroyed Certificates..... A-8
SECTION 1.12. Taking of Necessary Action; Further
Action................................................. A-8
SECTION 1.13. Material Adverse Effect.................... A-8
ARTICLE II Representations and Warranties of the Company.... A-9
SECTION 2.01. Organization and Qualification;
Subsidiaries........................................... A-9
SECTION 2.02. Certificate of Incorporation and By-laws... A-9
SECTION 2.03. Capitalization............................. A-9
SECTION 2.04. Authority Relative to This Agreement....... A-10
SECTION 2.05. Material Contracts; No Conflict; Required
Filings and Consents................................... A-11
SECTION 2.06. Compliance; Permits........................ A-12
SECTION 2.07. SEC Filings; Financial Statements.......... A-12
SECTION 2.08. Absence of Certain Changes or Events....... A-12
SECTION 2.09. No Undisclosed Liabilities................. A-13
SECTION 2.10. Absence of Litigation...................... A-13
SECTION 2.11. Employee Benefit Plans; Employment
Agreements............................................. A-13
SECTION 2.12. Employment and Labor Matters............... A-16
SECTION 2.13. Proxy Statement............................ A-17
SECTION 2.14. Restrictions on Business Activities........ A-18
SECTION 2.15. Title to Property.......................... A-18
SECTION 2.16. Taxes...................................... A-18
SECTION 2.17. Environmental Matters...................... A-19
SECTION 2.18. Brokers.................................... A-20
SECTION 2.19. Intellectual Property...................... A-20
SECTION 2.20. Interested Party Transactions.............. A-21
SECTION 2.21. Opinion of Financial Advisor............... A-22
SECTION 2.22. Rights Agreement........................... A-22
ARTICLE III Representations and Warranties of Parent and
Merger Sub................................................ A-22
SECTION 3.01. Organization and Qualification;
Subsidiaries........................................... A-22
SECTION 3.02. Authority Relative to This Agreement....... A-22
SECTION 3.03. No Conflict................................ A-22
SECTION 3.04. Absence of Litigation...................... A-23
SECTION 3.05. Parent Not an Interested Stockholder or an
Acquiring Person....................................... A-23
SECTION 3.06. Proxy Statement............................ A-23
SECTION 3.07. Ownership of Merger Sub.................... A-23
SECTION 3.08. Solvency................................... A-23
</TABLE>
A-2
<PAGE> 45
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 3.09. Financing Arrangements..................... A-23
SECTION 3.10. Ownership of Shares........................ A-24
ARTICLE IV Conduct of Business Pending the Merger........... A-24
SECTION 4.01. Conduct of Business by the Company Pending
the Merger............................................. A-24
SECTION 4.02. No Solicitation............................ A-26
ARTICLE V Additional Agreements............................. A-28
SECTION 5.01. Proxy Statement............................ A-28
SECTION 5.02. Company Stockholders Meeting............... A-28
SECTION 5.03. Access to Information; Confidentiality..... A-28
SECTION 5.04. Consents; Approvals........................ A-29
SECTION 5.05. Indemnification and Insurance.............. A-29
SECTION 5.06. Notification of Certain Matters............ A-30
SECTION 5.07. Further Action............................. A-31
SECTION 5.08. Public Announcements....................... A-31
SECTION 5.09. Conveyance Taxes........................... A-31
SECTION 5.10. Option Plans and Benefits, Etc............. A-32
SECTION 5.11. Rights Agreement........................... A-32
SECTION 5.12. Accountant's Letters....................... A-32
SECTION 5.13. Standstill................................. A-32
ARTICLE VI Conditions to the Merger......................... A-33
SECTION 6.01. Conditions to Obligation of Each Party to
Effect the Merger...................................... A-33
SECTION 6.02. Additional Conditions to Obligations of
Parent and Merger Sub.................................. A-33
SECTION 6.03. Additional Conditions to Obligation of the
Company................................................ A-34
ARTICLE VII Termination..................................... A-35
SECTION 7.01. Termination................................ A-35
SECTION 7.02. Effect of Termination...................... A-36
SECTION 7.03. Parent's Fees and Expenses................. A-36
SECTION 7.04. Company's Fees and Expenses................ A-37
ARTICLE VIII General Provisions............................. A-38
SECTION 8.01. Effectiveness of Representations,
Warranties and Agreements.............................. A-38
SECTION 8.02. Notices.................................... A-39
SECTION 8.03. Certain Definitions........................ A-40
SECTION 8.04. Amendment.................................. A-41
SECTION 8.05. Waiver..................................... A-41
SECTION 8.06. Headings................................... A-41
SECTION 8.07. Severability............................... A-41
SECTION 8.08. Entire Agreement........................... A-42
SECTION 8.09. Assignment................................. A-42
SECTION 8.10. Parties in Interest........................ A-42
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies
Cumulative............................................. A-42
SECTION 8.12. Governing Law; Jurisdiction................ A-42
SECTION 8.13. Counterparts............................... A-42
SECTION 8.14. Waiver of Jury Trial....................... A-42
SECTION 8.15. Performance of Obligations................. A-42
</TABLE>
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<PAGE> 46
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 18, 2000 (this "Agreement"),
among Autotote Corporation, a Delaware corporation ("Parent"), ATX Enterprises,
Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent
("Merger Sub"), and Scientific Games Holdings Corp., a Delaware corporation (the
"Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders, and consistent with and in furtherance of their
respective business strategies and goals, for Parent to acquire all of the
outstanding shares of the Company through the merger of Merger Sub with and into
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL"), and upon the
terms and subject to the conditions set forth herein;
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's Common Stock, par value $.001 per share (the "Company Common Stock"),
other than Shares to be cancelled pursuant to Section 1.06(b) and other than any
Dissenting Shares (as hereinafter defined), shall be converted into the right to
receive $26.00 per Share (the "Per Share Amount") in cash payable to the holder
thereof, upon the terms and subject to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.01. The Merger. (a) At the Effective Time (as defined in
Section 1.02), and subject to and upon the terms and conditions of this
Agreement and the DGCL, Merger Sub shall be merged with and into the Company,
the separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation. The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
Section 1.02. Effective Time. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 7.01, as promptly as practicable (and in any event within
two business days) after the satisfaction or waiver of the conditions set forth
in Article VI, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger as contemplated by the DGCL (the "Certificate of
Merger"), together with any required related certificates, with the Secretary of
State of the State of Delaware, in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL. The Merger shall become
effective at the time of such filing, or at such later time as may be agreed to
by each of the parties hereto in writing (which will be as soon as reasonably
practicable), specified in the Certificate of Merger (the "Effective Time").
Prior to such filings, a closing (the "Closing") shall be held at the offices of
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, NY 10022,
unless another time or place is agreed to in writing by the parties hereto, for
the purpose of confirming the satisfaction or waiver, as the case may be, of the
conditions set forth in Article VI.
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<PAGE> 47
Section 1.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.04. Certificate of Incorporation; By-laws.
(a) Certificate of Incorporation. Unless otherwise determined by
Parent prior to the Effective Time, subject to the provisions of Section
5.05(a), at the Effective Time the Amended and Restated Certificate of
Incorporation in the form attached as Exhibit A hereto, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by the DGCL and such Certificate of Incorporation.
(b) By-laws. Unless otherwise determined by Parent prior to the
Effective Time, and subject to the provisions of Section 5.05(a), at the
Effective Time the By-laws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-laws.
Section 1.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
Section 1.06. Conversion of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any of the securities specified below:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than Shares to be cancelled pursuant to Section
1.06(b) and other than any Dissenting Shares (as hereinafter defined))
shall be converted into the right to receive the Per Share Amount in cash
payable to the holder thereof, without interest, upon surrender of the
certificate representing such Share in accordance with Section 1.08 hereof.
From and after the Effective Time, the holders of certificates evidencing
ownership of Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares except as
otherwise provided for herein or by applicable law.
(b) Each Share owned by the Company or any of its subsidiaries,
Parent, Merger Sub or any direct or indirect wholly owned subsidiary of
Parent immediately prior to the Effective Time shall be cancelled, and no
payment or other consideration shall be made with respect thereto.
(c) The shares of Merger Sub's common stock, par value $.01 per share,
issued and outstanding immediately prior to the Merger shall be converted
into and constitute a number of validly issued, fully paid and
nonassessable shares of common stock of the Surviving Corporation equal to
the number of Shares owned by Parent, Merger Sub or any direct or indirect
wholly owned subsidiary of Parent immediately prior to the Effective Time.
(d) The fact that any Share which is issued and outstanding
immediately prior to the Effective Time is restricted and/or not yet vested
under any Company stock purchase or stock grant plan, shall not affect the
right of the holder thereof to receive the Per Share Amount and all such
Shares shall without action by any party be deemed to be vested as of the
Effective Time, any provision of any such plan or this Agreement to the
contrary notwithstanding.
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<PAGE> 48
Section 1.07. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary,
any Shares issued and outstanding immediately prior to the Effective Time
and held by a holder who has demanded and perfected his demand for
appraisal of his Shares in accordance with the DGCL and as of the Effective
Time has neither effectively withdrawn nor lost his right to such appraisal
("Dissenting Shares") shall not be converted into or represent a right to
receive the Per Share Amount pursuant to Section 1.06 hereof, but the
holder thereof shall be entitled only to such rights as are granted by the
DGCL.
(b) Notwithstanding the provisions of Section 1.07(a) hereof, if any
holder of Shares who demands appraisal of his Shares under the DGCL shall
effectively withdraw or lose (through failure to perfect or otherwise) his
right to appraisal, then as of the Effective Time or the occurrence of such
event, whichever occurs later, such holder's Shares shall automatically be
treated as if converted at the Effective Time into, and thereafter
represent only, the right to receive the Per Share Amount as provided in
Section 1.06(a) hereof, without interest thereon, upon surrender of the
certificate or certificates representing such Shares.
(c) The Company shall give Parent (i) prompt notice of any written
demands for appraisal or payment of the fair value of any Shares,
withdrawals of such demands and any other instruments served pursuant to
the DGCL received by the Company after the date hereof and (ii) the
opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not voluntarily
make any payment with respect to any demands for appraisal and shall not,
except with the prior written consent of Parent, settle or offer to settle
any such demands.
Section 1.08. Surrender of Shares.
(a) Prior to the Effective Time, Parent shall appoint First Union
National Bank or such other commercial bank or trust company as may be
designated by Parent and reasonably acceptable to the Company to act as
exchange agent hereunder (the "Exchange Agent") for the payment of the Per
Share Amount upon surrender of certificates representing the Shares. All
the fees and expenses of the Exchange Agent shall be borne by the Surviving
Corporation, provided, however, that, if the Merger shall not be
consummated, such fees and expenses shall be borne by Parent.
(b) At or before the Effective Time, Parent shall cause the Surviving
Corporation to provide the Exchange Agent with cash in the amounts
necessary to pay the Per Share Amount in respect of all the Shares pursuant
to Section 1.06(a) hereof (including, if necessary, by providing or causing
to be provided cash for this purpose to the Surviving Corporation) to be
held for the benefit of and distributed to the holders of such Shares in
accordance with this Section.
(c) On the Closing Date, the Surviving Corporation shall instruct the
Exchange Agent to mail promptly to each holder of record of a certificate
or certificates representing any Shares canceled upon the Merger pursuant
to Section 1.06(a) hereof (i) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates shall pass, only upon delivery of the certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting
the surrender of such certificates. Each holder of a certificate or
certificates representing any Shares canceled upon the Merger pursuant to
Section 1.06(a) hereof may thereafter surrender such certificate or
certificates to the Exchange Agent, as agent for such holder, to effect the
surrender of such certificate or certificates on such holder's behalf for a
period ending one year after the Effective Time. Upon the surrender of
certificates representing the Shares, the Surviving Corporation shall cause
the Exchange Agent to pay the holder of such certificates in respect
thereof cash in an amount equal to the Per Share Amount multiplied by the
number of Shares represented by such certificate. Until so surrendered,
each such
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<PAGE> 49
certificate representing Shares cancelled upon the Merger pursuant to
Section 1.06(a) hereof shall represent solely the right to receive the
aggregate Per Share Amount relating thereto.
(d) If payment of cash in respect of canceled Shares is to be made to
a person other than the person in whose name a surrendered certificate is
registered, it shall be a condition to such payment that the certificate so
surrendered shall be properly endorsed or shall otherwise be in proper form
for transfer by delivery and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of such payment
in a name other than that of the registered holder of the certificate or
instrument surrendered or shall have established to the satisfaction of
Parent or the Exchange Agent that such tax either has been paid or is not
payable.
(e) At the Effective Time, the stock transfer books of the Company
shall be closed, and no transfer of Shares shall be made thereafter, other
than transfers of Shares that have occurred prior to the Effective Time
and, if necessary, entries reflecting (i) the purchase and issuance of up
to 200,000 Shares as of June 30, 2000 in accordance with the Company's
Employee Stock Purchase Plan and (ii) entries reflecting the Company's
purchase in the open market of Shares outstanding on the date of this
Agreement to the extent necessary to satisfy the Company's matching
obligations under its 401(k) plan, which entries, in the case of either (i)
or (ii), shall be made solely for the purpose of paying the Per Share
Amount with respect to each such Share. In the event that, after the
Effective Time, certificates representing Shares (other than any Dissenting
Shares) are presented to the Surviving Corporation, they shall be canceled
and exchanged for cash as provided in Section 1.06(a).
(f) The Per Share Amount paid in the Merger shall be net to the holder
of Shares in cash, and without interest thereon, subject to reduction only
for any applicable withholding taxes and, but only if the Per Share Amount
is to be paid other than to the registered holder, any applicable stock
transfer taxes payable by such holder.
(g) Promptly following the date which is one year after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all
cash, certificates and other documents in its possession relating to the
transactions contemplated hereby, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a certificate representing Shares
(other than certificates representing Dissenting Shares and certificates
representing Shares held directly or indirectly by the Surviving
Corporation or Parent) may surrender such certificate to the Surviving
Corporation and (subject to any applicable abandoned property, escheat or
similar law) receive in respect thereof the aggregate Per Share Amount
relating thereto, without any interest thereon.
(h) None of the Company, Parent, Merger Sub, the Surviving Corporation
or the Exchange Agent shall be liable to any holder of Shares for any cash
delivered to a public official pursuant to any abandoned property, escheat
or similar law, rule, regulation, statute, order, judgment or decree.
Section 1.09. Options. Each option to purchase Shares under any stock
option plan or agreement of the Company (including, without limitation, the
Company's non-employee Directors Plan) outstanding immediately prior to the
Effective Time (a "Company Option"), whether or not exercisable as provided
under the terms thereof, shall be cancelled and the holder thereof shall receive
from the Exchange Agent on the Closing Date or as promptly thereafter as
practicable an amount in cash equal to the positive difference, if any, between
the Per Share Amount and the exercise price of the Company Option multiplied by
the number of Shares for which the Company Option would have been exercisable
(assuming all such Company Options were by their terms exercisable) immediately
prior to the Effective Time, subject to reduction only for any applicable
withholding taxes (as reasonably determined and certified by the Company to the
Exchange Agent). At or before the Effective Time, Parent shall cause the
Surviving Corporation to provide the Exchange Agent with cash in amounts
necessary to pay the difference between the Per Share Amount and the exercise
price of the Company Options as above
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provided. In no event will any Company Options be exercisable after the
Effective Time, except to receive cash as provided in the first sentence of this
Section 1.09.
Section 1.10. No Further Ownership Rights in Company Common Stock. The
Per Share Amount delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing Shares are presented to the
Surviving Corporation, the Parent or the Exchange Agent for any reason, they
shall be canceled and exchanged as provided in this Article I.
Section 1.11. Lost, Stolen or Destroyed Certificates. In the event any
certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
pay in respect of such lost, stolen or destroyed Certificates, upon the making
of an affidavit of that fact by the holder thereof, such Per Share Amount as may
be required pursuant to Section 1.06(a); provided, however, that Parent may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Parent, the Surviving Corporation or the Exchange Agent with respect to
the certificates alleged to have been lost, stolen or destroyed.
Section 1.12. Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful actions in
connection with the Closing as may be necessary or appropriate in order to
effectuate the Merger and the other transactions contemplated by this Agreement
in accordance with this Agreement as promptly as possible, upon the terms and
subject to the conditions hereof. If, at any time after the Effective Time, any
such further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company and Merger Sub, the officers and directors of the Company and Merger
Sub immediately prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
Section 1.13. Material Adverse Effect.
(a) When used in connection with the Company or any of its
subsidiaries or Parent or any of its subsidiaries, as the case may be, the
term "Material Adverse Effect" means any change, effect or circumstance
that is or is reasonably likely to be materially adverse to the business,
assets (including intangible assets), financial condition or results of
operations, taken as a whole, of the Company and its subsidiaries or Parent
and its subsidiaries, as the case may be.
(b) The failure of a representation or warranty to be true and
correct, either individually or together with the failure of other
representations or warranties to be true and correct, or the failure to
perform an obligation, agreement or covenant shall be deemed to have a
Material Adverse Effect if (x) the business, assets (including intangible
assets), financial condition, or results of operations, taken as a whole,
of the Company and its subsidiaries, or Parent and its subsidiaries, as the
case may be, are or are reasonably likely to be materially worse than if
such representation or warranty had been true and correct or such
obligation, agreement or covenant had been performed, (y) in the case of
the Company, such representation or warranty materially misstates the
capitalization of the Company or the capitalization of its subsidiaries
taken as a whole or (z) the failure of such representation or warranty to
be true and correct or the failure to perform such obligation, agreement or
covenant materially and adversely affects the ability of the Company or
Parent, as the case may be, to consummate the transactions substantially as
contemplated by this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
Section 2.01. Organization and Qualification; Subsidiaries. Each of the
Company and its subsidiaries is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
other organization, as the case may be, and has the requisite corporate or other
power and authority necessary to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted or is proposed to be conducted, except where the failure to be
so organized, existing and in good standing or to have such power or authority
would not have a Material Adverse Effect. Each of the Company and its
subsidiaries is duly qualified or licensed as a foreign corporation or other
organization, as the case may be, to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not have a Material Adverse Effect. A
true and complete list of all of the Company's "significant" subsidiaries, as
defined in Regulation S-X, is included as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1999 (the "Company
Significant Subsidiaries"). The Company has furnished to Parent a list of all
subsidiaries of the Company together with the jurisdiction of incorporation or
organization of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock or other equity interest owned by the
Company or another subsidiary of the Company in Section 2.01 of the written
disclosure schedule delivered by the Company to Parent (the "Company Disclosure
Schedule"). Except as set forth in Section 2.01 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries directly or indirectly
owns any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity
(other than its wholly owned subsidiaries), in each case with respect to which
interest the Company or a subsidiary, individually or in the aggregate, has
invested (and currently owns) or is required to invest $2,000,000 or more,
excluding securities in any publicly traded company held for investment by the
Company and comprising less than one percent of the outstanding stock of such
company.
Section 2.02. Certificate of Incorporation and By-laws. The Company has
heretofore made available to Parent and Merger Sub complete and correct copies
of (i) its Second Amended and Restated Certificate of Incorporation and Third
Amended and Restated By-laws, each as amended to date (the "Company's Charter
Documents"), and (ii) the Certificate of Incorporation and By-laws (or
equivalent organizational documents) the "Subsidiary Documents") of each of its
subsidiaries. All such Company Charter Documents and Subsidiary Documents are in
full force and effect. Neither the Company nor any of its subsidiaries is in
violation of any of the provisions of their respective Certificate of
Incorporation or By-laws or equivalent organizational documents, except, in the
case of any such subsidiaries, where such violations would not, individually or
in the aggregate, have a Material Adverse Effect.
Section 2.03. Capitalization. The authorized capital stock of the Company
consists of 25,750,000 shares of Company Common Stock and 3,000,000 shares of
the Company's Preferred Stock (the "Company Preferred Stock"), par value $.001
per share. As of April 28, 2000, (i) 11,414,199 shares of Company Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 509,200 shares of Company Common Stock were held in
treasury, (iii) no shares of Company Preferred Stock were outstanding or held in
treasury, (iv) no shares of Company Common Stock or Company Preferred Stock were
held by subsidiaries of the Company, (v) 1,173,213 shares of Company Common
Stock were issuable upon the exercise of outstanding Company Options (whether or
not presently exercisable) granted under the Company's stock option plans, (vi)
up to 200,000 shares of Company Common Stock were issuable pursuant to the
Company's Employee Stock Purchase Plan, (vii) 9,824 shares of Company Common
Stock were issued subject to vesting pursuant to the Company's
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Restricted Stock Plan (all of which were included in clause (i) above) and
(viii) 500,000 shares of Company Preferred Stock are reserved for issuance in
accordance with the Company's Rights Agreement (as defined in Section 2.22).
Except as set forth in the preceding (i) through (viii), no other shares of
capital stock of the Company, or rights to acquire such shares, have been
authorized or are outstanding as of such date. Except as set forth in Section
2.03 of the Company Disclosure Schedule, no change in such capitalization has
occurred as of the date hereof, except for changes resulting from the exercise
of Company Options (included in (v) above) in an aggregate amount of not more
than 1,097,037 shares of Company Common Stock, the issuance pursuant to the
Company's Employee Stock Purchase Plan of not more than 200,000 shares of
Company Common Stock (included in (vi) above) or the vesting pursuant to the
Company's Restricted Stock Plan of not more than 9,824 shares of Company Common
Stock (included in (vii) above). Except as set forth in Section 2.01, this
Section 2.03 or Section 2.11 or Section 2.03 or Section 2.11 of the Company
Disclosure Schedule or for rights granted pursuant to the Company's Rights
Agreement (as defined in Section 2.22), there are no options, warrants or other
rights, agreements, arrangements or commitments of any character binding on the
Company or any of its subsidiaries relating to the issued or unissued capital
stock of, or other equity interests in, the Company or any of its subsidiaries
or obligating the Company or any of its subsidiaries to issue or sell any shares
of capital stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in Section
2.03 of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or the capital stock of any
subsidiary. Except as set forth in Section 2.01 or 2.03 of the Company
Disclosure Schedule, and other than intercompany loans in the ordinary course of
business between the Company and any of its subsidiaries or between any such
subsidiaries, there are no obligations, contingent or otherwise, of the Company
or any of its subsidiaries to make any investment (in the form of a loan,
capital contribution or otherwise) in any such subsidiary or any other entity
other than guarantees of bank obligations of subsidiaries entered into in the
ordinary course of business and other obligations not exceeding, in the
aggregate, $1,000,000. Except as set forth in Section 2.01 or 2.03 of the
Company Disclosure Schedule, all of the outstanding shares of capital stock
(other than directors' qualifying shares identified as such in Section 2.03 of
the Company Disclosure Schedule) of, or other equity interests in, each of the
Company's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and all such shares (other than such directors' qualifying
shares), or other equity interests, are owned by the Company or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever, except, in the case of any subsidiaries
of the Company other than Company Significant Subsidiaries, for items which
would not reduce the Company's equity interest therein and would not,
individually or in the aggregate, have a Material Adverse Effect.
Section 2.04. Authority Relative to This Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and, subject in the case of consummation of the Merger to obtaining the Company
Stockholder Approval (as defined in Section 5.02), to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the approval of the
Merger and the adoption of this Agreement by the Company's stockholders in
accordance with the DGCL and the filing and recording of appropriate merger
documents consistent with this Agreement as required by the DGCL). As of the
date hereof, the Board of Directors of the Company has declared that it is
advisable and in the best interests of the Company's stockholders for the
Company to enter into this Agreement and to consummate the Merger upon the terms
and subject to the conditions of this Agreement. This Agreement has been
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duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub of this
Agreement, constitutes a legal, valid and binding obligation of the Company.
Section 2.05. Material Contracts; No Conflict; Required Filings and
Consents.
(a) Section 2.05 of the Company Disclosure Schedule includes, as of
the date hereof, a list of (i) all loan agreements, indentures, mortgages,
pledges, conditional sale or title retention agreements, security
agreements, guaranties, standby letters of credit (as to which the Company
or any subsidiary is the responsible party), equipment leases or lease
purchase agreements, each in an amount exceeding, individually or in the
aggregate as to any related items due to the same party or relating to the
same transactions, $1,000,000, to which the Company or any of its
subsidiaries is a party or by which any of them is bound; (ii) all other
contracts, agreements, commitments or other understandings or arrangements
to which the Company or any of its subsidiaries is a party or by which any
of them or any of their respective properties or assets are bound or
affected, but excluding contracts, agreements, commitments or other
understandings or arrangements involving, in the case of any such contract,
agreement, commitment, or other understanding or arrangement, payments or
receipts by the Company or any of its subsidiaries, individually or in the
aggregate as to any related items due to the same party or relating to the
same transactions, of less than $1,000,000 and (iii) all agreements which
are required to be filed as "material contracts" with the United States
Securities and Exchange Commission ("SEC") pursuant to the requirements of
the United States Securities Exchange Act of 1934, as amended, and the
SEC's rules and regulations thereunder (the "Exchange Act") but have not
been so filed with the SEC.
(b) Except as set forth in Section 2.05 of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, subject
as to consummation of the Merger to the obtaining of the Company
Stockholder Approval, and the taking of the actions described in clause (c)
of this Section, (i) conflict with or violate the Company's Charter
Documents or the Subsidiary Documents, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which any of their respective properties
is bound or affected or (iii) result in any breach of, or constitute a
default (or an event that with notice or lapse of time or both would become
a default) or impair the Company's or any of its subsidiaries' rights or
alter the rights or obligations of any third party under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on (including a right to
purchase) any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties is bound or affected, except, in the case of clause (ii) or
(iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, have a
Material Adverse Effect.
(c) Except as set forth in Section 2.05 of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any United States or foreign governmental or regulatory
authority (each, a "Governmental Authority"), except (i) for applicable
requirements, if any, of the Exchange Act, the pre-merger notification
requirements of the United States Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder (the "HSR
Act"), filings and consents under any applicable foreign laws intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade ("Non-U.S. Monopoly Laws"), and the
filing and recordation of appropriate merger or other documents as required
by the DGCL, and (ii) where
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the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not prevent or materially
delay consummation of the Merger, or otherwise prevent or materially delay
the Company from performing its material obligations under this Agreement
or prevent or materially delay Parent from realizing substantially all of
the benefits of this Agreement, and would not otherwise, individually or in
the aggregate, have a Material Adverse Effect.
Section 2.06. Compliance; Permits.
(a) Except as disclosed in Section 2.06 of the Company Disclosure
Schedule or the Company's periodic filings under the Exchange Act, from
December 31, 1998 through the date of this Agreement (as such documents
have since the time of filing been amended or supplemented, collectively,
the "Company SEC Reports"), neither the Company nor any of its subsidiaries
is in conflict with, or in default or violation of, (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which any of their respective properties is bound or
affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their respective properties is
bound or affected, except for any such conflicts, defaults or violations
which would not, individually or in the aggregate, have a Material Adverse
Effect.
(b) Except as disclosed in Section 2.06 of the Company Disclosure
Schedule or the Company SEC Reports, the Company and its subsidiaries hold
all permits, licenses, easements, variances, exemptions, consents,
certificates, orders and approvals from Governmental Authorities which are
material to the operation of the business of the Company or any of its
subsidiaries, as it is now being conducted (collectively, the "Company
Permits"), except where the failure to hold such Company Permits would not,
individually or in the aggregate, have a Material Adverse Effect. The
Company and its subsidiaries are in compliance with the terms of the
Company Permits, except as described in the Company SEC Reports or where
the failure to so comply would not, individually or in the aggregate, have
a Material Adverse Effect.
Section 2.07. SEC Filings; Financial Statements.
(a) The Company has filed all Company SEC Reports. Except as disclosed
in Section 2.07 of the Company Disclosure Schedule, as of their respective
dates, the Company SEC Reports (i) complied as to form in all material
respects with the requirements of the United States Securities Act of 1933,
as amended, and the SEC's rules and regulations thereunder (the "Securities
Act") or the Exchange Act, as the case may be, and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or in the Company
SEC Reports), and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries as at
the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
Section 2.08. Absence of Certain Changes or Events. Except as set forth
in Section 2.08 and Section 4.01 of the Company Disclosure Schedule or the
Company SEC Reports, since December 31,
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1999, the Company and each of its subsidiaries has conducted its business in the
ordinary course, and: (i) there has not occurred any change, effect or
circumstance constituting, individually or in the aggregate, a Material Adverse
Effect; and (ii) neither the Company nor any if its subsidiaries has taken any
action which, if taken after the date of this Agreement, would constitute a
breach of any provision of Section 4.01.
Section 2.09. No Undisclosed Liabilities. Except as set forth in Section
2.09 of the Company Disclosure Schedule or the Company SEC Reports, neither the
Company nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (a) in the aggregate adequately
provided for in the Company's balance sheet (including any related notes
thereto) as of December 31, 1999 included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999 (the "1999 Company Balance Sheet"),
(b) incurred in the ordinary course of business and not required under GAAP to
be reflected on the 1999 Company Balance Sheet (including the notes thereto),
(c) incurred since December 31, 1999 in the ordinary course of business, (d)
specifically contemplated by this Agreement or (e) not otherwise excepted by
clauses (a) through (d), inclusive, which otherwise non-excepted liabilities
would not, individually or in the aggregate, have a Material Adverse Effect.
Section 2.10. Absence of Litigation. Except as set forth in Section 2.10
and Section 2.19 of the Company Disclosure Schedule or the Company SEC Reports,
there are no claims, actions, suits, proceedings or investigations pending or,
to the best knowledge of the Company, threatened against the Company or any of
its subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative body or
Governmental Authority, that would, individually or in the aggregate, have a
Material Adverse Effect.
Section 2.11. Employee Benefit Plans; Employment Agreements.
(a) Section 2.11 of the Company Disclosure Schedule lists all "Pension
Plans" (as defined in Section 3(2) of the United States Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all employee welfare
benefit plans (as defined in Section 3(1) of ERISA), and all other bonus,
stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance and other similar fringe or employee
benefit plans, policies, programs, agreements or arrangements (including
those which contain change of control or pending change of control or
similar provisions), written or otherwise, as amended, modified or
supplemented, for the benefit of, or relating to, any former or current
employee, officer, director or consultant (or any of their beneficiaries)
of the Company or any subsidiary of the Company, as well as each plan with
respect to which the Company, a subsidiary or any other entity (whether or
not incorporated) which is a member of a controlled group, including the
Company, or which is under common control with the Company within the
meaning of Section 414(b), (c), (m) or (o) of the Code or Section
4001(a)(14) or (b) of ERISA (a "Company ERISA Affiliate") could incur
liability under Section 4980B of the Code or Part 6 of Subtitle B of Title
I of ERISA (hereinafter, "COBRA"), Title IV of ERISA or Section 412 of the
Code (together, for the purposes of this Section 2.11, the "Company
Employee Plans") that are maintained in the United States (the "U.S.") or
cover primarily U.S. employees. Section 2.11 of the Company Disclosure
Schedule lists all Company Employee Plans maintained outside the U.S. and
covering primarily non-U.S. employees (each, a "Non-U.S. Company Plan"),
provided that any such plan, agreement or arrangement described in Section
2.11(d) of this Agreement shall be listed only if it is (x) an employment
agreement with any of the three most highly compensated officers or
employees of the Company or any subsidiary having an annual salary in
excess of $100,000, (y) a plan, program, agreement, policy or arrangement
of the Company which contains one or more change-in-control provisions
which could result in an increase in the amount of compensation or benefits
or accelerate the vesting or timing of payment of any benefits or
compensation payable in respect of any non-U.S. Company employee or (z) a
severance
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plan, program, policy or agreement which provides nonstatutory benefits.
The Company has made available for inspection by Parent prior to the date
of this Agreement, copies of (i) each written Company Employee Plan (or a
written description of any Company Employee Plan which is not written) and
all related trust agreements, insurance and other contracts (including
policies), summary plan descriptions, summaries of material modifications
and communications distributed to plan participants that are inconsistent
with any Company Employee Plan or any provision under any Company Employee
Plan or which could result in any additional liability to the Company or
such plan (including, but not limited to, any communications that have not
expressly reserved the right of the Company to amend, terminate or
otherwise modify any Company Employee Plan), (ii) the three most recent
annual reports on Form 5500 series, with accompanying schedules and
attachments, filed with respect to each Company Employee Plan required to
make such a filing, (iii) the most recent actuarial valuation for each
Company Employee Plan subject to Title IV of ERISA, (iv) the latest reports
which have been filed with the Department of Labor with respect to each
Company Employee Plan required to make such filing or that is required to
exempt any Company Employee Plan from filing a Form 5500 series annual
report and (v) the most recent favorable determination letters issued for
each Company Employee Plan and related trust which is intended to be
qualified under Section 401(a) of the Code (and, if an application for such
determination is pending, a copy of the application for such
determination).
(b) (i) Except as set forth in Section 2.11 of the Company Disclosure
Schedule, none of the Company Employee Plans promises or provides medical
or life insurance benefits to any director, officer, employee or consultant
(or any of their beneficiaries) after their service with the Company
terminates, other than as required by COBRA, or any similar state laws;
(ii) none of the Company Employee Plans is a "multiemployer plan" within
the meaning of Section 3(37) of ERISA or Section 414(f) of the Code or a
"multiple employer plan" within the meaning of Section 3(40) of ERISA or
Section 413(c) of the Code nor is a member of a "multiple employer welfare
arrangement" as defined in Section 3(40) of ERISA; (iii) none of the
Company Employee Plans is or was subject to Title IV of ERISA or the
funding provisions of Section 412 of the Code; (iv) no party in interest or
disqualified person (as defined in Section 3(14) of ERISA and Section 4975
of the Code) has at any time engaged in a transaction with respect to any
Company Employee Plan which could subject the Company or any Company ERISA
Affiliate, directly or indirectly, to a tax, penalty or other material
liability for prohibited transactions under ERISA or Section 4975 of the
Code; (v) no fiduciary of any Company Employee Plan has breached any of the
responsibilities or obligations imposed upon fiduciaries under Title I of
ERISA, which breach would have a Material Adverse Effect; (vi) all Company
Employee Plans have been established and maintained in accordance with
their terms and have operated in compliance in all material respects with
the requirements of applicable law (including, but not limited to, the
applicable notification and other requirements of COBRA, the Health
Insurance Portability and Accountability Act of 1996, the Newborns' and
Mothers' Health Protection Act of 1996, the Mental Health Parity Act of
1996, and the Women's Health and Cancer Rights Act of 1998), and may by
their terms be amended and/or terminated at any time subject to applicable
law and to any requirements relating to the payment of accrued benefits in
accordance with the terms thereof, and the Company and each of its
subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under
or violation of, and have no knowledge of any material default or violation
by any other party to, any of the Company Employee Plans; (vii) each
Company Employee Plan which is intended to be qualified under Section
401(a) of the Code is the subject of a favorable determination letter from
the United States Internal Revenue Service (the "IRS"), and, to the
Company's knowledge, nothing has occurred which could reasonably be
expected to impair such determination or qualification; (viii) all
contributions required to be made with respect to any Company Employee Plan
(pursuant to the terms of such plan, any collective bargaining agreement or
otherwise pursuant to applicable law) have been made on or before their due
dates (including any
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extensions thereof); (ix) no filing or application has been made with
respect to any Company Employee Plan relating to any voluntary compliance
resolution program or closing agreement program; (x) none of the Company,
any Company ERISA Affiliate or any subsidiary thereof has incurred or
reasonably expects to incur any material liability under Title IV of ERISA
including, without limitation, with respect to an event described in
Section 4062, 4063 or 4041 of ERISA (other than liability for premium
payments to the Pension Benefit Guaranty Corporation (the "PBGC") arising
in the ordinary course); (x) other than routine claims for benefits made in
the ordinary course of the operation of the Company Employee Plans, there
are no material pending, nor to the Company's knowledge threatened, claims,
investigations or causes of action with respect to any Company Employee
Plan, whether made by a participant or beneficiary of such a plan, a
governmental agency or otherwise, against the Company, any Company
director, officer or employee, any Company Employee Plan or any fiduciary
of a Company Employee Plan.
(c) Section 2.11 of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director
of the Company or any of its subsidiaries who holds, as of the close of
business on May 2, 2000, (i) any option to purchase Company Common Stock as
of the date hereof, together with the number of shares of Company Common
Stock subject to such option, the exercise price of such option (to the
extent determined as of the date hereof), whether such option is intended
to qualify as an incentive stock option within the meaning of Section
422(b) of the Code (an "ISO"), and the expiration date of such option; (ii)
any shares of Company Common Stock that are restricted; and (iii) any other
right, directly or indirectly, to receive Company Common Stock, together
with the number of shares of Company Common Stock subject to such right. No
option to purchase Company Common Stock has been granted between May 2,
2000 and the date of this Agreement.
(d) Section 2.11 of the Company Disclosure Schedule sets forth a true
and complete list of (i) all employment agreements with officers or
employees of the Company or any of its subsidiaries involving an annual
salary in excess of $100,000 who perform services in the U.S., other than
any offer letter or similar agreement that does not alter the at-will
nature of the individual's employment with the Company or any subsidiary;
(ii) all agreements with consultants who are former employees or directors
involving annual payments in excess of $75,000, (iii) all agreements with
respect to the services of independent contractors performing personal
services for the Company or its subsidiaries or leased employees, whether
or not they participate in any of the Company Employee Plans involving
annual payments in excess of $75,000, (iv) all severance agreements,
programs and policies of the Company or any of its subsidiaries with or
relating to its employees and under which there is a current or contingent
obligation with the exception of statutory plans maintained outside the
U.S.; and (v) all plans, programs, agreements and other arrangements of the
Company which contain change of control provisions providing any benefits
to any employees, directors or independent contractors of the Company or
any of its subsidiaries who perform services primarily in the United
States. All agreements described in this Section 2.11(d) have been made
available for inspection by Parent prior to the date of this Agreement; to
the extent any such agreement has been entered into by the Company and one
or more individuals pursuant to one or more standard forms, the Company may
make available one example of each such standard form, together with a
schedule specifying each individual who has entered into an agreement with
the Company using such standard form, the expiration date of the agreement
and any material non-standardized terms included in the agreement.
(e) Except as set forth in Section 2.11 of the Company Disclosure
Schedule, (i) the Company does not and has never maintained an employee
stock ownership plan (within the meaning of Section 4975(e)(7) of the Code)
or, any other Company Employee Plan that invests in, provides for
investment in or provides benefits in or by reference to the value of
Company stock; and (ii) since December 31, 1999, the Company has not
proposed nor agreed to any material increase in benefits under any Company
Employee Plan (or the creation of material new benefits) or change in
employee
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coverage which would materially increase the expense of maintaining any
Company Employee Plan other than in the renewal of any insured employee
welfare plans in the ordinary course of business.
(f) Except pursuant to those plans, programs, agreements or other
arrangements listed in Section 2.11 of the Company Disclosure Schedule,
neither the execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement, either alone or in combination
with another event, will result in (i) any payment (including, without
limitation, severance, unemployment compensation, golden parachute or bonus
payments or otherwise) becoming due to any current or former director,
officer, employee or consultant of the Company, (ii) any increase in the
amount of compensation or benefits payable in respect of any director,
officer, employee or consultant of the Company, (iii) accelerate the
vesting or timing of payment of any benefits or compensation payable in
respect of any current or former director, officer, employee or consultant
of the Company, or (iv) result in any "parachute payment" under Section
280G of the Code, whether or not such amount may be considered reasonable
compensation for personal services rendered.
(g) To the best knowledge of the Company, each Non-U.S. Company Plan
has been maintained in compliance with its terms and with the requirements
prescribed by any and all applicable laws (including any special provisions
relating to registered or qualified plans where such Non-U.S. Company Plan
was intended to so qualify) and has been maintained in good standing with
applicable regulatory authorities. To the best knowledge of the Company,
except as set forth in Section 2.11 of the Company Disclosure Schedule,
each Non-U.S. Company Plan which is required by contract or under
applicable local law to be funded has been funded at least to the extent so
required; if and to the extent any Non-U.S. Company Plan is not funded, the
obligations under such Non-U.S. Company Plan are reflected on the books and
records of the entity maintaining the plan and on the consolidated
financial statements of the Company.
Section 2.12. Employment and Labor Matters.
Except as disclosed in Section 2.12 of the Company Disclosure Schedule:
(a) The Company and its subsidiaries have, as of the date hereof,
approximately 1,600 employees and the Company believes they have generally
good relationships with such employees.
(b) The Company believes it is in substantial compliance with all
applicable laws (including any legal obligation to engage in affirmative
action), agreements and contracts relating to employment practices, terms
and conditions of employment, and the employment of former, current, and
prospective employees, independent contractors and "leased employees"
(within the meaning of section 414(n) of the Code) of the Company or its
subsidiaries, or employees of any other entity with respect to whom the
Company or its subsidiaries have any responsibility under the
"joint-employer doctrine" or any similar rule of law. The Company believes
that the Company and its subsidiaries are not engaged in any unfair labor
practice.
(c) (i) No collective bargaining agreement with respect to the
business of the Company or its subsidiaries is currently in effect or being
negotiated, (ii) to the best knowledge of the Company, the Company and its
subsidiaries have no obligation to negotiate any other collective
bargaining agreement, and, (iii) to the best knowledge of the Company,
there is no indication that the employees not covered by such an agreement
of the Company or its subsidiaries desire to be covered by a collective
bargaining agreement.
(d) No strike or material slowdown or work stoppage has occurred or,
to the best knowledge of the Company, been threatened with respect to the
employees of the Company or its subsidiaries, nor, to the best knowledge of
the Company, has any such strike or material slowdown or work stoppage
occurred or been threatened within two years prior to the date hereof.
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(e) There is no representation claim or petition pending before the
United States National Labor Relations Board or any similar foreign, state
or local labor agency of which the Company has been notified and, to the
best knowledge of the Company, no question concerning representation has
been raised or threatened respecting the employees of the Company or its
subsidiaries.
(f) No notice has been received by the Company of any complaint filed
against the Company or its subsidiaries claiming that the Company or its
subsidiaries have violated in any material respect any applicable
employment standards, human rights or other labor legislation or any
complaints or proceedings of any kind involving the Company or its
subsidiaries or, to the knowledge of the Company, against any of the
employees of the Company or threatened to be filed against the Company or
its subsidiaries before any federal, state, local or foreign agency or
labor relations board, including without limitation the National Labor
Relations Board and the Equal Employment Opportunity Commission. No notice
has been received by the Company of the intent of any federal, state, local
or foreign agency responsible for the enforcement of labor or employment
laws to conduct an investigation of the Company or its subsidiaries, and,
to the knowledge of the Company, no such investigation is in progress.
(g) There are no outstanding material orders or charges against the
Company or, to the best knowledge of the Company, any of its subsidiaries,
under any occupational health or safety legislation and to the best
knowledge of the Company none have been threatened. All material levies,
assessments and penalties made against the Company or, to the best
knowledge of the Company, any of its subsidiaries, pursuant to all
applicable workers compensation legislation as of the date of the Balance
Sheet have been paid or have been reserved for or properly accrued on the
books of the Company and the Company has not, as of the Closing Date, been
reassessed under any such legislation. Except as set forth in Section 2.12
of the Company Disclosure Schedule, there are no outstanding material
levies, assessments or penalties against the Company or, to the best
knowledge of the Company, any of its subsidiaries.
(h) Section 2.12 of the Company Disclosure Schedule accurately sets
forth all unpaid severance or continuing payments of any kind (other than
pursuant to a plan or program described in Section 4.11 hereof) in excess
of $75,000 which, as of the date of this Agreement, are due or claimed in
writing to be due from the Company or any subsidiary to any person whose
employment with the Company or any subsidiary was terminated.
(i) The Company has made no binding commitments to any employees of
the Company or its subsidiaries regarding continued employment of such
employees subsequent to the date hereof or the Closing Date.
(j) To the best knowledge of the Company, no contractor, manufacturer
or supplier used by or under contract with the Company or any subsidiary is
in material violation of any law relating to labor or employment matters
which could reasonably result in liability on the part of the Company or
any subsidiary.
Section 2.13. Proxy Statement. The information supplied by the Company in
writing specifically for inclusion in the proxy statement to be sent to the
stockholders of the Company in connection with the meeting of the stockholders
of the Company to consider the Merger (the "Company Stockholders Meeting") (such
proxy statement as amended or supplemented being referred to herein as the
"Proxy Statement") will not, on the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to stockholders or at the time of
the Company Stockholders Meeting, contain any statement which, at such time and
in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company
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Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in a supplement to the Proxy Statement, the Company shall
promptly inform Parent and Merger Sub. The Proxy Statement shall comply as to
form in all material respects with the requirements of the Exchange Act.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by or on behalf of Parent or Merger Sub
in writing for inclusion in the Proxy Statement or any information incorporated
by reference therein from documents filed by Parent or any of its subsidiaries
with the SEC.
Section 2.14. Restrictions on Business Activities. Except as set forth in
Section 2.14 of the Company Disclosure Schedule or the Company SEC Reports,
there is no agreement, judgment, injunction, order or decree binding upon the
Company or any of its subsidiaries which has or could reasonably be expected to
have the effect of prohibiting or impairing the conduct of business by the
Company or any of its subsidiaries as currently conducted by the Company or such
subsidiary, except for any prohibition or impairment as would not, individually
or in the aggregate, have a Material Adverse Effect.
Section 2.15. Title to Property. Except as set forth in Section 2.15 of
the Company Disclosure Schedule or the Company SEC Reports, the Company and each
of its subsidiaries have good title to or have valid leasehold interests in or
valid rights under contract to use all of the real properties and other assets,
individually or in the aggregate, material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, free and clear of all liens,
charges and encumbrances, except liens for taxes not yet due and payable and
such liens or other imperfections of title, if any, as do not materially detract
from the value of or interfere with the present use of the property affected
thereby or which would not, individually or in the aggregate, have a Material
Adverse Effect, and except for liens which secure indebtedness reflected in the
1999 Company Balance Sheet; and all leases pursuant to which the Company or any
of its subsidiaries lease from others any real or personal property, are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default), on the part of the Company or any of its subsidiaries or, to the best
knowledge of the Company, any third party, except where the lack of such good
standing, validity and effectiveness or the existence of such default or event
of default would not, individually or in the aggregate, have a Material Adverse
Effect.
Section 2.16. Taxes.
(a) The Company and each of its subsidiaries has timely filed, or
caused to be timely filed, all material Tax Returns (as hereinafter
defined) required to be filed by it, and has paid, collected or withheld,
or caused to be paid, collected or withheld, all material amounts of Taxes
(as hereinafter defined) shown as payable thereon, other than such Taxes
for which adequate reserves in the 1999 Company Balance Sheet have been
established which are being contested in good faith by appropriate
procedures. Except as set forth in Section 2.16 of the Company Disclosure
Schedule, there are no material claims or assessments pending against the
Company or any of its subsidiaries for any alleged deficiency in any Tax,
there are no pending or threatened audits or investigations for or relating
to any liability in respect of any Taxes, and the Company has not been
notified of any proposed Tax claims or assessments against the Company or
any of its subsidiaries (other than in each case, claims or assessments for
which adequate reserves in the 1999 Company Balance Sheet have been
established which are being contested in good faith).
(b) For purposes of this Agreement, the term "Tax" shall mean any
United States or non-United States federal, national, state, provincial,
local or other jurisdictional income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, alternative or add-on
minimum, ad valorem, transfer or excise tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge imposed by any
Governmental Authority, together with any interest or penalty
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imposed thereon. The term "Tax Return" shall mean a report, return or other
information (including any attached schedules or any amendments to such
report, return or other information) required to be supplied to or filed
with a Governmental Authority with respect to any Tax, including an
information return, claim for refund, amended return or declaration or
estimated Tax.
(c) Except as set forth in Section 2.16 of the Company Disclosure
Schedule, other than with respect to the Company and its subsidiaries,
neither the Company nor any of its subsidiaries is liable for Taxes of any
other person, or is currently under any contractual obligation to indemnify
any person with respect to Taxes (except for customary agreements to
indemnify lessors, lenders or security holders pursuant to agreements
disclosed elsewhere in the Company Disclosure Schedule), or is a party to
any tax sharing agreement or any other agreement providing for payments by
the Company or any of its subsidiaries with respect to Taxes. Except as set
forth in Section 2.16 of the Company Disclosure Schedule, there are no
outstanding powers of attorney enabling any party to represent the Company
or any subsidiary with respect to tax matters.
Section 2.17. Environmental Matters.
(a) Except as set forth in Section 2.17 of the Company Disclosure
Schedule or the Company SEC Reports or as would not, individually or in the
aggregate, have a Material Adverse Effect, the operations and properties of
the Company and its subsidiaries are in compliance with all Environmental
Laws (as hereinafter defined), which compliance includes the possession by
the Company and its subsidiaries of all permits and governmental
authorizations required under applicable Environmental Laws, and compliance
with the terms and conditions thereof.
(b) Except as set forth in Section 2.17 of the Company Disclosure
Schedule or the Company SEC Reports or as would not, individually or in the
aggregate, have a Material Adverse Effect, there are no Environmental
Claims (as hereinafter defined), pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries or
against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has expressly retained or assumed.
(c) Except as set forth in Section 2.17 of the Company Disclosure
Schedule or the Company SEC Reports to the best knowledge of the Company,
there are no past or present actions, activities, circumstances,
conditions, events or incidents, including the release, emission,
discharge, presence or disposal of any Materials of Environmental Concern
(as hereinafter defined), that are reasonably likely to form the basis of
any Environmental Claim against the Company or any of its subsidiaries or
against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries have expressly retained or assumed,
except for such Environmental Claims that would not, individually or in the
aggregate, have a Material Adverse Effect.
(d) Except as set forth in Section 2.17 of the Company Disclosure
Schedule or the Company SEC Reports to the best knowledge of the Company,
(i) there are no off-site locations where the Company or any of its
subsidiaries has stored, disposed or arranged for the disposal of Materials
of Environmental Concern which have been listed on the United States
National Priority List (the "National Priorities List") or any state
Superfund site list, and the Company and its subsidiaries have not been
notified or become aware that any of them may be potentially responsible
party at any such location, and (ii) except as would not, individually or
in the aggregate, have a Material Adverse Effect, (A) there are no
underground storage tanks located on property owned or leased by the
Company or any of its subsidiaries, (B) there is no material containing
friable asbestos contained in or forming part of any building, building
component, structure or office space owned, leased or operated by the
Company or any of its subsidiaries and (C) there are no polychlorinated
biphenyls ("PCBs") or PCB-containing items contained in or forming part of
any building, building component, structure or office space owned, leased
or operated by the Company or any of its subsidiaries.
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(e) For purposes of this Agreement:
(i) "Environmental Claim" means any claim, allegation, accusation,
action, cause of action, investigation or written notice by any person
or entity alleging potential liability (including potential liability
for investigatory costs, cleanup costs, response costs incurred by any
Governmental Authority or other person, natural resources damages,
property damages, personal injuries or penalties) arising out of, based
on or resulting from the presence, or release into the environment, of
any Material of Environmental Concern at any location, whether or not
owned or operated by the Company or any of its subsidiaries.
(ii) "Environmental Laws" means all United States and non-United
States federal, national, state, provincial, local or other
jurisdictional laws, regulations, codes and ordinances relating to
pollution or protection of human health and the environment (including
ambient air, surface water, ground water, land surface or sub-surface
strata), including laws and regulations relating to emissions,
discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern, including, but not
limited to, the United States Comprehensive Environmental Response
Compensation and Liability Act 42 U.S.C.sec.9601 et seq., the United
States Resource Conservation and Recovery Act 42 U.S.C.sec.6901 et seq.,
the United States Toxic Substances Control Act 15 U.S.C.sec.2601 et
seq., the United States Occupational Safety and Health Act 29
U.S.C.sec.651 et seq., the United States Clean Air Act 42 U.S.C.sec.7401
et seq., the United States Clean Water Act 33 U.S.C.sec.1251 et seq.,
Proposition 65, as codified in the California Health and Safety
Codesec.25249.5 et seq., and any other analogous state laws, each as
amended or supplemented, and any applicable transfer statutes or laws.
(iii) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, hazardous materials, hazardous substances and
hazardous wastes, medical waste, toxic substances, petroleum and
petroleum products, asbestos-containing materials, polychlorinated
biphenyls, and any other chemicals, pollutants or substances regulated
under any Environmental Law.
Section 2.18. Brokers. Except as set forth in Section 2.18 of the Company
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of its stockholders.
Section 2.19. Intellectual Property.
(a) As used herein, the term "Intellectual Property Assets" shall mean
all worldwide intellectual property rights, including, without limitation,
patents, trademarks, service marks and copyrights, and registrations and
applications therefor, trade names, common law marks, know-how, trade
secrets, computer software programs and proprietary information. As used
herein, "Company Intellectual Property Assets" shall mean the Intellectual
Property Assets used or owned by the Company or any of its subsidiaries.
(b) Except as set forth in Section 2.19 of the Company Disclosure
Schedule, the Company and each of its subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use, all Intellectual
Property Assets that are material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, as currently conducted,
without conflict with the rights of others, except for conflicts, if any,
which would not, individually or in the aggregate, have a Material Adverse
Effect.
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(c) Except as set forth in Section 2.19 of the Company Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect, no claims (i) are currently pending or, to the best
knowledge of the Company, are threatened by any person with respect to the
Company Intellectual Property Assets or (ii) are, to the best knowledge of
the Company, currently pending or threatened by any person with respect to
the Intellectual Property Assets of a third party (the "Third Party
Intellectual Property Assets") to the extent arising out of any use,
reproduction or distribution of such Third Party Intellectual Property
Assets by or through the Company or any of its subsidiaries.
(d) Except as set forth in Section 2.19 of the Company Disclosure
Schedule or as would not have a Material Adverse Effect, neither the
Company nor any of its subsidiaries knows of any valid grounds for any bona
fide claim to the effect that the manufacture, sale or licensing or use of
any product or service now used, sold or licensed or proposed for use, sale
or license by the Company or any of its subsidiaries infringes on any Third
Party Intellectual Property Assets.
(e) Section 2.19 of the Company Disclosure Schedule sets forth a list
of (i) all material patents and patent applications owned by the Company or
any of its subsidiaries worldwide; (ii) all material trademark and service
mark registrations and all trademark and service mark applications; (iii)
material common law trademarks, material trade dress and material slogans,
and all material trade names owned by the Company or any of its
subsidiaries worldwide; (iv) all material copyright registrations and
copyright applications owned by the Company or any of its subsidiaries
worldwide; and (v) all material licenses owned by the Company or any of its
subsidiaries in which the Company or such subsidiary is (A) a licensor with
respect to any of the patents, trademarks, service marks, trade names or
copyrights listed in Section 2.19 of the Company Disclosure Schedule or (B)
a licensee of any other person's patents, trade names, trademarks, service
marks or copyrights material to the Company except for any licenses of
software programs that are commercially available "off the shelf." Except
as disclosed in Section 2.19 of the Company Disclosure Schedule, the
Company and each of its subsidiaries has made all necessary filings and
recordations to protect and maintain its interest in the patents, patent
applications, trademark and service mark registrations, trademark and
service mark applications, copyright registrations and copyright
applications and licenses material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, except where the failure to
so protect or maintain would not, individually or in the aggregate, have a
Material Adverse Effect.
(f) To the best knowledge of the Company, except as set forth in
Section 2.19 of the Company Disclosure Schedule or the Company SEC Reports:
(i) each material patent, patent application, trademark or service mark
registration, trademark or service mark application, copyright registration
and copyright application of the Company and each of its subsidiaries is
valid and subsisting and (ii) each material license of Company Intellectual
Property Assets is to the best knowledge of the Company valid, subsisting
and enforceable.
(g) To the best knowledge of the Company, except as set forth in
Section 2.19 of the Company Disclosure Schedule, to the Company's
knowledge, there is no unauthorized use, infringement or misappropriation
of any of the Company's Intellectual Property Assets by any third party,
including any employee, former employee, independent contractor or
consultant of the Company or any of its subsidiaries which could reasonably
be expected, individually or in the aggregate, to result in a Material
Adverse Effect.
(h) Except as set forth in Section 2.19 of the Company Disclosure
Schedule, the disclosure under the heading "Impact of Year 2000" contained
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999 is accurate as of the date hereof in all material respects.
Section 2.20. Interested Party Transactions. Except as set forth in
Section 2.20 of the Company Disclosure Schedule or the Company SEC Reports,
since the Company's proxy statement dated April 19,
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2000, no event has occurred that would be required to be reported as a Certain
Relationship or Related Transaction pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 2.21. Opinion of Financial Advisor. The Board of Directors of the
Company has received an opinion of its financial advisor, Salomon Smith Barney
Inc., to the effect that, as of the date of this Agreement, the Per Share Amount
to be received in the Merger by the holders of Shares is fair to such holders
from a financial point of view.
Section 2.22. Rights Agreement. The Board of Directors of the Company has
authorized and approved an amendment to the Rights Agreement between the Company
and First Union National Bank, dated as of July 10, 1997, amended as of October
15, 1999 (the "Rights Agreement"), in the form set forth in Section 2.22 of the
Company Disclosure Schedule. The Company and the Rights Agent (as defined in the
Rights Agreement) shall execute such amendment to the Rights Agreement prior to
the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company as follows:
Section 3.01. Organization and Qualification; Subsidiaries. Each of
Parent and Merger Sub is an entity duly organized and validly existing under the
laws of the jurisdiction of its incorporation and has the requisite corporate or
other power and authority necessary to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to be so organized and existing or to
have such power or authority could not reasonably be expected to have a Material
Adverse Effect. Each of Parent and its subsidiaries is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that could not reasonably be expected to have a
Material Adverse Effect.
Section 3.02. Authority Relative to This Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement, as applicable, and to perform its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement or to consummate the transactions
so contemplated. The Board of Directors of Parent has determined that it is
advisable and in the best interests of Parent's stockholders for Parent to enter
into this Agreement, and for Parent to consummate the Merger upon the terms and
subject to the conditions of this Agreement. This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub, and, assuming due
authorization, execution and delivery by the Company, constitutes the legal,
valid and binding obligation of Parent and Merger Sub.
Section 3.03. No Conflict. Except as set forth in Section 3.03 of the
Parent and Merger Sub Disclosure Schedule, the execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of this Agreement
by Parent and Merger Sub will not, (i) violate Parent or Merger Sub's
certificate of incorporation or by-laws (or equivalent organizational documents)
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent, Merger Sub or any of their subsidiaries or by which
any of their respective properties is bound or affected or (iii) result in any
breach
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of, or constitute a default (or an event that with notice or lapse of time or
both would become a default) or impair Parent, Merger Sub's or any of their
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on
(including a right to purchase) any of the properties or assets of Parent,
Merger Sub or any of their subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent, Merger Sub or any of their
subsidiaries is a party or by which Parent, Merger Sub or any of their
subsidiaries or any of their respective properties is bound or affected, except,
in the case of clause (ii) or (iii), for any such conflicts, violations,
breaches, defaults or other occurrences that would, individually or in the
aggregate, have a Material Adverse Effect.
Section 3.04. Absence of Litigation. There are no claims, actions, suits,
proceedings or investigations pending or, to the best knowledge of Parent or
Merger Sub, threatened against Parent, Merger Sub or any of their subsidiaries,
or any properties or rights of Parent, Merger Sub or any of their subsidiaries,
before any court, arbitrator or administrative body or Governmental Authority,
that would, individually or in the aggregate, have a material adverse effect on
the ability of Parent and Merger Sub to consummate the transactions contemplated
by this Agreement. Neither Parent nor Merger Sub is subject to any Order of any
Governmental or Regulatory Authority that would, individually or in the
aggregate have a material adverse effect on the ability of Parent and Merger Sub
to consummate the transactions contemplated by this Agreement.
Section 3.05. Parent Not an Interested Stockholder or an Acquiring
Person. Other than by reason of this Agreement or the transactions contemplated
hereby, to the best knowledge of Parent, neither Parent nor any of its
affiliates or associates (as such terms are defined in Section 203 of the DGCL)
is an "interested stockholder" (as such term is defined in Section 203 of the
DGCL), or an "Acquiring Person" as such term is defined in the Company Rights
Agreement.
Section 3.06. Proxy Statement. Subject to the accuracy of the
representations of the Company in Section 2.13, the information supplied by
Parent or Merger Sub in writing specifically for inclusion in the Proxy
Statement will not, on the date the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to stockholders or at the time of the
Company Stockholders Meeting, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Parent, Merger Sub or any of their
respective affiliates, officers or directors should be discovered by Parent or
Merger Sub which should be set forth in a supplement to the Proxy Statement,
Parent or Merger Sub will promptly inform the Company.
Section 3.07. Ownership of Merger Sub. Merger Sub is a direct, wholly
owned subsidiary of Parent.
Section 3.08. Solvency. The consummation by Parent and Merger Sub of the
transactions contemplated by this Agreement, including without limitation, the
entering into of any financing agreement which may be necessary in connection
therewith, will not render Parent or the Surviving Corporation insolvent or
unable to pay its obligations as they mature.
Section 3.09. Financing Arrangements.
(a) Parent has, on or prior to the date hereof, entered into a
commitment letter, in form furnished to the Company, pursuant to which the
issuer of such commitment has committed, subject to the conditions
contained in this Agreement and such letter and no other conditions, to
lend an
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aggregate of up to $440 million or more in cash to Parent for purposes of
financing the Merger and refinancing certain indebtedness of Parent or its
affiliates (the "Debt Financing").
(b) Parent has, on or prior to the date of this Agreement, entered
into one or more commitment letters, in form furnished to the Company,
pursuant to which the subscribers thereunder have, subject to the
conditions set forth in this Agreement and such letters and no other
conditions, agreed to make an equity investment in Parent in an aggregate
amount of $75 million in cash at the time of the Closing and to make an
equity investment in Parent in an aggregate amount of $35 million in cash
thereafter, in each case for the payment of certain indebtedness and other
obligations of Parent or its affiliates (the "Equity Investment" and
together with the Debt Financing, the "Financing").
(c) The Debt Financing is sufficient to pay the aggregate
consideration to the holders of Shares and Company Options as contemplated
by this Agreement and to make all other necessary payments of fees and
expenses required to be paid by Parent and Merger Sub in connection with
the transactions contemplated by this Agreement.
Section 3.10. Ownership of Shares. As of the date hereof, neither Parent
nor Merger Sub owns, beneficially or of record, any Shares.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.01. Conduct of Business by the Company Pending the Merger.
The Company covenants and agrees that, during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, unless Parent shall otherwise agree in writing
(which consent shall not be unreasonably withheld, delayed or conditioned), and
except as set forth in Section 4.01 of the Company Disclosure Schedule, the
Company shall conduct its business and shall cause the businesses of its
subsidiaries to be conducted only the ordinary course of business; and the
Company shall use reasonable commercial efforts to preserve substantially intact
in all material respects the business organization of the Company and its
subsidiaries, to keep available the services of the present key officers,
employees and consultants of the Company and its subsidiaries and to preserve
the present relationships of the Company and its subsidiaries with customers,
suppliers and other persons with which the Company or any of its subsidiaries
has significant business relations. By way of amplification and not limitation,
except as contemplated by this Agreement, neither the Company nor any of its
subsidiaries shall, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, and except as set forth in Section 4.01 of the Company
Disclosure Schedule, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent, which in the case of
clauses (c), (e), (g), (h) and (i), which will not be unreasonably withheld,
delayed or conditioned:
(a) amend or otherwise change the Company's Charter Documents or the
Subsidiary Documents except as contemplated by this Agreement;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of its
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) in the Company, any of its subsidiaries (except for (A)
the issuance of shares of Company Common Stock issuable pursuant to Company
Stock Options outstanding on the date hereof, (B) the issuance of shares of
Company Common Stock pursuant to any employer stock fund under any Company
Benefit Plan or the Company's Employee Stock Purchase Plan in accordance
with their respective terms as in effect on the date
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hereof, (C) the issuance of Company Stock Options in the ordinary course
and consistent with past practice and (D) the granting of Company Stock
Options pursuant to written offers of employment that were extended prior
to the date hereof);
(c) sell, pledge, dispose of or encumber any assets of the Company or
any of its subsidiaries (except for (i) sales of assets in the ordinary
course of business, (ii) dispositions of obsolete assets or assets no
longer useful to the Company in its business and (iii) sales of assets
which are not, individually or in the aggregate, material to the Company
and its subsidiaries, taken as a whole);
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly owned
subsidiary of the Company may declare and pay a dividend to its parent that
is not a cross-border dividend (except as provided in clause (ii) below),
(ii) declare or allow any subsidiary of the Company to declare cross-border
dividends, or make or allow any subsidiary of the Company to make
cross-border capital contributions, in an amount that exceed $250,000
individually or $500,000 in the aggregate; (iii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (iv) except as required by
the terms of any security as in effect on the date hereof, and except to
the extent necessary to effect any right of a grantee to have shares of
Company Common Stock withheld to meet minimum tax withholding obligations
in connection with any equity award under any Company Employee Plan that is
outstanding and in effect on the date of this Agreement, amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire, or permit any subsidiary to amend the terms or change
the period of exercisability of, purchase, repurchase, redeem or otherwise
acquire, any of its securities or any securities of its subsidiaries,
including, without limitation, shares of Company Common Stock, or any
option, warrant or right, directly or indirectly, to acquire any such
securities; or (v) settle, pay or discharge any claim, suit or other action
brought or threatened against the Company with respect to or arising out of
a stockholder's equity interest in the Company;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof, or any equity interest therein, other than those listed
on Section 4.01 of the Company Disclosure Schedule; (ii) incur any
indebtedness for borrowed money, except for borrowings and reborrowings
under the Company's or any of its subsidiaries' existing credit facilities
listed on Section 2.05 of the Company Disclosure Schedule and other
borrowings not in excess of $500,000 in the aggregate, or issue any debt
securities or assume, guarantee (other than guarantees of the Company's
subsidiaries entered into in the ordinary course of business) or endorse,
or otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except in any such case in the
ordinary course of business; (iii) authorize any capital expenditures or
purchases of fixed assets other than pursuant to the Company's existing
capital expenditures budget, a copy of which has been delivered to Parent,
except for capital expenditures or purchases which are, in the aggregate,
not in excess of $1,000,000, and except for the repair or replacement of
damaged assets from the proceeds of insurance with respect thereto; or (iv)
enter into or materially amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this Section
4.01(e);
(f) (i) increase the compensation or severance payable or to become
payable to its directors, officers or employees, except for increases in
salary or wages of employees of the Company or its subsidiaries in the
ordinary course of business; (ii) grant any severance or termination pay to
any director, officer or employee of the Company or any of its subsidiaries
(except to make payments required to be made under obligations existing on
the date hereof in accordance with the terms of such obligations); (iii)
enter into any employment or severance agreement with respect to which the
total annual compensation or the aggregated severance payments exceed
$150,000 with any
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prospective officer or employee of the Company or any of its subsidiaries;
(iv) enter into or modify any agreement with any director of the Company or
any of its subsidiaries; (v) establish, adopt, enter into or amend any
collective bargaining agreement, Company Employee Plan, trust, fund, policy
or arrangement for the benefit of any current or former directors, officers
or employees or any of their beneficiaries, except, in each case of this
clause, (x) as may be required by law or (y) as would not result in a
material increase in the cost of maintaining such collective bargaining
agreement, Company Employee Plan, trust, fund, policy or arrangement and
would not otherwise impose any material restraint on the business or
operations of the Company or any of its subsidiaries;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable), except in the ordinary course of business or as required by
law or GAAP;
(h) make any tax election or settle or compromise any United States
federal, state, local or non-United States tax liability if the effect
thereof would be adverse in any material respect to the Company;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
except for the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the financial
statements contained in the Company SEC Reports filed prior to the date of
this Agreement or incurred in the ordinary course of business and except
for any other payment, discharge or satisfaction in an amount not to exceed
$75,000 in the aggregate, which settlement, discharge or satisfaction, in
either such case, provides for a complete release for the Company and its
subsidiaries and which imposes no obligation on the Company and its
subsidiaries other than the payment of money as aforesaid;
(j) make any loan to any director, officer, employee or independent
contractor of the Company or any of its subsidiaries, with the exception of
loans made in order to effect a cashless exercise of any Stock Option in
accordance with its terms or the terms of the plan under which it was
granted or advances for expenses in the ordinary course of business; or
(k) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (j) above.
Section 4.02. No Solicitation.
(a) The Company shall not, directly or indirectly, through any
officer, director, representative or agent of the Company or any of its
subsidiaries, and the Company shall use its best efforts to ensure that the
employees of the Company and its subsidiaries do not, solicit or encourage
the initiation of (including by way of furnishing information) any
inquiries or proposals regarding any merger, sale of assets, sale of shares
of capital stock (including, without limitation, by way of a tender offer)
or similar transactions involving the Company or any subsidiaries of the
Company that if consummated would constitute an Alternative Transaction (as
defined in Section 7.01) (any of the foregoing inquiries or proposals being
referred to herein as an "Acquisition Proposal"). Nothing contained in this
Agreement shall prevent the Board of Directors of the Company from (i)
furnishing information to a third party which has made a bona fide
Acquisition Proposal that is a Superior Proposal (as defined below) not
solicited in violation of this Agreement, provided that such third party
has executed an agreement with confidentiality provisions substantially
similar to those then in effect between the Company and Parent (except that
such agreement may permit such third party, consistent with the other terms
hereof, to present one or more further proposals to the Board of Directors
of the Company), (ii) subject to compliance with the other terms of this
Section 4.02, including Section 4.02(c), considering and negotiating a bona
fide Acquisition Proposal that is a Superior Proposal not solicited in
violation of this Agreement, (iii) following receipt of an Acquisition
Proposal, taking and disclosing to its stockholders a position as required
by Rules 14d-9 and 14e-2(a)
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of the Exchange Act or otherwise making disclosure to the Company's
stockholders to the extent required by applicable law and (iv) following
receipt of an Acquisition Proposal that is a Superior Proposal, modifying
its recommendations referred to in Section 5.02 (subject to the terms of
such Section 5.02); provided, however, that, as to each of clauses (i) and
(ii), (x) such actions occur at a time prior to approval of the Merger and
this Agreement at the Company Stockholders Meeting (or, if the Merger has
not been consummated within 30 days after the Company Stockholders Meeting
(except by reason of the Company's failure to fulfill any obligation under
this Agreement), such actions occur more than 30 days after such Company
Stockholders Meeting) and (y), as to each of clauses (i), (ii), (iii) and
(iv), the Board of Directors of the Company determines in good faith (on
the advice of independent counsel), that there is a reasonable risk that
the Board of Directors would be required to do so in order to discharge
properly its fiduciary duties. For purposes of this Agreement, a "Superior
Proposal" means any proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, all of
the equity securities of the Company entitled to vote generally in the
election of directors or all or substantially all the assets of the
Company, on terms which the Board of Directors of the Company in good faith
determines to be more favorable from a financial point of view to its
stockholders than the Merger and the transactions contemplated by this
Agreement taking into account at the time of determination any changes to
the financial terms of this Agreement proposed by Parent.
(b) The Company shall promptly notify Parent and Merger Sub after
receipt of any Acquisition Proposal, or any modification of or amendment to
any Acquisition Proposal, or any request for nonpublic information relating
to the Company or any of its subsidiaries in connection with an Acquisition
Proposal or for access to the properties, books or records of the Company
or any subsidiary by any person or entity that informs the Board of
Directors of the Company or such subsidiary that it is considering making,
or has made, an Acquisition Proposal. Such notice shall be made orally and
in writing, and shall indicate the identity of the person making the
Acquisition Proposal or intending to make an Acquisition Proposal or
requesting non-public information or access to the books and records of the
Company, the terms of any such Acquisition Proposal or modification or
amendment to an Acquisition Proposal, and whether the Company is providing
or intends to provide the person making the Acquisition Proposal with
access to information concerning the Company as provided in Section
4.02(a). The Company shall also immediately notify Parent and Merger Sub,
orally and in writing, if it enters into negotiations concerning material
terms and conditions of any Acquisition Proposal.
(c) Except to the extent the Board of Directors of the Company
determines in good faith (on the advice of independent counsel) that there
is a reasonable risk that the Board of Directors would be required to act
to the contrary in order to discharge properly its fiduciary duties (and,
with respect to the approval, recommendation or entering into any
understanding with respect to any Acquisition Proposal, it may take such
contrary action only after the second business day following Parent's and
Merger Sub's receipt of written notice of the Board of Directors' intention
to do so), neither the Company nor the Board of Directors of the Company
shall withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Parent or Merger Sub, the approval by such Board of Directors of
this Agreement or the Merger; provided, however, that in all events, unless
this Agreement has been terminated in accordance with its terms, the Merger
and this Agreement shall be submitted for approval and adoption by the
Company's stockholders at the Company Stockholders Meeting and the Board of
Directors shall not recommend that stockholders vote against approval of
the Merger and adoption of this Agreement.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent
and Merger Sub) conducted heretofore with respect to any of the foregoing.
The Company agrees not to release any third party from the confidentiality
and standstill provisions of any agreement to which the Company is a party.
Unless this
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Agreement has been terminated in accordance with its terms, the Company
shall not redeem the Rights or waive or amend any provision of the Rights
Agreement to permit or facilitate the consummation of any Acquisition
Proposal or Alternative Transaction.
(e) The Company shall ensure that the officers and directors
investment banker or other advisor or representative retained by the
Company are aware of the restrictions described in this Section 4.02.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Proxy Statement. As promptly as practicable after the
execution of this Agreement, the Company (subject to reasonable review by and
consultation with Parent) shall prepare and file with the SEC) preliminary proxy
materials which shall constitute the Proxy Statement. As promptly as practicable
after comments are received from the SEC thereon and after the furnishing by the
Company (subject to reasonable review by and consultation with Parent) of all
information required to be contained therein, the Company and Parent shall file
with the SEC the definitive Proxy Statement relating to the approval of the
Merger and the adoption of this Agreement by the stockholders of the Company
pursuant to this Agreement.
Section 5.02. Company Stockholders Meeting. The Company shall call the
Company Stockholders Meeting as promptly as practicable for the purpose of
voting upon the approval of the Merger and adoption of the Merger Agreement (the
"Company Stockholder Approval"), and the Company shall use its reasonable best
efforts to hold the Company Stockholders Meeting by June 30, 2000. The Proxy
Statement shall include the recommendation of the Board of Directors of the
Company in favor of this Agreement and the Merger. The Company shall solicit
from its stockholders proxies in favor of approval of this Agreement and the
Merger and shall take all other reasonable action necessary or advisable to
secure the vote or consent of stockholders in favor of such approval.
Notwithstanding anything to the contrary herein, the Company shall not be
obligated to take any of the actions set forth in the two preceding sentences of
this Section 5.02 (but not the first sentence of this Section 5.02) to the
extent that the Board of Directors of the Company determines in good faith (on
the advice of independent counsel) that there is a reasonable risk that any such
action would be inconsistent with the proper discharge of its fiduciary duties;
provided, however, that in no event shall the Board of Directors recommend that
the Company's stockholders vote against approval of the Merger and adoption of
the Merger Agreement at the Company Stockholders Meeting unless this Agreement
has been terminated in accordance with its terms.
Section 5.03. Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements or
court orders to which such party is subject (from which the Company shall use
reasonable efforts to be released), the Company shall (and shall cause its
subsidiaries to) (i) afford to the officers, employees, accountants, counsel and
other representatives (collectively the "Representatives") of Parent and,
subject to reasonable confidentiality requirements, its financing sources
reasonable access, upon reasonable prior notice and during normal business hours
during the period after the execution and delivery of this Agreement and prior
to the Effective Time, to its properties, books, contracts, commitments and
records but only to the extent that such access does not unreasonably interfere
with the business and operations of the Company and its Subsidiaries and (ii)
during such period, furnish promptly to Parent all other information concerning
its business, properties and personnel as Parent may reasonably request, and
shall make available to Parent the appropriate individuals (including attorneys,
accountants and other professionals) for discussion of its business, properties
and personnel as Parent may reasonably request. Each party shall keep such
information confidential, and shall cause their respective Representatives to
keep such information confidential in accordance with the terms of the existing
confidentiality letters (the "Confidentiality Letters"), between Parent and the
Company.
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Section 5.04. Consents; Approvals. Each of the Company, Parent and Merger
Sub each use commercially reasonable efforts to obtain all consents, waivers,
approvals, authorizations or orders (including, without limitation, all United
States and non-United States governmental and regulatory rulings and approvals),
and the Company, Merger Sub and Parent shall make all filings (including,
without limitation, all filings with United States and non-United States
governmental or regulatory agencies) required in connection with the
authorization, execution and delivery of this Agreement by the Company, Merger
Sub and Parent and the consummation by them of the transactions contemplated
hereby. The Company, Merger Sub and Parent shall furnish all information
required to be included in the Proxy Statement or for any application or other
filing to be made pursuant to the rules and regulations of any United States or
non-United States governmental body in connection with the transactions
contemplated by this Agreement. The Company, Merger Sub and Parent shall fully
cooperate with each other in order to obtain all consents, waivers, approvals,
authorizations or orders and to make all required filings in connection
therewith.
Section 5.05. Indemnification and Insurance.
(a) The Certificate of Incorporation and By-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification
set forth in the Company's Charter Documents, which provisions shall not be
amended, modified or otherwise repealed for a period of seven years from
the Effective Time in any manner that would adversely affect the rights
thereunder as of the Effective Time of individuals who at the Effective
Time were directors, officers, employees or agents of the Company, unless
such modification is required after the Effective Time by law and then only
to the minimum extent required by such law.
(b) The Parent and Surviving Corporation shall, to the fullest extent
permitted under applicable law or under the Surviving Corporation's
Certificate of Incorporation or By-laws, indemnify and hold harmless, each
present and former director, officer or employee of the Company or any of
its subsidiaries (collectively, the "Indemnified Parties") against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, (x) arising out
of or pertaining to (in whole or in part) the transactions contemplated by
this Agreement or (y) otherwise with respect to (in whole or in part) any
acts or omissions occurring at or prior to the Effective Time, to the same
extent as provided in the Company's Charter Documents or any applicable
contract or agreement set forth in the Company Disclosure Schedule, as in
effect on the date hereof, in each case for a period of seven years after
the date hereof. In the event of any such claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time) and
subject to the specific terms of any indemnification contract, (i) any
counsel retained by the Indemnified Parties for any period after the
Effective Time shall be reasonably satisfactory to the Surviving
Corporation, (ii) the Parent and Surviving Corporation shall pay expenses
in advance of the final disposition of any such claim, action, suit,
proceeding or investigation to each Indemnified Party to the full extent
permitted by applicable law, provided that the person to whom expenses are
advanced provides an undertaking to repay such advance if it is ultimately
determined that such person is not entitled to indemnification, (iii) after
the Effective Time, the Parent and the Surviving Corporation shall pay the
reasonable fees and expenses of such counsel, promptly after statements
therefor are received and (iv) the Surviving Corporation will use all
commercially reasonable efforts to assist in the vigorous defense of any
such matter; provided, however, that the Surviving Corporation shall not be
liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); and provided, further, that,
in the event that any claim or claims for indemnification are asserted or
made within such seven-year period, all rights to indemnification in
respect of any such claim or claims shall continue until the disposition of
any and all such claims. The Indemnified Parties as a group may retain only
one law firm to represent them in each applicable jurisdiction with respect
to any single action unless there is,
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under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified
Parties, in which case each Indemnified Person with respect to whom such a
conflict exists (or group of such Indemnified Persons who among them have
no such conflict) may retain one separate law firm in each applicable
jurisdiction.
(c) The Surviving Corporation shall honor and fulfill in all respects
the obligations of the Company pursuant to indemnification agreements and
employment agreements set forth in the Company Disclosure Schedule, (the
employee parties under such agreements being referred to as the "Officer
Employees") with the Company's directors and officers (including former
directors and officers) existing at or before the Effective Time, provided
such agreements have not been entered into or modified in violation of
Section 4.01(f).
(d) In addition, Parent will provide, or cause the Surviving
Corporation to provide, for a period of not less than six years after the
Effective Time, the Company's current directors and officers an insurance
and indemnification policy with a reputable and financially sound insurer
that provides coverage for events occurring at or prior to the Effective
Time (the "D&O Insurance") that is no less favorable than the policy
maintained by the Company and its Subsidiaries as of the date hereof or, if
substantially equivalent insurance coverage is unavailable, the most
generally favorable coverage reasonably available; provided, however, that
Parent and the Surviving Corporation, in the aggregate, shall not be
required to pay an annual premium for the D&O Insurance in excess of 150%
of the annual premium currently paid by the Company for such insurance
(plus a percentage equal to any cumulative increase in annual premiums for
the same period in any D&O Insurance policy maintained by Parent), but in
such case shall purchase as much such coverage as is reasonably available
for such amount.
(e) From and after the Effective Time, Parent shall unconditionally
guarantee the timely payment of all funds owing by, and the timely
performance of all other obligations of, the Surviving Corporation under
this Section 5.05.
(f) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, the Officer Employees and their
respective heirs and legal representatives, shall be binding on all
successors and assigns of the Surviving Corporation and shall be
enforceable by the Indemnified Parties.
(g) In the event the Company, Parent or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) transfers all
or substantially all of its properties and assets to any person, then, and
in each such case, proper provision shall be made so that the successors
and assigns of the Company, Parent or the Surviving Corporation, as the
case may be, or at Parent's option, Parent, shall assume the obligations
set forth in paragraphs (a) and (b) of this Section.
Section 5.06. Notification of Certain Matters. The Company shall give
prompt notice to Parent and Merger Sub, and Parent and Merger Sub shall give
prompt notice to the Company, of (i) the occurrence or nonoccurrence of any
event the occurrence or nonoccurrence of which would reasonably be expected to
cause any representation or warranty of the notifying party contained in this
Agreement to be materially untrue or inaccurate, or (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
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Section 5.07. Further Action.
(a) Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use all commercially reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and
to effect all necessary registrations and filings, and otherwise to satisfy
or cause to be satisfied all conditions precedent to its obligations under
this Agreement. The foregoing covenant shall not include any obligation by
Parent to agree to divest, abandon, license or take similar action with
respect to any material assets (tangible or intangible) of Parent or the
Company or any of their subsidiaries. The term "material" for purposes of
the preceding sentence means any assets to which are attributable annual
revenues in an amount equal to 10% or more of the Company's annual revenues
for the fiscal year ended December 31, 1999.
(b) Without limitation the generality of the foregoing, the Company
will provide, and will cause its subsidiaries and its and their respective
officers, employees and advisors to provide (at the sole cost and expense
of Parent), all reasonable cooperation in connection with the arrangement
of any equity investment and debt financing proposed to be consummated by
Parent substantially contemporaneously with the closing referred to in
Section 1.02 in respect of the transactions contemplated by this Agreement,
or thereafter, including, without limitation, (x) participation in
meetings, due diligence sessions and "road shows," (y) the preparation of
offering memoranda, private placement memoranda, and similar documents, and
(z) the execution and delivery of any customary commitment letters,
documents, or other requested certificates or documents, including comfort
letters of accountants and legal opinions, in each case as may be
reasonably requested by Parent or Merger Sub, provided that the form and
substance of any of the documents referred to in clause (y), and the terms
and conditions of any of the agreements and other documents referred to in
clause (z), shall be consistent with the consummation by Parent of the
transactions contemplated by this Agreement. In connection with the
foregoing, Parent hereby agrees to indemnify, defend and hold harmless, to
the same extent, in the same manner and subject to the same limitations set
forth in Section 5.05, each person participating in any such activities
from and against any and all costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to such
participation, except in the case of such person's bad faith, willful
misconduct or gross negligence.
(c) Neither Parent nor Merger Sub, on one hand, nor the Company nor
any of its subsidiaries, on the other, shall take any action which the
officer or director authorizing such action believes or should reasonably
believe (x) would make any of the representations or warranties of any such
party contained in this Agreement materially untrue or incorrect or (y)
prevent any such party from performing or cause such party not to perform
its covenants hereunder (other than, in the case of the Company, actions
permitted by Section 4.02).
Section 5.08. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or making any written public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which shall not be unreasonably withheld; provided, however,
that either party may, without the prior consent of the other, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the applicable rules and regulations of the New York Stock
Exchange or the American Stock Exchange, as the case may be, if it has used all
reasonable efforts to consult with the other party.
Section 5.09. Conveyance Taxes. Parent, Merger Sub and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding
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any real property transfer or gains, sales, use, transfer, value added, stock
transfer and stamp taxes, any transfer, recording, registration and other fees,
and any similar taxes which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed on or before the
Effective Time, and the Surviving Corporation shall be responsible for the
payment of all such taxes and fees.
Section 5.10. Option Plans and Benefits, Etc.
(a) Prior to the Effective Time, the parties to this Agreement shall
take all such actions as shall be necessary to effectuate the provisions of
Section 1.09, including without limitation, timely action by the Board of
Directors of the Company, if any is required, in accordance with the
applicable option plans to elect to pay holders of Company Options, upon
any exercise thereof, the applicable cash amount in lieu of delivery of the
Shares and take any additional action required to ensure that no such
Company Options remain otherwise outstanding after the Effective Time (in
each case, including, without limitation, Company Options granted under the
Company's non-employee Directors Plan).
(b) Parent shall either (i) cause the Company Employee Plans in effect
at the date of this Agreement to remain in effect until the third
anniversary of the Effective Time or (ii) maintain until such date,
employee benefit plans which in the aggregate, provide a substantially
similar level of benefits as those provided under comparable Company
Employee Plans with respect to employees of the Company covered under such
plans as of the date of this Agreement; provided, however, that the
foregoing shall not apply to any provisions of any Company Employee Plan
under which employees may receive, or under which employee benefits are
based on, Company Common Stock or to the extent inconsistent with any
employment agreement with any employee.
(c) Parent shall, and shall cause the Surviving Corporation to, honor
without modification all employee severance plans (or policies) and
employment and severance agreements of the Company or any of its
Subsidiaries (i) which have been delivered to Parent prior to the execution
and delivery of this Agreement, or (ii) which are hereafter entered into
accordance with Section 4.01 of the Company Disclosure Schedule as such
agreements shall be in effect in accordance with the terms of this
Agreement at the Effective Time.
Section 5.11. Rights Agreement. The Board of Directors of the Company
shall take all further action (in addition to that referred to in Section 2.22),
if any, necessary in order to render the Rights (as defined in the Rights
Agreement) inapplicable to the Merger and the other transactions contemplated by
this Agreement (including any financing in connection therewith).
Section 5.12. Accountant's Letters. Upon reasonable notice from Parent,
the Company shall use reasonable efforts to cause Ernst & Young LLP to deliver
to Merger Sub, a letter covering such matters as are reasonably requested by
Parent, and as are customarily addressed in accountants' "comfort letters."
Section 5.13. Standstill. Each of Parent, on one hand, and the Company,
on the other hand, agrees that until the expiration of six months from the date
of termination of this Agreement, without the prior written consent of the other
party, it will not (a) in any manner acquire, agree to acquire or make any
proposal to acquire, directly or indirectly (i) a substantial portion of the
assets of the other party and its subsidiaries taken as a whole or (ii) five
percent (5%) or more of the issued and outstanding shares of common stock of the
other party, (b) make or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" (as such terms are used in the proxy rules of the
SEC) to vote, or seek to advise or influence any person with respect to the
voting of, any voting securities of the other party or any of its subsidiaries
or (c) form, join or in any way participate in a "group" (within the meaning of
Section 13(d) of the Exchange Act) with respect to any voting securities of the
other party or any of its subsidiaries.
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ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01. Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company;
(b) Antitrust. All waiting periods applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated, and all
clearances and approvals required to be obtained in respect of the Merger
prior to the Effective Time under any Non-U.S. Monopoly Laws shall have
been obtained, except where the failure to have obtained any such
clearances or approvals with respect to any Non-U.S. Monopoly Laws could
not reasonably be expected to have a Material Adverse Effect on the
Company, Parent or their respective subsidiaries;
(c) Governmental Actions. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or
other inquiry that is reasonably likely to result in such an action or
proceeding) by any governmental authority or administrative agency before
any governmental authority, administrative agency or court of competent
jurisdiction, United States or non-United States, that is reasonably likely
to result in an order, nor shall there be in effect any judgment, decree or
order of any governmental authority, administrative agency or court of
competent jurisdiction, or any other legal restraint (i) preventing or
seeking to prevent consummation of the Merger or (ii) as a condition to the
obligations of Parent and Merger Sub, prohibiting or seeking to prohibit,
or limiting or seeking to limit, Parent from exercising all material rights
and privileges pertaining to its ownership of the Surviving Corporation or
any investor in Parent from owning and exercising all material rights and
privileges pertaining to its ownership of its interest therein or the
ownership or operation by Parent or any of its subsidiaries of all or a
material portion of the business or assets of the Surviving Corporation and
its subsidiaries, or compelling or seeking to compel Parent or any of its
subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Parent or any of its subsidiaries (including the
Surviving Corporation and its subsidiaries), as a result of the Merger or
the transactions contemplated by this Agreement; and
(d) Illegality. No statute, rule, regulation or order shall be
enacted, entered, enforced or deemed applicable to the Merger which makes
the consummation of the Merger illegal.
Section 6.02. Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all respects (without for this purpose giving effect to
qualifications of materiality contained in such representations and
warranties) on and as of the Effective Time, with the same force and effect
as if made on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall have been
true and correct as of such date, subject to clause (iii)), or (iii) where
the failure to be true and correct would not, individually or in the
aggregate with all other such failures, have a Material Adverse Effect, and
Parent and Merger Sub shall have received a certificate of the Company to
such effect signed by the Chief Executive Officer or Chief Financial
Officer of the Company;
(b) Agreements and Covenants. The Company shall in all material
respects have performed or complied with the agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent and Merger Sub shall have received
a
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certificate to such effect signed by the Chief Executive Officer or Chief
Financial Officer of the Company; and
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company, except where the
failure to receive such consents, waivers, approvals, authorizations or
orders would not, individually or in the aggregate with all other such
failures, have a Material Adverse Effect on the Company or Parent.
(d) Rights Agreement. A Distribution Date shall not have occurred
under the Rights Agreement.
Section 6.03. Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement (other than
those set forth in Sections 3.03(iii) or 3.04) shall be true and correct in
all respects (without for this purpose giving effect to qualifications of
materiality contained in such representations and warranties) on and as of
the Effective Time, with the same force and effect as if made on and as of
the Effective Time, except for (i) changes contemplated by this Agreement,
(ii) those representations and warranties which address matters only as of
a particular date (which shall have been true and correct as of such date,
subject to clause (iii)), or (iii) where the failure to be true and correct
would not, individually or in the aggregate with all other such failures,
have a Material Adverse Effect, and the Company shall have received a
certificate to such effect signed by the Chief Executive Officer or Chief
Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall in all
material respects have performed or complied with the agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate of Parent and Merger Sub to such effect signed by the Chief
Executive Officer or Chief Financial Officer of Parent and the President or
Vice President of Merger Sub;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent or Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent or Merger
Sub, except where the failure to receive such consents, waivers, approvals,
authorizations or orders would not, individually or in the aggregate with
all other such failures, have a Material Adverse Effect on the Company or
Parent;
(d) Financial Advisor Opinion. The opinion from Salomon Smith Barney
Inc. referred to in Section 2.21 shall not have been withdrawn as of the
date of the Proxy Statement; and
(e) Solvency. The Company shall have received from an investment
banking or accounting firm satisfactory to the Company an opinion in form
and substance satisfactory to the Company to the effect that the
consummation by Parent and Merger Sub of the transactions contemplated by
this Agreement, including, without limitation, the entering into of any
financing agreement which may be necessary in connection therewith, will
not render Parent or the Surviving Corporation insolvent or unable to pay
its obligations as they mature.
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ARTICLE VII
TERMINATION
Section 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by September 30, 2000 (other than for the reasons set forth in
clause (d) below); provided, however, that the right to terminate this
Agreement under this Section 7.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
principal cause of, or resulted in, the failure of the Merger to be
consummated on or prior to such date; or
(c) by either Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission having authority with respect thereto shall have issued a
nonappealable final order, decree or ruling or taken any other
nonappealable final action having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
(d) by Parent if the Company Stockholders Meeting has not been held by
July 31, 2000 or by Parent or the Company if the stockholders of the
Company shall not have approved the Merger and adopted this Agreement at
the Company Stockholders Meeting; or
(e) by Parent, if, whether or not permitted to do so by this
Agreement, the Board of Directors of the Company or the Company shall (x)
(i) withdraw, modify or change its approval or recommendation of this
Agreement or the Merger in a manner adverse to Parent; (ii) approve or
recommend to the stockholders of the Company an Alternative Transaction; or
(iii) approve or recommend that the stockholders of the Company tender
their shares in any tender or exchange offer that is an Alternative
Transaction, or (y) take any position or make any disclosures to the
Company's stockholders permitted pursuant to Section 4.02 which has the
effect of any of the foregoing; or
(f) by the Company, in order to accept a Superior Proposal, provided
that the Merger and this Agreement shall not theretofore have been approved
at the Company Stockholders Meeting, the Board of Directors of the Company
determines in good faith (on the advice of independent counsel), that there
is a reasonable risk that it would be required to accept such proposal in
order to discharge properly its fiduciary duties, the Company shall in fact
accept such proposal, and the Company shall have complied in all respects
with the provisions of Section 4.02; or
(g) by Parent or the Company, if any representation or warranty of the
Company, or Parent and Merger Sub, respectively, set forth in this
Agreement shall be untrue in any material respect when made, such that the
conditions set forth in Section 6.02(a) or 6.03(a), as the case may be,
would not be satisfied (in each case, a "Terminating Misrepresentation");
provided that, if such Terminating Misrepresentation is curable prior to
September 30, 2000 by the Company or Parent, as the case may be, through
the exercise of its reasonable best efforts to eliminate, undo or reverse
the event or circumstance giving rise to such Terminating Misrepresentation
and for so long as the Company or Parent, as the case may be, continues to
exercise such reasonable best efforts, neither Parent nor the Company,
respectively, may terminate this Agreement under this Section 7.01(g); or
(h) by Parent, if any representation or warranty of the Company shall
have become untrue in any material respect such that the condition set
forth in Section 6.02(a) would not be satisfied, or by the Company, if any
representation or warranty of Parent and Merger Sub shall have become
untrue in any material respect such that the condition set forth in Section
6.03(a) would not be satisfied (in each case, a "Terminating Change"), in
either case other than by reason of a Terminating Breach (as
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hereinafter defined); provided that, if any such Terminating Change is
curable prior to September 30, 2000 by the Company or Parent, as the case
may be, through the exercise of its reasonable best efforts, and for so
long as the Company or Parent, as the case may be, continues to exercise
such reasonable best efforts, neither Parent nor the Company, respectively,
may terminate this Agreement under this Section 7.01(h); or
(i) by Parent or the Company, upon a material breach of any covenant
or agreement on the part of the Company or Parent, respectively, set forth
in this Agreement such that the conditions set forth in Section 6.02(b) or
6.03(b), as the case may be, would not be satisfied (in each case, a
"Terminating Breach"); provided that, except for any breach of the
Company's obligations under Section 4.02, if such Terminating Breach is
curable prior to September 30, 2000 by the Company or Parent, as the case
may be, through the exercise of its reasonable best efforts and for so long
as the Company or Parent, as the case may be, continues to exercise such
reasonable best efforts, neither Parent nor the Company, respectively, may
terminate this Agreement under this Section 7.01(i).
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "Third Party") acquires or would acquire more than 20% of the
outstanding shares of any class of equity securities of the Company, whether
from the Company or pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger or other business combination involving the Company pursuant to
which any Third Party acquires more than 20% of the outstanding equity
securities of the Company or the entity surviving such merger or business
combination, or (iii) any transaction pursuant to which any Third Party acquires
or would acquire control of assets (including for this purpose the outstanding
equity securities of subsidiaries of the Company and securities of the entity
surviving any merger or business combination including any of the Company's
subsidiaries) of the Company, or any of its subsidiaries, having a fair market
value (as determined by the Board of Directors of the Company in good faith)
equal to more than 20% of the fair market value of all the assets of the Company
and its subsidiaries, taken as a whole, immediately prior to such transaction,
or (iv) any other material consolidation, business combination,
recapitalization, redemption, extraordinary dividend or similar transaction
involving the Company or any of the Company Significant Subsidiaries (other than
any acquisition by the Company, for fair market value, of any business, or any
equity interest therein, having a fair market value (as determined by the Board
of Directors of the Company in good faith) equal to no more than 20% of the fair
market value of all the assets of the Company and its subsidiaries, taken as a
whole, immediately prior to such transaction), other than the transactions
contemplated by this Agreement; provided, however, that the term Alternative
Transaction shall not include any acquisition of securities by a broker dealer
in connection with a bona fide public offering of such securities. In the case
of any Alternative Transaction which has not, directly or indirectly, through
any officer, director, employee, representative or agent of the Company or any
of its subsidiaries, been solicited or encouraged by the Company, and which the
Board of Directors of the Company has rejected, recommended that stockholders of
the Company do not accept or approve, and used reasonable best efforts in good
faith to prevent, each reference to the figure 20% in the preceding sentence
shall refer instead to the figure 35%.
Section 7.02. Effect of Termination. In the event of the valid
termination of this Agreement pursuant to Section 7.01, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto or any of its affiliates, directors, officers or stockholders except that
(i) the Company or Parent or Merger Sub may have liability as set forth in
Section 5.07, Section 7.03 and Section 8.01 hereof, and (ii) nothing herein
shall relieve the Company, Parent or Merger Sub from liability for any willful
material breach hereof (it being understood that the mere existence of a
Material Adverse Effect, by itself, shall not constitute such a willful material
breach).
Section 7.03. Parent's Fees and Expenses.
(a) Except as set forth in this Section 7.03, all fees and expenses
incurred by Parent and/or Merger Sub in connection with this Agreement and
the transactions contemplated hereby shall be
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paid by Parent and/or Merger Sub, whether or not the Merger is consummated;
provided, however, that Parent and the Company shall share equally all SEC
filing fees and printing expenses incurred in connection with the printing
and filing of the Proxy Statement (including any preliminary materials
related thereto) and any amendments or supplements thereto.
(b) The Company shall pay to Parent (x) Parent's and Merger Sub's
respective actual, documented and reasonable out-of-pocket expenses,
relating to the transactions contemplated by this Agreement (including, but
not limited to, reasonable fees and expenses of counsel and accountants,
commitment fees with respect to the Financing and out-of-pocket expenses
and reasonable fees of financial advisors) ("Parent Expenses"), such
payment of Parent Expenses not to exceed $1,000,000, and (y) a fee of 3% of
the total of the Per Share Amounts respecting all the Shares (the "Parent
Fee"), in each case upon the first to occur of any of the following events:
(i) the termination of this Agreement by Parent or the Company
pursuant to Section 7.01(d) or (e)(i), provided that, if this Agreement
is terminated because the stockholders have not approved and adopted the
Merger and this Agreement at the Company's Stockholders Meeting, the
Parent Fee and Parent Expenses shall only be payable under this clause
(i) if there shall occur a Payment Trigger; or
(ii) the termination of this Agreement by Parent pursuant to clause
(x)(ii) or (x)(iii) of Section 7.01(e) or the corresponding application
of clause (y) thereof to clause (x)(ii) or (x)(iii); or
(iii) the termination of this Agreement by the Company pursuant to
Section 7.01(f); or
(iv) the termination of this Agreement by Parent pursuant to
Section 7.01(i) as a result of a willful breach by the Company; provided
that the Parent Fee and Parent Expenses shall only be payable under this
clause (iv) if there shall occur a Payment Trigger.
The term "Payment Trigger" means either (A) at the time of the Company
Stockholders Meeting, in the case of clause (i) above, or at the time of the
Terminating Breach, in the case of clause (iv) above, there shall be outstanding
or purport to be outstanding an Acquisition Proposal which has been made
directly to stockholders of the Company or has otherwise become publicly known
or known to holders of 10% or more of the Company Common Stock or there shall be
outstanding an announcement by any credible third party of an intention to make
an Acquisition Proposal which, in either case, would if consummated constitute
an Alternative Transaction, or (B) an Alternative Transaction shall be publicly
announced by the Company or any Third Party and such transaction shall be
consummated within twelve months following the date of termination of this
Agreement on substantially the terms so announced.
(c) Upon a termination of this Agreement by Parent pursuant to Section
7.01(g) or (i), the Company shall pay to Parent the Parent Expenses
relating to the transactions contemplated by this Agreement, but in no
event more than $1,000,000.
(d) The Parent Fee and/or Parent Expenses payable pursuant to Section
7.03(b) or Section 7.03(c) shall be paid within three business days after a
demand for payment following the first to occur of any of the events
described in Section 7.03(b) or Section 7.03(c).
(e) Parent agrees that the payments provided for in Section 7.03 shall
be the sole and exclusive remedies of Parent upon a termination of this
Agreement (but only, in the case of Sections 7.01(g) or (i), if the
Terminating Misrepresentation or Terminating Breach is not the result of
willful misconduct).
Section 7.04. Company's Fees and Expenses.
(a) Except as set forth in this Section 7.04, all fees and expenses
incurred by the Company in connection with this Agreement and the
transactions contemplated hereby shall be paid by the
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Company, whether or not the Merger is consummated; provided, however, that
the Company and Parent shall share equally all SEC filing fees and printing
expenses incurred in connection with the printing and filing of the Proxy
Statement (including any preliminary materials related thereto) and any
amendments or supplements thereto.
(b) Parent shall pay to the Company (x) the Company's actual,
documented and reasonable out-of-pocket expenses, relating to the
transactions contemplated by this Agreement (including, but not limited to,
reasonable fees and expenses of counsel and accountants, and out-of-pocket
expenses and reasonable fees of financial advisors) ("Company Expenses"),
such payment of Company Expenses not to exceed $1,000,000, and (y) a fee of
1% of the total of the Per Share Amounts respecting all the Shares (the
"Company Fee") upon the termination of this Agreement by Company pursuant
to Section 7.01(i) as a result of a willful breach by Parent or Merger Sub
of any material covenant herein contained.
(c) Upon a termination of this Agreement by the Company pursuant to
Section 7.01(g) or (i), the Parent shall pay to the Company the Company
Expenses relating to the transactions contemplated by this Agreement, but
in no event more than $1,000,000.
(d) The Company Expenses and/or Company Fee payable pursuant to
Section 7.04(b) or Section 7.04(c) shall be paid within three business days
after a demand for payment following the first to occur of any of the
events described in Section 7.04(b) or Section 7.04(c).
(e) The Company agrees that the payments provided for in Section 7.04
shall be the sole and exclusive remedies of the Company upon a termination
of this Agreement (but only, in the case of Sections 7.01(g) or (i), if the
Terminating Misrepresentation or Terminating Breach is not the result of
willful misconduct). The Company and Parent agree that the Company Fee and
Company Expenses shall be payable in the event that the Merger is not
consummated because Parent does not receive the proceeds of financing
therefor, in which case payment of the Company Fee and Company Expenses
shall be the Company's sole and exclusive remedy.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Effectiveness of Representations, Warranties and Agreements.
(a) Except as otherwise provided in this Section 8.01, the
representations, warranties and agreements of each party hereto shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers or directors, whether
prior to or after the execution of this Agreement. To the extent that as of
the date hereof (i) a Responsible Officer of Parent had actual knowledge
that any representation or warranty of the Company was untrue or incorrect
such that conditions to the obligations of Parent and Merger Sub to effect
the Merger pursuant to Section 6.02(a) would not be satisfied and (ii) no
Responsible Officer of the Company had actual knowledge that such
representation or warranty was untrue or incorrect, then the failure of
such representation or warranty to be true and correct in such respect
shall no longer be a condition to the obligations of Parent and Merger Sub
to effect the Merger. To the extent that as of the date hereof (i) a
Responsible Officer of the Company had actual knowledge that any
representation or warranty of Parent or Merger Sub was untrue or incorrect
such that the conditions to the Company's obligations to effect the Merger
pursuant to Section 6.03(a) would not be satisfied and (ii) no Responsible
Officer of Parent had actual knowledge that such representation or warranty
was untrue or incorrect, then the failure of such representation or
warranty to be true and correct in such respect shall no longer be a
condition to the Company's obligation to effect the Merger. The
representations, warranties and agreements in
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this Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Section 7.01, as the case may be,
except that the agreements set forth in Article I and this Article VIII and
Sections 5.05, 5.07 and 5.10 and any other agreement in this Agreement
which contemplates performance after the Effective Time shall survive the
Effective Time indefinitely in accordance with their terms and those set
forth in Sections 5.07(b), 5.13, 7.02 and 7.03 and this Article VIII shall
survive the termination of this Agreement. The provisions of the
Confidentiality Letters (except the "standstill" or similar provisions
therein limiting Parent from proposing or entering into certain
transactions or taking certain actions involving the Company or its
securities, which shall be superseded by Section 5.13 hereof) regarding the
non-disclosure of confidential information shall survive termination of
this Agreement.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule shall be deemed disclosed with respect to each
other section therein as to which such disclosure is relevant provided that
such relevance is reasonably apparent. Disclosure of any matter in the
Company Disclosure Schedule shall not be deemed an admission that such
matter is material. No statement contained in any certificate or schedule
required to be furnished by any party hereto pursuant to the provisions of
this Agreement, including the Company Disclosure Schedule shall contain any
untrue statement of material fact.
SECTION 8.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent:
Autotote Corporation
750 Lexington Avenue
25th Floor
New York, NY 10022
Attn: A. Lorne Weil, Chairman and Chief
Executive Officer
Telecopy: (212) 754-2372
Confirm: (212) 754-2233
With a copy to:
Autotote Corporation
750 Lexington Avenue
25th Floor
New York, NY 10022
Attn: Martin E. Schloss, Vice President and
General Counsel
Telecopy: (212) 754-2372
Confirm: (212) 754-2233
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attn: Peter G. Smith, Esq.
Telecopy: (212) 715-8000
Confirm: (212) 715-9100
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If to Merger Sub:
ATX Enterprises, Inc.
750 Lexington Avenue
25th Floor
New York, NY 10022
Attn: Martin E. Schloss
Telecopy: (212) 754-2372
Confirm: (212) 754-2233
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attn: Peter G. Smith, Esq.
Telecopy: (212) 715-8000
Confirm: (212) 715-9100
(b) If to the Company:
Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway
Alpharetta, GA 30004
Attn: William G. Malloy, Chairman, President
and Chief Executive Officer
Telecopy: (770) 343-8798
Confirm: (770) 664-3742
With a copy to:
Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway
Alpharetta, GA 30004
Attn: C. Gray Bethea, Vice President,
Secretary and General Counsel
Telecopy: (678) 297-5118
Confirm: (770) 664-3719
With a copy to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, Suite 3100
Atlanta, GA 30309
Attn.: Howard E. Turner, Esq.
Telecopy: (404) 685-6894
Confirm: (404) 815-3594
Section 8.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which banks in
New York are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the
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direction of the management or policies of a person, whether through the
ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise;
(d) "dollars" or "$" means United States dollars;
(e) "knowledge" or "best knowledge" means, with respect to any matter
in question, that the Responsible Officers of the Company or Parent or
Merger Sub, as the case may be, have or at any time had actual knowledge of
such matters. "Responsible Officers" for purposes of this definition means
the Chief Executive Officer, the President, any Executive or Senior Vice
President or Corporate Vice President, the Chief Financial Officer or the
General Counsel of any such person;
(f) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act); and
(g) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.
Section 8.04. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger and this Agreement by the stockholders of the Company, no
amendment may be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
Section 8.06. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.07. Severability.
(a) If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law or public policy,
all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon a determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled
to the extent possible.
(b) The Company and Parent agree that the Fee is fair and reasonable
in the circumstances. If a court of competent jurisdiction shall
nonetheless, by a final, non-appealable judgment, determine that the amount
of the Fee exceeds the maximum amount permitted by law, then the amount of
the Fee shall be reduced to the maximum amount permitted by law in the
circumstances, as determined by such court of competent jurisdiction.
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Section 8.08. Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letters, except to the extent specifically superseded hereby),
both written and oral, among the parties, or any of them, with respect to the
subject matters hereof and thereof, except as otherwise expressly provided
herein.
Section 8.09. Assignment. This Agreement shall not be assigned by
operation of law or otherwise, except that all or any of the rights of Parent
and/or Merger Sub hereunder may be assigned to any wholly-owned, direct or
indirect, subsidiary of Parent, provided that no such assignment shall relieve
the assigning party of its obligations hereunder.
Section 8.10. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, including, without limitation, by way of subrogation, other
than Section 5.05 (which is intended to be for the benefit of the Indemnified
Parties and Officer Employees and may be enforced by such Indemnified Parties
and Officer Employees).
Section 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
Section 8.12. Governing Law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Delaware applicable to contracts
executed and fully performed within the State of Delaware.
(b) Each of the parties hereto submits to the exclusive jurisdiction
of the state and federal courts of the United States located in the State
of Delaware with respect to any claim or cause of action arising out of
this Agreement or the transactions contemplated hereby.
(c) Each of the parties to this Agreement (i) consents to submit
itself to the personal jurisdiction of such court in the event that any
dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for
leave from any such court and (iii) agrees that it will not bring any
action in relation to this Agreement, the Merger or any of the other
transactions contemplated by this Agreement in any court other than such
court in the State of Delaware.
Section 8.13. Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 8.14. Waiver of Jury Trial. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 8.15. Performance of Obligations. Unless otherwise previously
performed, Parent shall cause Merger Sub to perform all of its obligations set
forth in this Agreement.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
AUTOTOTE CORPORATION
By: /s/
------------------------------------
Name:
Title:
ATX ENTERPRISES, INC.
By: /s/
------------------------------------
Name:
Title:
SCIENTIFIC GAMES HOLDINGS CORP.
By: /s/
------------------------------------
Name:
Title:
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(SALOMON SMITH BARNEY LOGO)
APPENDIX B
May 18, 2000
The Board of Directors
Scientific Games Holdings Corp.
1500 Bluegrass Lakes Parkway
Alpharetta, Georgia 30201
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the common stock of Scientific Games Holdings Corp.
("Scientific Games") of the Merger Consideration (defined below) provided for in
the Agreement and Plan of Merger, dated as of May 18, 2000 (the "Merger
Agreement"), among Autotote Corporation ("Autotote"), ATX Enterprises, Inc., a
wholly owned subsidiary of Autotote ("Merger Sub"), and Scientific Games. As
more fully described in the Merger Agreement, (i) Merger Sub will be merged with
and into Scientific Games (the "Merger") and (ii) each outstanding share of the
common stock, par value $0.001 per share, of Scientific Games (the "Scientific
Games Common Stock") will be converted into the right to receive $26.00 in cash
(the "Merger Consideration").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Scientific Games and certain senior officers and other
representatives and advisors of Autotote concerning the business, operations and
prospects of Scientific Games. We examined certain publicly available business
and financial information relating to Scientific Games as well as certain
financial forecasts for Scientific Games and other information and data for
Scientific Games which were provided to or otherwise discussed with us by the
management of Scientific Games. We reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the Scientific Games Common
Stock; the financial condition and historical and projected earnings and other
operating data of Scientific Games; and the capitalization of Scientific Games.
We considered, to the extent publicly available, the financial terms of other
transactions recently effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of Scientific Games. In connection with
our engagement, we were requested to approach, and we held discussions with,
third parties to solicit indications of interest in the possible acquisition of
Scientific Games. In addition to the foregoing, we conducted such other analyses
and examinations and considered such other financial, economic and market
criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us by Scientific
Games, we have been advised by the management of Scientific Games that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Scientific Games as to the future financial performance of
Scientific Games. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Scientific Games nor have we made any physical inspection of the properties
or assets of
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(SALOMON SMITH BARNEY LOGO)
The Board of Directors
Scientific Games Holdings Corp.
May 18, 2000
Page 2
Scientific Games. Our opinion expresses no view as to, and does not address, the
relative merits of the Merger as compared to any alternative business strategies
that might exist for Scientific Games or the effect of any other transaction in
which Scientific Games might engage. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to Scientific
Games in connection with the proposed Merger and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Merger. We and our affiliates have in the past provided investment banking
services to Scientific Games unrelated to the proposed Merger, for which
services we have received compensation. In the ordinary course of our business,
we and our affiliates may actively trade or hold the securities of Scientific
Games and Autotote for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with Scientific Games, Autotote and their respective
affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Scientific Games in its evaluation of
the proposed Merger, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the holders of Scientific Games Common
Stock.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
---------------------------------------------------------
SALOMON SMITH BARNEY INC.
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APPENDIX C
DISSENTERS' APPRAISAL RIGHTS
(SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW)
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262 -- Appraisal Rights. (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to sec.228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
non-stock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a non-stock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to sec.251 (other than a merger
effected pursuant to sec.251 (g) of this title), sec.252, sec.254,
sec.257, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement
of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by National Association
of Securities Dealers, Inc. or (ii) held of record by more than
2,000 holders; and further provided that no appraisal rights shall
be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval
the vote of the stockholders of the surviving corporation as
provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to sec.sec.251, 252, 254, 257, 258, 263 and 264 of this
title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts
in respect thereof) or depository receipts at the effective date
of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned
by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the
shares of any class or series of its stock as a result of an
amendment to its certificate of incorporation, any merger or
consolidation in which the corporation is a constituent corporation
or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth
in subsections (d) and (e) of this section, shall apply as nearly as
is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand
the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of
stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation.
Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either
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(i) each such constituent corporation shall send a second notice
before the effective date of the merger or consolidation notifying
each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving
or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days
prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof and
who is otherwise entitled to appraisal rights, may file a petition in
the Court of Chancery demanding a determination of the value of the
stock of all such stockholders. Notwithstanding the foregoing, at any
time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon
the merger or consolidation. Within 120 days after the effective date
of the merger or consolidation, any stockholder who has complied with
the requirements of subsections (a) and (d) hereof upon written
request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger
or consolidation and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving or
resulting corporation. If the petition shall be filed by the surviving
or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the
Court, shall give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of
the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the
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stockholders who have demanded an appraisal for their shares and who
hold stock represented by certificates to submit their certificates of
stock to the Register in Chancery for notation thereon of the pendency
of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of
the merger or consolidation, together with a fair rate of interest, if
any, to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court
may consider all relevant factors, including the rate of interest which
the surviving or resulting corporation would have had to pay to borrow
money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be
simple or compound, as the Court may direct. Payment shall be so made
to each such stockholder, in the case of holders of uncertificated
stock forthwith, and the case of holders of shares represented by
certificates upon the surrender to the corporation of the certificates
representing such stock. The Court's decree may be enforced as other
decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion
of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorney's fees and the fees and expenses of experts, to be charged pro
rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on
the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date
of the merger or consolidation); provided, however, that if no petition
for an appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the
right of such stockholder to an appraisal shall cease. Notwithstanding
the foregoing, no appraisal proceeding in the Court of Chancery shall
be dismissed as to any stockholder without the approval of the Court,
and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting
corporation.
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SCIENTIFIC GAMES HOLDINGS CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SCIENTIFIC GAMES HOLDINGS CORP. (THE "COMPANY")
IN CONNECTION WITH THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON AUGUST 8, 2000
The undersigned hereby appoints William G. Malloy, Cliff O. Bickell and C.
Gray Bethea, Jr., and each of them, with full power of substitution, as proxies
and attorneys-in-fact on behalf of and in the name of the undersigned to
represent the undersigned and to vote all shares of Scientific Games Holdings
Corp. common stock held of record by the undersigned at the close of business on
June 9, 2000 and entitled to vote at the Special Meeting of Stockholders of
Scientific Games Holdings Corp. to be held at the Atlanta Windward Hilton Garden
Inn, 4025 Windward Concourse, Alpharetta, Georgia 30005 at 9:00 A.M. local time,
on August 8, 2000, or at any adjournments or postponements thereof, on the
proposal for the approval and adoption of the Agreement and Plan of Merger dated
as of May 18, 2000 by and among Scientific Games Holdings Corp., Autotote
Corporation and ATX Enterprises, Inc. and the transactions contemplated thereby,
as described in the proxy statement for the Special Meeting, and upon such other
matters as may properly come before the Special Meeting.
This card also constitutes directions to the Trustee of the Scientific Games
Holdings Corp. 401(K) Plan and Retirement Savings Plan by participants in such
plan.
PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE: [X]
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IF
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE MERGER PROPOSAL.
(See reverse side)
The Board of Directors Recommends a Vote FOR the Merger Proposal.
1. Approval and Adoption of the Agreement and Plan of Merger and the
transactions Contemplated Thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
as further described in Scientific Games' Notice of Special Meeting of
Stockholders and Proxy Statement, receipt of which is hereby acknowledged.
2. In the discretion of the Proxies named herein, the Proxies are authorized to
vote upon other matters as may properly come before the meeting or any
adjournments or postponements thereof.
The signer hereby revokes all
Proxies heretofore given by the
signer to vote at said meeting or
any adjournments or postponements
thereof.
Please mark, then date and sign
this proxy, exactly as your
name(s) appear hereon, and return
this entire proxy card in the
enclosed postage paid envelope.
When shares are held by joint
tenants, both should sign. When
signing as attorney, as executor,
administrator, trustee, guardian
or in any other fiduciary
capacity, please give full title
as such. If a corporation, please
sign in full corporate name by the
president or other authorized
officer. If a partnership, please
sign in full partnership name by
authorized person.
Signed:
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Signed:
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Dated:
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